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The Mergers & Acquisitions Review Law Business Research Ninth Edition Editor Mark Zerdin
857
Appendix 1
ABOUT THE AUTHORS
THOMAS SACHERAshurst LLPThomas Sacher is a partner at Ashurst LLP since 1 July 2015. From 1986 through June 2015 Thomas Sacher was a member and, from 1992 through June 2015, partner of another German law firm. He studied law at the universities of Munich and Regensburg and received admission to the Bar in 1986. In 1990 he received a PhD (Dr jur) from the University of Regensburg.
Dr Sacher specialises in the areas of M&A, private equity and venture capital. He advises his national and international clients in a variety of corporate law matters related to domestic and cross-border transactions and provides legal advice on transformations, mergers, formation of joint ventures, stock option plans and other corporate transactions.
ASHURST LLPLudwigstraße 880539 MunichGermanyTel: +49 89 24 44 21 100Fax: +49 89 24 44 21 [email protected]
The Mergers & Acquisitions
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Law Business Research
Ninth Edition
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Mark Zerdin
The Mergers & Acquisitions Review
The Mergers & Acquisitions ReviewReproduced with permission from Law Business Research Ltd.
This article was first published in The Mergers & Acquisitions Review - Edition 9(published in August 2015 – editor Mark Zerdin)
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Editor’s Preface .................................................................................................xiii Mark Zerdin
Chapter 1 EU OVERVIEW .........................................................................1 Mark Zerdin
Chapter 2 EU COMPETITION OVERVIEW ..........................................11 Götz Drauz and Michael Rosenthal
Chapter 3 EUROPEAN PRIVATE EQUITY .............................................19 Thomas Sacher
Chapter 4 US ANTITRUST ......................................................................32Scott A Sher, Christopher A Williams and Bradley T Tennis
Chapter 5 CROSS-BORDER EMPLOYMENT ASPECTS OF INTERNATIONAL M&A .......................................................53
Marjorie Culver, Darren Gardner, Ming Henderson, Dominic Hodson and Peter Talibart
Chapter 6 M&A LITIGATION .................................................................67Mitchell A Lowenthal, Roger A Cooper and Matthew Gurgel
Chapter 7 AUSTRALIA .............................................................................74Braddon Jolley, Sandy Mak and Jaclyn Riley-Smith
Chapter 8 AUSTRIA ..................................................................................87Clemens Philipp Schindler
Chapter 9 BAHRAIN ................................................................................97Haifa Khunji and Natalia Kumar
CONTENTS
vi
Contents
Chapter 10 BELGIUM ..............................................................................110Olivier Clevenbergh, Gisèle Rosselle and Carl-Philip de Villegas
Chapter 11 BRAZIL...................................................................................122Moacir Zilbovicius and Rodrigo Ferreira Figueiredo
Chapter 12 BRITISH VIRGIN ISLANDS ................................................132Jacqueline Daley-Aspinall and Sarah Lou Rockhead
Chapter 13 CANADA ................................................................................143Robert Yalden, Emmanuel Pressman and Jeremy Fraiberg
Chapter 14 CAYMAN ISLANDS ..............................................................158Marco Martins
Chapter 15 CHINA ...................................................................................173Lu Yurui and Ling Qian
Chapter 16 COLOMBIA ...........................................................................187Sergio Michelsen Jaramillo
Chapter 17 COSTA RICA .........................................................................203John Aguilar Jr and Alvaro Quesada
Chapter 18 CYPRUS .................................................................................211Nancy Ch Erotocritou
Chapter 19 CZECH REPUBLIC ...............................................................218Lukáš Ševčík, Jitka Logesová and Bohdana Pražská
Chapter 20 DENMARK ............................................................................225Sebastian Ingversen and Nicholas Lerche-Gredal
Chapter 21 DOMINICAN REPUBLIC ....................................................236María Esther Fernández A de Pou, Mónica Villafaña Aquino and Laura Fernández-Peix Perez
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Contents
Chapter 22 ECUADOR .............................................................................246Diego Pérez-Ordóñez
Chapter 23 ESTONIA ...............................................................................257Sven Papp and Sven Böttcher
Chapter 24 FINLAND...............................................................................269Jan Ollila, Wilhelm Eklund and Jasper Kuhlefelt
Chapter 25 FRANCE .................................................................................281Didier Martin and Hubert Zhang
Chapter 26 GERMANY .............................................................................296Heinrich Knepper
Chapter 27 GIBRALTAR ...........................................................................309Steven Caetano
Chapter 28 GREECE .................................................................................321Cleomenis G Yannikas, Sophia K Grigoriadou and Vassilis S Constantinidis
Chapter 29 HONG KONG .......................................................................334Jason Webber
Chapter 30 HUNGARY .............................................................................344Levente Szabó and Klaudia Ruppl
Chapter 31 ICELAND ...............................................................................360Hans Henning Hoff
Chapter 32 INDIA .....................................................................................368Justin Bharucha
Chapter 33 INDONESIA ..........................................................................386Yozua Makes
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Chapter 34 ISRAEL ...................................................................................400Clifford Davis and Keith Shaw
Chapter 35 ITALY ......................................................................................410Maurizio Delfino
Chapter 36 JAPAN .....................................................................................422Hiroki Kodate and Masami Murano
Chapter 37 KENYA ...................................................................................431Joyce Karanja-Ng’ang’a, Wathingira Muthang’ato and Felicia Solomon Nyale
Chapter 38 KOREA ...................................................................................442Jong Koo Park, Bo Yong Ahn, Sung Uk Park and Young Min Lee
Chapter 39 LITHUANIA ..........................................................................457Giedrius Kolesnikovas and Michail Parchimovič
Chapter 40 LUXEMBOURG ....................................................................465Marie-Béatrice Noble, Raquel Guevara, Stéphanie Antoine
Chapter 41 MALAYSIA .............................................................................479Rosinah Mohd Salleh and Norhisham Abd Bahrin
Chapter 42 MALTA ...................................................................................491James Scicluna
Chapter 43 MAURITIUS ..........................................................................503Muhammad Reza Cassam Uteem and Basheema Farreedun
Chapter 44 MEXICO ................................................................................513Luis Burgueño and Andrés Nieto
Chapter 45 MONTENEGRO ...................................................................523Slaven Moravčević and Dijana Grujić
Contents
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Chapter 46 MYANMAR ............................................................................533Krishna Ramachandra and Benjamin Kheng
Chapter 47 NETHERLANDS ...................................................................544Carlos Pita Cao and François Koppenol
Chapter 48 NIGERIA ................................................................................557Lawrence Fubara Anga
Chapter 49 NORWAY ...............................................................................562Ole K Aabø-Evensen
Chapter 50 PANAMA ................................................................................600Andrés N Rubinoff
Chapter 51 PERU ......................................................................................611Emil Ruppert
Chapter 52 PHILIPPINES .........................................................................621Rafael A Morales, Philbert E Varona, Hiyasmin H Lapitan and Patricia A Madarang
Chapter 53 PORTUGAL ...........................................................................630Francisco Brito e Abreu and Joana Torres Ereio
Chapter 54 ROMANIA .............................................................................643Andreea Hulub, Ana-Maria Mihai and Vlad Ambrozie
Chapter 55 RUSSIA ...................................................................................657Scott Senecal, Yulia Solomakhina, Polina Tulupova, Yury Babichev and Alexander Mandzhiev
Chapter 56 SERBIA ...................................................................................675Matija Vojnović and Luka Lopičić
Chapter 57 SINGAPORE ..........................................................................685Lim Mei and Lee Kee Yeng
Contents
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Chapter 58 SLOVENIA .............................................................................694David Premelč, Bojan Šporar and Mateja Ščuka
Chapter 59 SOUTH AFRICA ...................................................................705Ezra Davids and Ashleigh Hale
Chapter 60 SPAIN .....................................................................................716Christian Hoedl and Javier Ruiz-Cámara
Chapter 61 SWITZERLAND ....................................................................732Lorenzo Olgiati, Martin Weber, Jean Jacques Ah Choon, Harun Can and David Mamane
Chapter 62 THAILAND ...........................................................................745Pakdee Paknara and Pattraporn Poovasathien
Chapter 63 TURKEY .................................................................................753Emre Akın Sait
Chapter 64 UNITED ARAB EMIRATES..................................................762DK Singh and Stincy Mary Joseph
Chapter 65 UNITED KINGDOM ...........................................................774Mark Zerdin
Chapter 66 UNITED STATES ..................................................................793Richard Hall and Mark Greene
Chapter 67 VENEZUELA .........................................................................834Guillermo de la Rosa, Juan D Alfonzo, Nelson Borjas E, Pedro Durán A and Maritza Quintero M
Chapter 68 VIETNAM ..............................................................................847Hikaru Oguchi, Taro Hirosawa, Ha Hoang Loc
Contents
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Appendix 1 ABOUT THE AUTHORS .....................................................857
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .....905
xiii
EDITOR’S PREFACE
By a number of measures, it could be argued that it has been some time since the outlook for the M&A market looked healthier. The past year has seen a boom in deal making, with many markets seeing post-crisis peaks and some recording all-time highs. Looking behind the headline figures, however, a number of factors suggest deal making may not continue to grow as rapidly as it has done recently.
One key driver affecting global figures is the widely expected rise of US interest rates. Cheap debt has played a significant part in the surge of US deal making in the first few months of 2015, and the prospects of a rate rise may have some dampening effects. However, the most recent indications from the Federal Reserve have suggested that any rise will be gradual and some market participants have pushed back predictions for the first rate rise to December 2015. Meanwhile, eurozone and UK interest rates look likely to remain low for some time further.
The eurozone returned to the headlines in June as the prospect of a Greek exit looked increasingly real. Even assuming Greece remains in the euro (as now seems likely), the crisis has severely damaged the relationship between Greece and its creditors. The brinksmanship exhibited by all parties means that meaningful progress cannot occur except at the conclusion of a crisis: the idea that reform will benefit Greece has been lost and each measure extracted by creditors is couched as a concession. However, while the political debate has become ever more fractious, the market’s response to the crisis has been relatively sanguine. This is largely a result of the fact that the volume of Greek debt is no longer in the market, but in the hands of institutions. But it is also a sign of the general market recovery and expectations that major economies will continue to grow.
Perhaps one of the more interesting emerging trends in the last year is the interplay between growth and productivity. Some commentators have suggested that the recent rise in deal making is a symptom of a climate in which businesses remain reluctant to invest in capital and productivity. Pessimistic about the opportunities for organic growth, companies instead seek to grow profits through cost savings on mergers. It is difficult to generalise about such matters: inevitably, deal drivers will vary from industry to industry, from market to market. However, if synergies have been the principal motivation in
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much of the year’s deal making (it certainly has been in a number of large-cap deals) then it may be that the market is a little farther from sustainable growth than some would like to think.
I would like to thank the contributors for their support in producing the ninth edition of The Mergers & Acquisitions Review. I hope that the commentary in the following chapters will provide a richer understanding of the shape of the global markets, together with the challenges and opportunities facing market participants.
Mark ZerdinSlaughter and MayLondonAugust 2015
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Chapter 10
BELGIUM
Olivier Clevenbergh, Gisèle Rosselle and Carl-Philip de Villegas1
I OVERVIEW OF M&A ACTIVITY
Belgium surfed cautiously along with the revival of the international M&A market in 2014. There were indeed many deals in which Belgian companies were involved. But from a mere total transaction value perspective, 2014 was an unremarkable year for M&A, with a disclosed total transaction value of approximately €26 billion for 2014, compared with €31 billion in 2013.
When analysing these M&A transactions more closely, however, one evolution appears to stand out. For 2013, an important number of deals were still closely related to the financial turmoil; two were even part of the top three. In 2014, however, the divestments by Belgian financial institutions have disappeared from the transaction statistics, leaving room again for industrial and strategic acquisitions by industrial players, as well as private equity players with a particular focus on certain niche markets.
The largest transaction for 2014 in terms of total transaction value is AB Inbev’s acquisition of Oriental Brewery, a south-Asian brewery, for €4.3 billion. The second largest transaction is Perrigo’s acquisition of Omega Pharma from founder and CEO Marc Coucke and private equity firm Waterland for €3.6 billion. Third on the top 10 list is the acquisition of the Belgian chemical company Taminco by Eastman Chemical for a total transaction value of €2.2 billion.
The Belgian capital markets continued to progress on the void of IPOs up to 2013, with four IPOs in 2014, compared with three in 2013. Even though Belgian entrepreneurs do not consider the Brussels stock exchange as their preferred way to finance their growth, one must say that the BEL 20, the leading stock index reference
1 Olivier Clevenbergh and Gisèle Rosselle are partners and Carl-Philip de Villegas is a senior associate at Strelia. The authors would like to thank Jean-Philippe Cordier, Brecht Cops, Benoît Malvaux, and Eric-Gérald Lang for their contributions to this chapter.
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for the Brussels stock exchange, delivered a return of an average of more than 11% over 2014, therefore honouring it as one of the most performing stock exchanges in Europe.
Besides Euronext, operator of the Brussels, Paris, and Amsterdam stock exchanges, among others, biotech companies Genticel and Argen-X went (partially) public. Last but not least, Ontex, a Belgian producer of disposable personal hygiene solutions for babies, women, and adults, returned for a second time to the stock exchange, and thus providing Goldman Sachs and Texas Pacific an opportunity to create a partial exit, which was closely followed by a full exit once it was listed on the Brussels stock exchange. Besides these four companies’ going public on the Brussels stock exchange, three other Belgian companies were involved in IPOs on foreign stock exchanges. Materialise was the only Belgian technology-driven company that went public, and it did so on Nasdaq. Shipping companies Exmar and Euronav went to Wall Street with a second listing in order to be able to attract further investments and gain trust from more experienced traders operating on bigger stock exchanges than the Brussels stock exchange.
For the first time in several years, the total amount raised by Belgian companies through the issuance of bonds ended up significantly lower than previous years, with a total amount of €10.5 billion compared with €12.3 billion in 2013 and €15 billion in 2012. The reason behind this downfall is most probably the cheap means for companies to finance itself through banking credits, thereby leaving behind the bonds market and following the global trend on the bonds market. Also, AB Inbev takes the lead once again with an issuance of €3.8 billion, which was partially used to finance its acquisition of Oriental Breweries.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
In Belgium the negotiated sale and purchase of corporate entities’ shares or assets (or both) are governed by the Civil Code, partially by the Commercial Code, and by practice. The practice developed in common law jurisdictions has had and still has an important influence on the Belgian M&A practice. Through these practice developments, and following common law influence in the Benelux in the past two decades, the use of more or less standardised share or asset purchase agreements has been established. Although the standard clauses contained in these types of agreements have gained influence especially with regard to the representations and warranties used in M&A transactions, even the most standard provisions in these agreements are now sometimes debated during negotiations. A concern expressed by all parties involved, even more than before and most certainly since the financial turmoil of 2008, is the wish to be protected against the possible insolvency of their counterpart.
Mergers, including cross-border mergers, demergers, (partial) splits, and spin-offs, as well as contributions of part or all assets and liabilities or branches of activity are governed in detail by the Belgian Companies Code. When any one of these kinds of transactions or restructuring processes is envisaged, one must take into account that the provisions of the Belgian Companies Code impose certain filing and publication obligations as well as waiting periods after the filing of the proposal.
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If the target company’s shares are either traded on a regulated market or widely spread among investors residing in Belgium so that the bid is public in character, the Law of 1 April 2007 on takeover bids (the Takeover Bid Law) and its executing Royal Decree of 27 April 2007 apply. The Takeover Bid Law makes a distinction between a voluntary bid and a mandatory bid. A voluntary bid is a bid in which a bidder seeks to acquire control over a listed company, while a mandatory bid is one in which a bidder or shareholder has increased its participation over the threshold of 30 per cent of the shares of the company in question. That bidder or shareholder must then extend its bid to all the other shareholders under the same terms and conditions. The Belgian takeover bid legislation is characterised in great detail, particularly in the area of acting in concert for the purposes of fulfilling the mandatory bid obligation.
Finally, public offerings and admissions to trading of investment securities on the Belgian territory, whether harmonised (i.e., those that are within the scope of application of the Prospectus Directive) or not (i.e., those public offerings that are solely governed by Belgian law) are governed by the Prospectus Law of 16 June 2006, and the Financial Services and Markets Authority is the competent authority for these operations. This piece of legislation is characterised as well in great detail. Since the financial turmoil, it has been used for several IPOs in Belgium, starting from 2013 with the successful IPO of the Belgian postal services. Throughout 2014, four IPOs revived the Belgian stock market, and the first half of 2015 has already shown four IPOs. Indeed, following the successful IPO of biotech company Bone Therapeutics, another biotech company, Biocartis, started its public career successfully too. Tinc, an infrastructure fund owned by Gimv and Belfius, was the third company to go public in 2015. Last but not least, Mithra, a pharmaceutical company focused on female health care in which former Omega Pharma founder Marc Coucke invested, launched its IPO at the end of June 2015.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
No notable changes in corporate or takeover bid law were noted during 2014, nor at the beginning of 2015. The implementation of the Shareholders’ Rights Directive of 2006 went smoothly and did not cause any significant problems in the organisation of shareholders’ meetings of listed companies. Furthermore, some small changes to the Belgian Companies Code were either implemented or more quickly introduced in order to reinforce the Belgian government’s battle against tax fraud or elucidation.
Moreover, an important number of scholars and practitioners have started to draft a proposal to the Belgian Secretary of Justice, seeking an overall review of the Belgian Companies Code. This review should not only pursue an increase in the attractiveness of Belgium for both Belgian and foreign investors, but also permit tidying up of the vast landscape of very different corporate forms that often have overlapping yet slightly different rules that apply to each form.
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IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
Foreign involvement in the Belgian M&A market remains significant. Belgian shareholders often prefer to be a majority shareholder, or at least a ‘reference’ shareholder, in order to be able to remain in control of their company. When, at a certain point in time, these reference shareholders are no longer able to provide the company with the necessary financial means to support the growth of their company, they prefer to sell it rather than to see their participation become diluted and ‘stuck’ with another shareholder that is taking over control of the company.
In general, it is difficult to obtain an overall view on (foreign) private equity involvement apart from the reported deals (some of which are reported below). However, with Belgium being a country with many medium-sized companies with international presence or ambitions, an increasing number of interesting investment opportunities continues to be available for both industrial and financial foreign investors.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS, AND HOT INDUSTRIES
As mentioned above, the divestments by Belgian financial institutions have disappeared from the 2014 transaction statistics. Indeed, 2014 has been a year in which business-related M&A could again take the first hand. In the top 10 of Belgian M&A statistics, it appears that more than half of these transactions were made from a mere strategic point of view by industrial actors in search of synergies or expansion.
However, even though the influence of the financial turmoil has disappeared from the Belgian transaction statistics, there has been another element in such statistics, that is, AB Inbev. Indeed, very different to 2013 when AB Inbev sold the brewery Piedras Negras (Modelo) and the everlasting rights it had for Corona and Modelo to Constellation Brands for the US for €2.2 billion, it has now acquired Oriental Brewery for €4.3 billion subsequent to the approval by the competition authorities. AB Inbev and its CEO Carlos Brito thereby continue to digest one important acquisition successfully after the other, thereby leading the Belgo-Brazilian brewery to become number the one brewer of the world in terms of turnover, beer brands, and brewing capacity.
Number 2 in the 2014 statistics is Perrigo’s acquisition of Omega Pharma for €3.6 billion. After 27 years and 87 acquisitions later, the purchaser has become the target. Marc Coucke, former owner of 50 per cent in Omega Pharma, received both cash and 3.5 per cent of Perrigo shares in return. Waterland and Omega Pharma’s management, the remaining shareholders, received cash consideration.
Following this sale, neither Omega Pharma nor Marc Coucke will disappear from the M&A transaction tables. Indeed, given the important M&A fever in the pharma business, Perrigo was the centre of M&A turmoil throughout the first semester of 2015 between Mylan and Teva. Omega Pharma already made its first acquisition in June 2015 by acquiring (again) a series of OTC medicines from pharmaceutical company GlaxoSmithKline. Marc Coucke mentioned that he will be reinvesting his proceeds of the sale of Omega Pharma in the Belgian economy. Throughout the first semester of 2015, he confirmed this by announcing seven investments by the end of
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May 2015, in real estate developments, the pharmaceutical business (including Mithra), or technologies, among other sectors.
Thirdly, the US chemical group Eastman Chemical has acquired its Belgian counterpart Taminco for €2.2 billion. Taminco, which was a spin-off of the Belgian pharmaceutical company UCB in 2003, has since then been owned by several private equity firms throughout the years. Many experts around the world have concluded that the Belgian Taminco has now reached its final destination within the group of a bigger industrial player.
With a total transaction value of €1.6 billion, the acquisition of the Belgian financial data supplier Bureau van Dijk by the Scandinavian investment fund EQT just missed the top three. This sale illustrates once again the important number of financial software developers Belgium has supplied during the last years. Indeed, in July 2014 Clear2Pay, a company active in payment technology, was sold to FIS, world leader in payment technology. These transactions were only additional transactions to Belgian players that are active in the financial software: in the last few years Belgium-based Ogone, Banksys, Financial Architects, Capco, and Callataÿ & Wouters have all been acquired by major international industrial or private equity players within this sector.
Another important transaction in the top 10 is the acquisition of 15 Maersk oil tankers by Euronav, thereby projecting the latter to becoming one of the world leaders in sea-oil transportation. Shortly thereafter, Euronav announced it was going to look for a second notation on Wall Street, in view of creating more important value for its shareholders, and more importantly its capacity to finance further acquisitions and growth.
Other noteworthy transactions in the top 10 statistics include the acquisition of Electrabel’s participation in Eandis, an operator of the Belgian energy network, by Eandis’s majority shareholders for €950 million, and private equity firm ATT acquiring the North Galaxy tower in Brussels for €475 million.
From an IPO-perspective, Belgium went along with the cautious optimism that started out in 2013. Indeed, the Brussels stock exchange could add four companies to its listings, including Euronext, Ontex, Argen-X, and Genticel. However, and as mentioned above, Belgian companies also decided to list or envisage listing their shares on Nasdaq (Materialise, active in 3D-printing) and on Wall Street (Exmar and Euronav, active in the shipping industy) for sector-specific reasons.
Almost not visible in the deal statistics, but still an important factor in the market, is the constant stream of smaller real estate acquisitions by REITs such as Aedifica, AG Real Estate, Cofinimmo, Montea, Retail Estates, and WDP, often through share deals followed by an intra-group merger. In this market, divesting is becoming more and more key to success, leading to divestment of office facilities into (temporary) private housing and elderly housing.
Deme and Jan De Nul, two Belgian and universally known dredgers and construction companies, have been involved in many of the largest dredging projects in the world, including, for instance, the modernisation of the Panama Canal, which is still ongoing. Furthermore, the renewable energy sector has also gained importance in the Belgian M&A market with the involvement of Belgian companies such as Deme, which has successfully expanded its business to the construction business of renewable
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energy parks, as well as Tinc, which has recently launched its IPO on the Brussels’ stock exchange.
An unfortunate consequence of the financial turmoil are the financial difficulties that certain companies were still facing throughout 2014, following which they are forced to refinance their operations or even undergo a judicial reorganisation or, in the worst-case scenario, go bankrupt. This development has entailed a new kind of M&A, a kind in which actors, such as receivers of a bankrupt estate, take on a major role and in which certain specific regulations and legislation change the rules of the transaction profoundly. This sometimes leads to competitive bids on the bankrupt estate, a situation in which it is the court that decides who is the acquirer and this is on the basis of the continuity of the business (and of the employment) rather than on the basis of the usual criteria relating to the price. Basically, no representations and warranties are given in such ‘sales’, and the due diligence is often limited to the bare minimum. Electrawinds, active in the production of green energy, has been a good illustration of such problematic relationship between different actors with opposite interests. In light of the still important number of bankruptcies in Belgium, this trend has continued to influence the Belgian M&A statistics for 2014, and will most probably continue to influence these trends in 2015.
Contrary to the last years, one important tendency could be noted: the Belgian financial sector is starting to regain confidence and acquisitions that are led by industry-related strategies and are once again possible. Buyers are indeed more often other industrial players, a trend of 2013 that has been confirmed in 2014 and at the beginning of 2015. The most striking example for 2015 so far is the announced merger between Benelux retail giants Delhaize and Ahold. Private equity players still seem to remain cautious in Europe or focusing on the emerging markets. However, lending cheap financial means for acquisitions has remained possible in the first semester of 2015, but remains uncertain for this development. It thus remains to be seen how a potential increase in cost of lending will influence the M&A statistics in 2015 overall.
Finally, the federal elections on 25 May 2014 concluded with a win for the Right. The first coming political elections should only occur in 2019, leaving sufficient time for Belgian politicians to concretely and profoundly improve the Belgian economical and tax system. With this important political change in mind, Belgian entrepreneurs and international investors are becoming – and should be – more confident in making future investments in Belgium.
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
Given that the majority of the Belgian M&A transactions are mid-market deals, and considering the low interest rates that were applicable throughout 2014, financing continued to be available on reasonable conditions. Asset-backed lending in different forms is still gaining popularity, whereas club financing and syndicated loans for small and mid-cap deals also remain popular. In general, funds seem to continue to be available. However, financial institutions remain very careful, and sometimes risk-averse, requesting proper and solid securities for almost all transactions.
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Credit documentation is either subject to the London Loan Market Association model – even for pure Belgian deals – or largely inspired by it. The refinancing of deals continues to be important in practice.
More and more industrial players finance deals through their existing credit lines or sometimes even through their own funds. Contrary to prior years, the bond market has decreased in popularity as means of financing. Bonds continue to be placed with institutional investors for less known (or less popular) companies, whereas well-known companies often place their bonds within the private investor market as well, which has the advantage of offering a lower interest rate. However, acquisitions also appeared to be more often financed through general loan deals throughout 2014. It remains to be seen what the trends will be for 2015.
VII EMPLOYMENT LAW
Belgium has implemented the Acquired Rights Directive 2001/23/EC through the conclusion of a Collective Bargaining Agreement, 32-bis (CBA 32-bis) by the National Labour Council, which was then declared generally binding on all employers and employees by a Royal Decree. CBA 32-bis safeguards employees’ rights in the event of transfers of undertakings, business, or parts of businesses as a result of a legal transfer or merger if the business retains its identity after the transfer. Individual employees’ rights that arise from employment contracts or employment relationships at the time of the transfer are transferred automatically. Hence, all transferred employees will continue to benefit from the same terms and conditions that applied to them prior to the transfer. However, there are specific employment conditions that cannot be transferred on a compulsory basis (e.g., pension plans). If such specific employment conditions are not transferred, the transferee (i.e., the new employer) should nonetheless give similar conditions or compensation to the employees concerned to avoid a constructive dismissal.
Furthermore, specific legislation has been implemented in order to provide similar protection to employment terms and conditions that follow from collective agreements. Even though CBA 32-bis prevents the transferor and the transferee from dismissing employees for reasons related to the transfer, exceptions have been implemented as well. In particular, when changes to the workforce as well as their working conditions can be justified for economic, technical, or organisational reasons, dismissals or changes to the working conditions can be envisaged. In any event, the transferor and transferee will remain jointly liable for any obligations towards the workforce that have arisen before the date of the transfer for any transferred employment relationship. Finally, it should be noted that a specific information and consultation procedure towards employee representative bodies or, in the absence thereof, towards the employees themselves is imposed by both CBA 32-bis and common law.
The Law on the Continuity of Undertakings of 31 January 2009 has introduced special rules for the transfer of an undertaking (or part of an undertaking) in the framework of the procedure on judicial reorganisation, and it is therefore not submitted to CBA 32-bis. Per 1 August 2013, CBA 102 must be taken into account in the event of a transfer of employees that is subject to this procedure. In general, the transferee will only be obliged to take over the employees under the previous terms and conditions if the
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transferee has been informed about those conditions prior to the transfer. The employee and transferee can agree on individual changes but they must be justified by economic, technical, or organisational reasons. Moreover, changes to collective employment conditions can also be envisaged in the framework of the contemplated transfer. Any such changes are to be negotiated with the employees’ representatives and should be laid down in a collective bargaining agreement.
Specific legislation has also been implemented regarding the transfer of employees within the framework of a transfer of an undertaking that is submitted to insolvency proceedings. Whereas CBA 32-bis prevents the transferee from dismissing certain people (employees) in the framework of the transfer of an undertaking, except for the reasons stated above, the purchaser of an insolvent undertaking is not obliged to take over the entire workforce. The latter can select which employees it will take over within the workforce of the insolvent undertaking. However, it should be noted that in the bidding process on the insolvent undertaking, the receiver of the bankrupt estate is not legally obliged to accept the highest bid. The receiver may indeed accept a lower bid on the insolvent undertaking (or part of it) if that bid offers better guarantees of future employment to the workforce.
The recast Directive 2009/38/EC of the European Parliament and the Council of 6 May 2009 on the establishment of a European Works Council or a procedure in Community-scale undertakings and Community-scale groups of undertakings for the purposes of informing and consulting employees has been implemented in Belgian law by the Collective Bargaining Agreement 101 of 21 December 2010 (CBA 101). CBA 101 has the merit of increasing the awareness of the requirement to involve the European Works Council or to apply information and consultation procedures for transnational matters. Matters are considered to be transnational when they concern a Community-scale undertaking or Community-scale group of undertakings as a whole, or at least two undertakings or establishments of the undertaking or group situated in two different Member States. Discussions have arisen with regard to the exact interpretation and scope of ‘transnational matters’.
A development that has been pending for a long time was the harmonisation of the white-collar and blue-collar employee status. After years of discussions, the legislative bills were published by the end of 2013 and new legislation entered into force on 1 January 2014. Blue-collar and white-collar employees now have identical termination rights in relation to years of service accrued after 1 January 2014. Generally speaking, the rights of blue-collar employees in case of dismissal have improved whereas certain categories of white-collar employees are treated less favourably compared to the previous system. For years of service accrued prior to 1 January 2014, a different treatment of both categories of employees subsists, but a state-sponsored compensation mechanism should abolish this unequal treatment for all blue-collar workers by 2017. The most important consequence of the new rules is the increased termination cost for employers that have a large number of blue-collar employees. Because of the modified termination rules that went hand in hand with the abolishment of the probation period, employers are more often calling upon temporary agency workers or are hiring workers under fixed-term contracts. Although measures have been taken to mitigate the impact of the increased termination cost for employers when they terminate contracts with blue-collar workers, this new law on the unified status has consequences for M&A in Belgium,
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in particular when restructuring procedures involving collective dismissals or closings are envisaged following an M&A transaction. Now that consensus has been reached on the harmonisation of blue-collar and white-collar employees’ termination rights, social partners have furthermore agreed to harmonise other outstanding items over time (such as vacation entitlements and social security). In the framework of the unified employment status, employees whose contracts are terminated now have the right to request from their employer an indication of the reasons for the termination. If the employer is unable to provide the reasons or if the reasons are ‘manifestly unreasonable’, the employer may owe the employee specific termination indemnity. At the collective employment law level, it has become clear that there will be no major changes before the next elections in 2016.
Still in the pipeline is the amendment of the so-called ‘Renault Act’, which lays out the procedure for restructuring procedures involving collective dismissals. While the Renault Act was intended to create a greater involvement of the employees in a restructuring process, it suffers from its formalistic aspects. Depending on the outcome of the amendments to this Act, there will most probably be consequences for M&A in Belgium, and more in particular for restructurings taking place before or after an M&A transaction.
VIII TAX LAW
Few tax changes affected the M&A practice over 2014, with the notable exception of a new reduced withholding tax regime of about 10 or 15 per cent for SMEs, introduced in the Act of 19 December 2014 (against the ordinary 25 per cent withholding tax). However, the Belgian government is currently considering an extensive ‘tax shift’ to lower tax pressure on labour income and thus strengthen Belgium’s economic attractiveness in comparison to neighbouring countries. The loss of state revenue is expected to be passed through government expenditure reductions, VAT, new green taxes policies, and speculative income taxation. Efforts to improve tax transparency and tackle artificial or abusive tax arrangements should also be continued.
In the past years, the Belgian tax landscape furthermore already experienced significant changes that affected M&A practice. A first set of changes have been introduced in the Omnibus Act of 29 March 2012, notably the new general anti-abuse provision, the new thin capitalisation rules, and a taxation of capital gains on shares, and in the Acts of 13 and 27 December 2012, thereby expanding the scope of the new taxation of capital gains on shares. Further changes have been introduced in the Omnibus Act of 30 July 2013, notably the new fairness tax, and in the Act of 28 June 2013, thereby increasing the withholding tax rate on liquidation bonus and introducing a new reduced withholding tax rate for SMEs.
Since financial year 2011–2012, Belgian tax law contains a strengthened, new general anti-abuse provision. One noticeable change in the terminology is that it allows the recharacterisation of ‘a legal act or series of legal acts’ for tax purposes (new provision), while only the ‘legal qualification’ of such legal acts was previously challengeable (old provision). The intention is to invalidate the restrictive case law of Belgium’s highest appeal court, the Court of Cassation, requiring the replaced legal qualification to have
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‘similar legal consequences’ (which left the old provision largely ineffective). The new provision moves towards EU case law’s more economical approach by introducing the concept of ‘tax abuse’, which refers to the violation of the underlying legislative intent of a tax provision. Following this EU trend, Belgium will normally implement Directive 2015/121/EU of 27 January 2015 (modifying the Parent-Subsidiary Directive 2011/96/EU of 30 November 2011) by introducing a new ‘tax abuse’ rule to prevent the improper use of the dividend exemptions (both the participation exemption and withholding tax exemption). As primarily targeting holding companies, this new rule is anticipated to affect the M&A practice. Under both of these anti-abuse rules, the main escape for taxpayers is to demonstrate that the transaction is justified by sound economic motives (other than the avoidance of tax). The actual trend thus creates legal uncertainty and implies careful scrutiny of economic motivations when structuring a deal.
Other major changes for M&A structuring are the extension of the anti-thin capitalisation provision to inter-company loans and the former exemption of capital gains realised on shares, which are continuously eroded since the past years. By enacting the anti-thin capitalisation provision, Belgium has aligned itself with the laws of neighbouring jurisdictions. As of 1 July 2012, interest paid on intra-group loans is not deductible any more above a 5:1 debt-to-equity ratio. The concept of ‘group’ refers to all companies that are connected, according to the meaning given by the Belgian Companies Code. A series of exceptions applies, notably on publicly issued bonds, loans from credit institutions and loans from leasing companies. This change affects not only M&A structuring but also existing financing structures and real estate financing. The other change relates to the capital gain on share exemption that has been noticeably revisited with respect to companies. The Omnibus Act of 29 March 2012 had already introduced a taxation of 25.75 per cent on capital gains realised without fulfilment of a one-year holding period. The Act of 27 December 2012 has now added a taxation of 0.412 per cent on capital gains realised after this holding period. This last taxation does not apply to SMEs. Capital gains realised on the shares of a company that is not considered to be subject to normal tax treatment are still not exempt and are subject to the normal corporate tax of 33.99 per cent.
Another major set of changes relates to the notional interest deduction (NID), which has been continuously eroded in recent years, and to the introduction of a new ‘fairness tax’, with a view to increasing the tax benefits of NID and tax losses. As of tax year 2013, it is no longer possible to carry forward excess NID. Furthermore, measures have been taken to reduce the NID rate and calculation base (see the Act of 17 June 2013 and 28 June 2013) and to remedy former breaches of the establishment freedom affecting companies with foreign permanent establishment (see the Act of 21 December 2013). For its part, the new fairness tax is due as from tax year 2014 by large companies (not by SMEs). The fairness tax is a separate tax of 5.15 per cent on a portion of the company’s dividend distributions. This portion aims at representing the part of the distributed taxable profit that has been offset against NID and has carried forward tax losses. The fairness tax is not deductible.
The last major changes relate to new withholding tax policies. As from January 2013, withholding tax on movable income has been standardised widely to a uniform rate of 25 per cent (with only few exceptions). In the same trend, the withholding tax rate on liquidation bonus has been upgraded from 10 per cent to 25 per cent as from
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1 October 2014 (see the Act of 28 June 2013). A reduced withholding tax policy has been revived, however, specifically for SMEs, but subject to certain (sometimes restrictive) conditions. SMEs now indeed benefit from (1) a reduced withholding tax rate of 20 per cent (second accounting year) or 15 per cent (after the third accounting year) for new cash contributions made after 1 July 2013, subject to certain other restrictive conditions, and from (2) a reduced withholding tax rate of 15 per cent (distribution before the fifth year), 5 per cent (distribution after the fifth year) or zero per cent (distribution upon liquidation) for accounting profit realised as from the tax year 2015 that is voluntarily allocated to a ‘liquidation reserve’ against immediate payment of a separate tax of 10 per cent.
Other important changes have been introduced, notably, to the tax regime that applies to regulated investment companies and funds, the patent income deduction, the investment deduction, the permanent establishment’s definition, and the tax shelter legislation.
The foregoing shows that the M&A practitioner must be careful and that important opportunities offered by the Belgian tax system are still surviving the crisis.
IX COMPETITION LAW
Belgian competition laws were integrated in 2013 into Book 4 of the Code of Economic Law. With this introduction, the Belgian competition laws were slightly reformed. This reform entailed, on the one hand, the removal of the government’s power to approve transactions that have been prohibited by the Competition Authority and, on the other hand, the possibility for the Competition Authority to investigate and approve or prohibit mergers that have been notified to it.
Through this reform, the Belgian Competition Authority has been reshaped in accordance with the ‘independent agency’ model. The Competition Authority now both investigates and approves or prohibits mergers that have been notified to it, while safeguarding the separation between the investigative and decision-making powers. This transformation is primarily inspired by the desire to accelerate the investigations, and mostly the decisions regarding suspected violations of competition rules. Moreover, these changes should also contribute to a somewhat shorter clearance process for mergers.
X OUTLOOK
Following the influence of financial institutions’ M&A activities in the 2013 statistics, 2014 showed that industrial players have again regained confidence and were active on the M&A market – a trend that was confirmed in the first semester of 2015, and that is likely to be continued in the years to come. Private equity appears to be again cautiously active on the Belgian M&A market, but it is difficult to predict what the influence of the increasing interest rates will be on its activity. Industry players and strategic buyers will most probably continue to be active in Belgium, however, because of the ever-increasing number of Belgian family businesses that are struggling with succession and are searching for buyers, which makes the Belgian M&A market very attractive for potential (foreign) investors.
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Although not often mentioned in the M&A statistics, the (unfortunate) trend of sale processes in the framework of a judicial reorganisation, or even bankruptcy, will also most probably be continuing in 2015. An important highlight in 2014 is the conclusion of the sale of some major activities of Electrawinds, active in the production of green energy.
After a few years of no growth to relatively low growth for the Belgian economy, the forecasts for 2015 and the years to come have a better outlook. Belgian savers continue to behave in a responsible manner, the country’s workforce is talented, and both industrial players and private equity investors recognise the ability of Belgian entrepreneurs to develop businesses with important and international potential. Finally, Belgian politicians have recognised the need for important improvements to the Belgian tax system and are aiming to implement reforms in coming years through a stable government. Thus, the optimism seems warranted.
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ABOUT THE AUTHORS
OLIVIER CLEVENBERGHStreliaOlivier Clevenbergh is mainly active in the field of M&A and corporate law. He deals with national and international acquisitions and disposals of shares or assets, private equity and venture capital transactions, mergers and joint ventures. He has considerable experience as regards restructurings and the acquisition of the assets of distressed companies.
He has also specific expertise in the field of retail and distribution law and is an acknowledged specialist in franchising.
Olivier Clevenbergh combines his transactional practice with a contentious practice covering the same areas. He therefore also represents clients in commercial and corporate litigation before the Belgian courts and arbitration tribunals.
Olivier was admitted to the Brussels Bar in 1989 and was admitted as a solicitor of England and Wales in 1995.
Before becoming partner at Strelia, Olivier Clevenbergh was a partner at Stibbe since 2000, where he headed the corporate finance department in Brussels.
GISÈLE ROSSELLEStreliaGisèle Rosselle concentrates on corporate and corporate finance transactions, with particular experience in cross-border mergers and acquisitions, private equity, and capital market transactions involving a wide variety of industries, including banking, chemicals, paper and pulp, technology, and energy.
Gisèle Rosselle was admitted to the Brussels bar in 1994 and started her career at Allen & Overy (formerly Loeff Claeys Verbeke) in Brussels and in London. Before joining Strelia, she was a partner at the Brussels office of White & Case LLP.
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She served as chair of the Corporate and M&A Committee of the International Bar Association from 2009 through 2011, after having chaired the Private Equity Subcommittee of the International Bar Association’s Corporate and M&A Committee.
Gisèle Rosselle obtained an executive master’s degree at the INSEAD Business School in 2014.
CARL-PHILIP DE VILLEGASStreliaCarl-Philip de Villegas concentrates on corporate law, corporate finance transactions, project finance and M&A in general.
Carl-Philip obtained a bachelor’s degree at the Facultés Universitaires Notre-Dame de la Paix (FUNDP, currently Université de Namur), following which he obtained a master’s degree at the Katholieke Universiteit Leuven (KUL) in 2007. During the final year of his master’s programme, Carl-Philip de Villegas studied one year at the Ludwig Maximilians Universität (LMU) in München (Germany) through the Erasmus exchange programme. Carl-Philip also obtained a master’s in General Management at the Vlerick Business School in 2008.
Carl-Philip was admitted to the Brussels Bar in 2008. Before joining Strelia in May 2013, he was a lawyer in the corporate department at NautaDutilh Brussels.
STRELIARoyal Plaza, rue Royale 1451000 BrusselsBelgiumTel: +32 2 627 00 90Fax: +32 2 627 01 [email protected]@strelia.com [email protected] www.strelia.com
