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The Mergers & Acquisitions
Review
Law Business Research
Eighth Edition
Editor
Mark Zerdin
The Mergers & Acquisitions Review
The Mergers & Acquisitions Review
Reproduced with permission from Law Business Research Ltd.This article was first published in The Mergers & Acquisitions Review - Edition 8
(published in August 2014 – editor Mark Zerdin).
For further information please [email protected]
The Mergers & Acquisitions
Review
Eighth Edition
EditorMark Zerdin
Law Business Research Ltd
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PUBLISHER Gideon Roberton
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i
The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:
AABØ-EVENSEN & CO ADVOKATFIRMA
ÆLEX
AGUILAR CASTILLO LOVE
AKD N.V.
ALLEN & GLEDHILL LLP
ANDERSON MŌRI & TOMOTSUNE
ARIAS, FÁBREGA & FÁBREGA
ARIAS & MUÑOZ
BEITEN BURKHARDT RECHTANSWALTSGESELLSCHAFT MBH
BHARUCHA & PARTNERS
BNT ATTORNEYS-AT-LAW
BOWMAN GILFILLAN
BREDIN PRAT
BRIGARD & URRUTIA
CAMPOS FERREIRA, SÁ CARNEIRO & ASSOCIADOS
CLEARY GOTTLIEB STEEN & HAMILTON LLC
COULSON HARNEY
CRAVATH, SWAINE & MOORE LLP
DEGUARA FARRUGIA ADVOCATES
ACKNOWLEDGEMENTS
Acknowledgements
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DELFINO E ASSOCIATI WILLKIE FARR & GALLAGHER LLP
DENTONS
DITTMAR & INDRENIUS
DRYLLERAKIS & ASSOCIATES
ELİG ATTORNEYS-AT-LAW
FENXUN PARTNERS
HARNEYS
HENGELER MUELLER
HEUKING KÜHN LÜER WOJTEK
ISOLAS
KBH KAANUUN
KEMPHOOGSTAD, S.R.O.
KIM & CHANG
KING & WOOD MALLESONS
KINSTELLAR, S.R.O., ADVOKÁTNÍ KANCELÁŘ
MAKES & PARTNERS LAW FIRM
MANNHEIMER SWARTLING ADVOKATBYRÅ
MATHESON
MNKS
MORAVČEVIĆ VOJNOVIĆ I PARTNERI IN COOPERATION WITH SCHÖNHERR
MOTIEKA & AUDZEVIČIUS
NISHIMURA & ASAHI
OSLER, HOSKIN & HARCOURT LLP
PÉREZ BUSTAMANTE & PONCE
PINHEIRO NETO ADVOGADOS
Acknowledgements
iii
POPOVICI NIȚU & ASOCIAȚII
RAIDLA LEJINS & NORCOUS
ROJS, PELJHAN, PRELESNIK & PARTNERS
RUBIO LEGUÍA NORMAND
RUSSIN, VECCHI & HEREDIA BONETTI
S HOROWITZ & CO
SANTAMARINA Y STETA, SC
SCHELLENBERG WITTMER LTD
SCHÖNHERR RECHTSANWÄLTE GMBH
SELVAM & PARTNERS
SEYFARTH SHAW LLP
SKRINE
SLAUGHTER AND MAY
STRELIA
SYCIP SALAZAR HERNANDEZ & GATMAITAN
TORRES, PLAZ & ARAUJO
URÍA MENÉNDEZ
UTEEM CHAMBERS
WEERAWONG, CHINNAVAT & PEANGPANOR LTD
WILSON SONSINI GOODRICH & ROSATI
v
Editor’s Preface .................................................................................................xiiiMark Zerdin
Chapter 1 EUROPEAN OVERVIEW .........................................................1Mark Zerdin
Chapter 2 EUROPEAN COMPETITION ................................................13Götz Drauz and Michael Rosenthal
Chapter 3 EUROPEAN PRIVATE EQUITY .............................................20Thomas Sacher, Steffen Schniepp and Guido Ruegenberg
Chapter 4 US ANTITRUST ......................................................................33Scott A Sher, Christopher A Williams and Bradley T Tennis
Chapter 5 CROSS-BORDER EMPLOYMENT ASPECTS OF INTERNATIONAL M&A .......................................................51
Marjorie Culver, Darren Gardner, Ming Henderson, Dominic Hodson and Peter Talibart
Chapter 6 AUSTRALIA .............................................................................64Lee Horan and Greg Golding
Chapter 7 AUSTRIA ..................................................................................79Christian Herbst
Chapter 8 BAHRAIN ................................................................................91Haifa Khunji and Maryia Abdul Rahman
Chapter 9 BELGIUM ..............................................................................106Olivier Clevenbergh, Gisèle Rosselle and Carl-Philip de Villegas
CONTENTS
vi
Contents
Chapter 10 BRAZIL...................................................................................117Fernando Alves Meira and Gustavo Paiva Cercilli Crêdo
Chapter 11 BRITISH VIRGIN ISLANDS ................................................128Jacqueline Daley-Aspinall and Murray Roberts
Chapter 12 CANADA ................................................................................144Robert Yalden and Emmanuel Pressman
Chapter 13 CAYMAN ISLANDS ..............................................................160Marco Martins
Chapter 14 CHINA ...................................................................................177Fred Chang, Wang Xiaoxiao and Huang Jiansi
Chapter 15 COLOMBIA ...........................................................................191Sergio Michelsen Jaramillo
Chapter 16 COSTA RICA .........................................................................207John Aguilar Jr and Alvaro Quesada
Chapter 17 CYPRUS .................................................................................217Nancy Ch Erotocritou
Chapter 18 CZECH REPUBLIC ...............................................................224Lukáš Ševčík, Jitka Logesová and Bohdana Pražská
Chapter 19 DOMINICAN REPUBLIC ....................................................233María Esther Fernández A de Pou, Mónica Villafaña Aquino and Laura Fernández-Peix Perez
Chapter 20 ECUADOR .............................................................................243Diego Pérez-Ordóñez
Chapter 21 ESTONIA ...............................................................................253Sven Papp and Karl-Erich Trisberg
vii
Contents
Chapter 22 FINLAND...............................................................................266Jan Ollila, Anders Carlberg and Wilhelm Eklund
Chapter 23 FRANCE .................................................................................277Didier Martin and Raphaël Darmon
Chapter 24 GERMANY .............................................................................292Heinrich Knepper
Chapter 25 GIBRALTAR ...........................................................................304Steven Caetano
Chapter 26 GREECE .................................................................................317Cleomenis G Yannikas, Sophia K Grigoriadou and Anna S Damilaki
Chapter 27 GUATEMALA ........................................................................330Jorge Luis Arenales de la Roca and Luis Pedro Del Valle
Chapter 28 HONG KONG .......................................................................338Jason Webber
Chapter 29 HUNGARY .............................................................................347Levente Szabó and Réka Vízi-Magyarosi
Chapter 30 ICELAND ...............................................................................363Hans Henning Hoff
Chapter 31 INDIA .....................................................................................371Justin Bharucha
Chapter 32 INDONESIA ..........................................................................390Yozua Makes
Chapter 33 IRELAND ...............................................................................404Éanna Mellett and Robert Dickson
Contents
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Chapter 34 ISRAEL ...................................................................................413Clifford Davis and Keith Shaw
Chapter 35 ITALY ......................................................................................424Maurizio Delfino
Chapter 36 JAPAN .....................................................................................437Hiroki Kodate and Junya Ishii
Chapter 37 KENYA ...................................................................................447Joyce Karanja-Ng’ang’a and Felicia Solomon Ndale
Chapter 38 KOREA ...................................................................................458Jong Koo Park, Bo Yong Ahn, Sung Uk Park and Young Min Lee
Chapter 39 LITHUANIA ..........................................................................473Giedrius Kolesnikovas and Michail Parchimovič
Chapter 40 LUXEMBOURG ....................................................................479Marie-Béatrice Noble and Stéphanie Antoine
Chapter 41 MALAYSIA .............................................................................493Janet Looi Lai Heng and Fariz Abdul Aziz
Chapter 42 MALTA ...................................................................................505Jean C Farrugia and Bradley Gatt
Chapter 43 MAURITIUS ..........................................................................515Muhammad Reza Cassam Uteem and Basheema Farreedun
Chapter 44 MEXICO ................................................................................525Aarón Levet V and Isaac Zatarain V
Chapter 45 MONTENEGRO ...................................................................534Slaven Moravčević and Nikola Babić
Contents
ix
Chapter 46 MYANMAR ............................................................................544Krishna Ramachandra and Benjamin Kheng
Chapter 47 NETHERLANDS ...................................................................554Carlos Pita Cao and François Koppenol
Chapter 48 NIGERIA ................................................................................566Lawrence Fubara Anga
Chapter 49 NORWAY ...............................................................................571Ole K Aabø-Evensen
Chapter 50 PANAMA ................................................................................608Julianne Canavaggio
Chapter 51 PERU ......................................................................................618Emil Ruppert and Sergio Amiel
Chapter 52 PHILIPPINES .........................................................................628Rafael A Morales, Philbert E Varona, Hiyasmin H Lapitan and Catherine D Dela Rosa
Chapter 53 POLAND ................................................................................637Paweł Grabowski, Rafał Celej and Agata Sokołowska
Chapter 54 PORTUGAL ...........................................................................650Martim Morgado and João Galvão
Chapter 55 ROMANIA .............................................................................662Andreea Hulub, Alexandra Niculae and Vlad Ambrozie
Chapter 56 RUSSIA ...................................................................................677Scott Senecal, Yulia Solomakhina, Polina Tulupova,Yury Babichev and Alexander Mandzhiev
Chapter 57 SERBIA ...................................................................................696Matija Vojnović and Luka Lopičić
Contents
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Chapter 58 SINGAPORE ..........................................................................706Lim Mei and Lee Kee Yeng
Chapter 59 SLOVENIA .............................................................................716David Premelč, Bojan Šporar and Jakob Ivančič
Chapter 60 SOUTH AFRICA ...................................................................727Ezra Davids and Ashleigh Hale
Chapter 61 SPAIN .....................................................................................739Christian Hoedl and Javier Ruiz-Cámara
Chapter 62 SWEDEN ...............................................................................755Biörn Riese, Eva Hägg and Anna Brannemark
Chapter 63 SWITZERLAND ....................................................................763Lorenzo Olgiati, Martin Weber, Jean Jacques Ah Choon, Harun Can and David Mamane
Chapter 64 THAILAND ...........................................................................774Troy Schooneman and Jeffrey Sok
Chapter 65 TURKEY .................................................................................781Tunç Lokmanhekim and Nazlı Nil Yukaruç
Chapter 66 UNITED ARAB EMIRATES..................................................790DK Singh and Stincy Mary Joseph
Chapter 67 UNITED KINGDOM ...........................................................802Mark Zerdin
Chapter 68 UNITED STATES ..................................................................829Richard Hall and Mark Greene
Contents
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Chapter 69 VENEZUELA .........................................................................869Guillermo de la Rosa, Juan D Alfonzo, Nelson Borjas E, Pedro Durán A and Maritza Quintero M
Chapter 70 VIETNAM ..............................................................................882Hikaru Oguchi, Taro Hirosawa, Ha Hoang Loc
Appendix 1 ABOUT THE AUTHORS .....................................................893
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .....943
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EDITOR’S PREFACE
There is cause for optimism and caution in light of the past year’s events. First, we can be tentatively optimistic about Europe. The possibility of a euro
breakup appears to have faded, and European equities markets performed, on the whole, exceptionally well in 2013. Indeed, the euro/dollar basis swap has moved sufficiently to open up euro capital markets to borrowers wishing to swap proceeds to dollars; the World Bank sold its first euro benchmark bond for more than four years in November 2013, and non-European companies like Sinopec and Korea Natural Gas have issued large euro bonds in recent months. If the European economy continues to grow (and analysts are expecting growth to quicken), it is hoped that the prospect of crisis will continue to fade.
Second, though 2013 was a comparatively languid year for global M&A, the buoyancy of the credit and equity markets cannot be ignored. In terms of financing, the seeming willingness of banks to allow for looser borrower constraints, to underwrite jumbo facilities in small syndicates, and to offer flexible and fast bridge-financing for high-value acquisitions, presents a financing climate that should be particularly amenable to corporate M&A. It is also notable that continued political and economic instability did not impede the completion of some standout deals in 2013, including the Glencore/Xstrata tie-up and Vodafone’s disposal of its shareholding in Verizon Wireless. These deals show that market participants are able, for the right deal, to pull out all the stops. After a period of introspection and careful balance sheet management, corporates may be increasingly tempted to put cash to work through M&A.
There remains, however, cause for prudence. There is considerable uncertainty as to how markets will process the tapering of quantitative easing (QE) by the US Federal Reserve. The merest half-mention by Ben Bernanke, in May 2013, of a possible end to QE was enough to shake the markets, and to nearly double the 10-year US Treasury yield in a matter of months. Emerging markets are particularly sensitive to these shocks. The oncoming end of QE may already have been priced into the markets, but there is a possibility that its occurrence will cause further, severe market disruption. In addition, there are concerns around how the funding gap left by huge bank deleveraging will be
Editor’s Preface
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filled, and centrifugal pressures continue to trouble European legislators. Finally, there are broader concerns as to the depth of the global economic recovery as growth in the BRIC economies seems to slow. Optimism should, therefore, be tempered with caution.
I would like to thank the contributors for their support in producing the eighth 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 2014
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Chapter 47
NETHERLANDS
Carlos Pita Cao and François Koppenol1
I OVERVIEW OF M&A ACTIVITY
The number of deals decreased in 2013. However, the average value per transaction increased due to a number – though limited – of larger transactions, but deals in small and medium-sized companies lagged behind. Due to stricter capital rules it is harder to get financing from a bank and in general investors require stronger business cases.
Dutch private equity firms showed a focus on small and medium-sized companies. While they did not show up with large investments in Dutch companies, foreign private equity firms were willing to invest larger amounts.
Also larger Dutch-listed companies have a solid capital structure, and they have the means and the interest in acquiring potentially rewarding, often larger, targets.
On the whole the Dutch M&A market continued to show signs of recovery in 2013. The total value of the M&A market increased by 12 per cent in relation to the previous year, from US$80 billion in 2012 to approximately US$90 billion in 2013.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
The Dutch legal system is based on civil law, as in most of continental Europe. The Dutch Civil Code contains the most important rules for M&A transactions.
Based on long-standing case law as a general rule for contract interpretation it is key what parties meant and could expect.2 However, more recent case law on the subject focused on the importance of the literal meaning of the words in a contract in a
1 Carlos Pita Cao and François Koppenol are partners at AKD N.V.2 Hoge Raad, 13 March 1981 (Haviltex).
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professional environment, such as M&A practice. Consequently, contracts have become more extensive over the years and are moving towards the Anglo-American standards.3
Recently the Dutch Supreme Court ruled that commercial contracts should still be interpreted according to what parties meant and could expect, but the literal meaning is a starting point to document and evidence those intentions of the parties. So although great significance has to be attributed to the contractual wording, the parties’ statements and conduct before the signing of an agreement can lead to the conclusion that the parties still meant something different than the literal wording. Consequently, documenting the whole process of a transaction remains important.4 In 2013 the Supreme Court also ruled that an ‘entire agreement clause’ as has become common to include in Dutch M&A contracts, does not change this as it would relate to the content of the agreement between the parties and not the interpretation of that content.
i Pre-contractual good faith
Pursuant to standard case law, if parties enter into negotiations, their relationship is governed by the principle of reasonableness and fairness (i.e., ‘good faith’). As a consequence, each party has the obligation to take into account the reasonable interests of the others during negotiations. Based on the principle of freedom of contract, which is another key principle relating to entering into agreements under Dutch law, parties are free to withdraw from negotiations. However, based on the principle of reasonableness and fairness, pre-contractual good faith is deemed to exist between two negotiating parties. As a result, the Dutch Supreme Court has ruled that, at a certain stage in the negotiations, the parties cannot terminate the negotiations without being obliged to compensate the other party for its costs, and, in certain circumstances, even its loss of profits.5 In addition, it may be possible to obtain an injunction requiring the other party to continue negotiations.
ii Notifications during the transaction
In the Netherlands, it is important that the parties meet the following notification requirements during a transaction process:a the notification of the proposed transaction with the respective party’s works
council so as to take its advice, which must be taken into consideration by the respective parties to the transaction;
b the notification of the envisaged transaction with the relevant trade unions and the Social and Economic Council (SER) so as to obtain the views of the trade unions and the SER on the proposed transaction;
c the notification of the transaction with the Netherlands Authority for Consumers & Markets (ACM) for obtaining merger clearance (to the extent the transaction is not subject to EU Merger Control Regulation) as set out below in paragraph IX; and
3 Hoge Raad, 19 January 2007 (Meyer Europe BV/PontMeyer BV).4 Hoge Raad 5 April 2013 (Lundiform/Mexx).5 Hoge Road 18 June 1982 (Plas/Valburg).
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d in certain industries specific regulators may have to be informed or even consent to the transaction, such as the Dutch Central Bank, Authority for the Financial Markets (AFM) and Public Health Authority.
As for public and M&A transactions it should be noted that the Netherlands has adopted the opt-out arrangements provided for in the EU Takeover Directive. In consequence, companies that are registered in the Netherlands may in principle apply defensive measures to ward off a takeover bid. The purpose of this directive is the protection of minority shareholders.
In addition to the relevant provisions in the Civil Code, the rules to be observed in the context of a public bid are set out in the Euronext Rulebook and the Dutch Financial Supervision Act, which is set out in more detail in the Decree on Public Bids.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
i Simplification of private company law
On 1 October 2012, the Act on the Simplification and Flexibilisation of Private Company Law took effect. This Act aims to create a simple and flexible legal framework for private companies with limited liability in the form of a BV. More than a year into this new legislation, some case law has emerged, but nothing quite significant yet. As set out in Paragraph VI this has affected the way private M&A transactions are financed.
ii The Clawback of Bonuses Act
On 1 January 2014, the Clawback of Bonuses Act took effect making the clawback of excessive bonuses of directors of public companies (NVs) and the day-to-day policy makers of financial institutions such as banks and investment firms possible.
The Act will make it possible to revise a yet unpaid bonus that has been awarded to a director to an appropriate amount if, according to standards of reasonableness and fairness, payment of the bonus would be unacceptable. The Act will also make it possible to claw back a bonus paid to a director if it has been paid based on incorrect information. The Act also applies to shares or options forming part of a directors’ pay.
iii The AIFMD
On 22 July 2013, the Alternative Investment Fund Management Directive (AIFMD) took effect. In the Netherlands, this directive is incorporated in the Dutch Financial Supervision Act. As a result, private equity and venture capital firms are supervised by the Authority for the Financial Markets and the Dutch Central Bank. Depending on the size of the assets under management either a relatively light regime or a full compliance regime will apply. Included are also fund managers who solely offer participation rights to qualified investors and who were excepted of the supervision before the incorporation of this directive.
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IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
International interest was on the rise again in 2013. Transaction activity was dominated by cross-border transactions. Stock markets are open, the high-yield bond market is doing well and institutional investors consequently had acquisition funds available. Foreign investors tend to be particularly interested in larger, more liquid deals. The largest investors in the Netherlands have traditionally been from its neighbouring countries and from the US. Asian buyers have, however, been active in 2013, an example of this being the acquisition of Robeco by Japanese Orix Corporation.
Chinese buyers have, however, also been focusing on the Netherlands over these last years, and 2013 confirmed this with, among others, the acquisition of TIP Trailer Services from GE Capital by HNA Group Company Limited of China.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES
With regard to listed companies 2013 only saw limited activity, but there were a few larger transactions. Subject to EU Competition approval, Dutch-listed telephone company KPN sold its German mobile division E-Plus for US$11.3 billion. A notable public-to-private deal was DE Masterblenders 1753 being taken of the Amsterdam stock exchange by a Germany-based buyer.
One of the largest private transactions of 2013 was the 60 per cent sale of Brand Loyalty International to US-based Alliance Data Systems Corporation for US$360 million. In terms of private equity deal numbers, 2013 was not especially different from previous years. The acquisition by Montagu Private Equity of a majority stake in DORC (the Dutch Ophthalmic Research Center International) from Rabo Capital, for US$309 million.
Subdued M&A activity in some sectors within the Netherlands only highlighted the exceptional levels of activity in others. M&A activity in TMT was especially high recently. Dutch Eyeworks (a television production company) was sold to the US-based Warner Bros Television Group for US$273 million. Meanwhile, Talpa Music (owned by private investors) was acquired by the German BMG Rights Management. In addition to these deals, the sector saw two further important announcements: the first was that the US-based private equity firm Apollo Global Management appears poised to take control of television producer Endemol, while the second announcement was that investment company Egeria has declared that it is to put NRC Media (a publisher of multiple newspapers in the Netherlands) up for sale, having acquired the company four years ago.
Pharma, medical and biotech sectors also stood out in terms of activity, led by the DORC transaction. Meanwhile, the industrials and chemicals, and consumer sectors led the way in terms of outbound activity. Dutch companies were active in these international deals, with the list headed by the secondary buy-out of JET Gruppe by Egeria.
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VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
i Sources M&A financing
In addition to strategic buyers, private equity and venture capital are the main sources of M&A funding. Though they remain cautious, banks still play an important role in the third-party financing of larger M&A and private equity transactions, but the number of alternative forms of financing, especially in the mid-market, continues to grow.
Crowd funding has become increasingly popular and is growing in terms of transaction size where it is used. Both early-stage and late-stage ventures that meet certain requirements can apply for specific state loans that are known as ‘credit for innovation’. These loans are risk bearing to some extent, require no collateral and do not have strict repayment and interest conditions.
In larger transactions LMA documentation is common, but financing of smaller amounts is often based on templates of the relevant bank.
ii Structure bank finance
When there are one or more banks involved, depending on the size of the deal, the loans are divided into separate facilities that often include an amortising loan, a bullet loan and a working capital facility. If more than one bank is involved one of the banks will act as a security agent that holds the collateral for the full debt. The borrower consequently owes the full debt to the security agent and also owes each of the banks the part of the debt corresponding with their participation in the financing. A payment to the security agent will reduce each bank debt accordingly. This typically Dutch ‘parallel debt’ is used because the concept of a trust is in principle not recognised in the Netherlands and in order to avoid seniority and execution issues. Also, when a bank transfers its participation in the loan the collateral remains unaffected since it is held by the security agent.
iii Financial assistance
Targets are usually public companies (NVs) and private companies (BVs).Before the introduction of the simplification of the private company law (see
Paragraph II) financial assistance was not allowed for BVs and NVs. Some forms of lending taking into account the free distributable reserves were allowed, but no security or guarantees could be given. However, case law provides for an NV to attract financing with collateral for the payment of a dividend that may then be used for the acquisition. This effectively allows for a debt pushdown up to that amount.
The restriction has been completely lifted for BVs, but remains in place for NVs. A workaround can be found for non-listed NVs by converting them into a BV. Although there are no longer financial assistance rules to abide by in case of a BV, the board has the continuing duty to only act in the company’s interest, which may affect their willingness to cooperate with the financial assistance. Also, if this would prejudice the position of other creditors the collateral may be voided by those creditors or a trustee in bankruptcy in certain circumstances. In practice the board and, in the case of a non-listed company, the shareholders, adopt a resolution that entails that the transaction and the financial assistance is beneficial to the company to mitigate these risks.
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VII EMPLOYMENT LAW
i The Works Councils Act
The Dutch Works Councils Act (WCA) stipulates that a company’s management must grant its works council, which any company employing more than 50 persons should have, an opportunity to render advice on – inter alia – an envisaged transaction.
The advice must be requested in writing at such a point in time that works council’s advice may have significant influence on the intended decision. The works council will often not render its advice upon the proposed decision, until there has been at least one consultation meeting with the entrepreneur on the subject.
Unless the management decision corresponds with the advice given by the works council, the employer is obligated to suspend the implementation of its decision within one month after it has notified the works council of its decision.
During this one-month waiting period, the works council has the possibility to submit an appeal with the Enterprise Chamber of the Amsterdam Court of Appeal if the decision is not in accordance with the advice of the works council; or facts or circumstances have become known that, if known by the works council at the time of their advice, would have given them reason to provide different advice.
The Enterprise Chamber may rule that the entrepreneur has to reverse its decision in whole or in part and that the effects of the decision are to be undone.
ii The SER Merger Code 2000
The SER Merger Code 2000 (the Merger Code) is a code of conduct for mergers established by the SER, which is a tripartite advisory council to the government.
The Merger Code is aimed at the protection of the interests of employees in the event of a merger.
The Merger Code has no legal foundation, nor is it based on any statutory power of the SER. Not being law, it essentially has no binding force. In the event of infringement of the Merger Code, the Merger Committee established by the Merger Code may, however, make a public statement of censure or a public announcement. Since its existence, the Merger Code has been complied with, apart from a few exceptions that have generally received extensive and negative publicity.
The Merger Code requires the parties to a merger to notify the trade unions involved in the merger, as well as the Secretary of the SER. The Merger Code defines a merger as a direct or indirect acquisition of, or transfer of, control over a company or a part of a company, or the formation of a group of companies. The obligations set forth in the Merger Code may apply to both the acquiring company and the company being acquired, but the Merger Code explicitly does not apply to intra-group transactions.
Scope of applicationThe rules of conduct of the Merger Code shall be observed:a in any merger involving an enterprise established in the Netherlands and regularly
employing at least 50 employees; or
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b in any merger involving an enterprise belonging to a group of enterprises where the enterprises established in the Netherlands together regularly employ at least 50 employees.
It should be noted that the Merger Code refers to ‘enterprise’ and not to company. The legal form of the enterprise is not relevant as regards the application of the Merger Code.
NotificationIf the Merger Code applies, the merging companies have the obligation to notify the trade unions and the SER before making any public announcement on the merger or on the intention to merge. These notifications must be done at such a point in time that the opinion of the trade unions on the proposed merger is capable of having a substantial effect on the final decision of the parties in respect of the merger (including the terms of the merger).
In the notification, the management boards of the companies involved must disclose and explain to the reasons for the merger, their intentions as to the company policy to be followed as a result of the merger, the social, economic and legal consequences expected on account of the merger and any intended measures to be taken in relation thereto.
Following the notification, the companies involved must allow the trade unions the opportunity to discuss these matters, including the measures that will be taken to mitigate any potentially negative consequences of the merger for the employees involved.
iii Revision
The SER has concluded that, since the most recent revision of the Merger Code in 2000, certain problem areas have arisen. In early 2014, the SER appointed a committee to revise the Merger Code and to resolve identified problem areas. According to the SER, the relevant problem areas relate to the current stronger market conditions in industries that were historically part of government or the non-profit sector. Governmental authorities, non-profit organisations, but also liberal professions – such as lawyers – currently do not fall within the scope of the Merger Code. The conclusions of the committee are expected towards the end of 2014.
iv Transfer of undertaking
The concept of transfer of undertaking, as set forth in Directive 2001/23/EU has been implemented in Dutch law in section 7:662 et seq of the Dutch Civil Code (DCC). Pursuant to section 7:663 DCC and 7:662 subsection 2 DCC, a transfer of (part of an) undertaking is defined as ‘a transfer following an agreement, a merger or a legal separation of an economic entity which retains its identity after the transfer’. Consequently, a transfer qualifies as a transfer of undertaking if three conditions are met: there must be a transfer, either on the basis of a contract, a legal merger or legal separation, of an economic unity that retains its identity following the transfer.
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Contract, legal merger or legal separationOn the basis of Dutch Law, the transfer has to be based on a contract between parties, a legal merger or a legal separation. It should however be noted that this condition has been subject to a certain degree of corrosion, as the application of the rules governing the transfer of undertaking have been applied in instances where there was no contract between the transferring company and the acquiring company, but the transfer was deemed to have taken place ‘in the context of contractual relations’.
Economic unityAn ‘economic entity’ is defined as a unity of organised means, meant to implement (mainly) an economic activity. Case law distinguishes roughly between two sectors, the labour-intensive and capital-intensive sectors. Whether a company belongs to one or the other sector depends on whether labour is an essential element of the activities of the company.
Retention of identityThe economic unity – or business – that is transferred needs to retain its identity. This is a condition that depends on the circumstances of the specific case. As a guideline, the identity of the economic unity will generally be retained when the activities are virtually continued as if nothing had changed since the transfer or when the activities are continued after a short break.
ConsequencesIf the conditions above are met, the employees working in the business that is transferred will enter into the employment of the acquirer of the business by operation of law. All rights and obligations under the employment agreements between the transferor and its employees transfer by operation of law to the acquiring company. The acquiring company will consequently have to continue applying all terms and conditions of employment – including wages, bonuses, seniority – that the employees had during their employment with the transferring company.
If part of a business is transferred, the employees that work for that specific part of the business transfer to the acquiring company. The remainder of the employees will stay with the transferring company. This generally constitutes no problems for employees that only work for the transferred part of the business. However, that does not imply that support staff that works for the entire company will not have to be employed by the acquiring company. The specific circumstances of the case determine whether the support staff has to be employed by the acquiring company in the case of a transfer of undertaking.
Furthermore, based on case law, it is not possible to harmonise the terms and conditions of employment directly after the transfer of undertaking. This, however, is not an everlasting prohibition and it is possible to harmonise the terms and conditions of employment at a certain point in time.
There is a general prohibition against terminating employment contracts on account of a transfer of undertaking. Only if the employer can provide evidence of economic, technical or organisational reasons (ETO reasons) will the termination of
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employment contracts be considered. Whether or not any ETO reasons exist will depend on the facts and circumstances of a particular case.
Specific rulesIn deviation of the general rule that all rights and obligations under the employment agreements between the transferor and its employees transfer by operation of law to the acquiring company, specific rules exist with respect to the transfer of pension entitlements. Similarly, specific rules exist regarding the transfer of collective employment terms and conditions.
v Collective Redundancy (Notification) Act
Apart from the termination of an employment by mutual agreement between the employer and the employee, Dutch law provides for two other ways in which an employer may terminate an employment contract (i.e., (1) through a request to the court to terminate the employment, or (2) through a request for permission to the Labour Office to give notice of termination).
For collective dismissals, specific rules apply. In the event that an employer wishes to dismiss at least 20 employees for economic reasons, it is required to comply with the Dutch Collective Redundancy (Notification) Act (WMCO).
Pursuant to the WMCO, an employer who intends to dismiss at least 20 employees within the same Employee Insurance Agency (UWV) area within a period of three months, has the obligation to notify its intention of a collective dismissal in a timely manner to the UWV and the relevant trade unions in writing. The trade unions must be informed of the proposed redundancies and be invited to a meeting with the employer. The obligation to notify and to supply additional information provides trade unions with the opportunity to start negotiations with the employer regarding the necessity of the collective dismissal and possible stipulations or redundancy schemes.
If a works council has been established, it will be requested to give its advice pursuant to article 25 of the WCA.
Upon receipt of the notification, the UWV will assess whether all required information has been submitted and whether the works council and the trade unions have been properly informed. Subsequently, a waiting period of one month needs to be complied with, during which the employer may not effectuate any contemplated dismissals. The waiting period may, however, be waived by the trade unions.
Proportionality principleIn the event of a collective dismissal, the Dutch Dismissals Decree should be taken into account as well.
Article 4.2 of the Dismissals Decree sets forth the ‘proportionality principle’, pursuant to which redundancies must affect all age groups of the employed staff equally. The employer has the obligation to take this principle into consideration when it selects the employees to be made redundant. On the basis of the proportionality principle, employees who hold interchangeable positions are divided into age groups, within which it is necessary to determine which employees entered the company’s employment most
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recently. The ‘last in, first out’ principle determines the order of dismissal. Employees with the shortest length of service per category are selected to be dismissed first.
VIII TAX LAW
M&A transactions structured as share purchase transactions are generally Dutch tax neutral and are therefore often preferred from a seller’s perspective. Share purchases generally do not attract Dutch transfer taxes, stamp duties or VAT. Capital gains on such transactions are usually not subject to Dutch taxation. Ordinarily, the tax basis of the target’s assets and liabilities is not affected by a sale and transfer of its shares.
By contrast, an asset purchase generally triggers taxable capital gains for the seller and results in a step-up of the tax basis of the assets for the purchaser. In view of this, purchasers may prefer an asset purchase over a share purchase. Under certain circumstances, an asset purchase may, however, also be preferable from a seller’s point of view, for example if assets are sold at a loss or if the seller has losses to offset a capital gain.
An asset purchase generally does not attract Dutch transfer taxes, stamp duties or VAT, except for a transfer of Dutch real estate that is subject to a 6 per cent real estate transfer tax, which may also apply to a share deal if a legal entity’s only asset is real estate.
The statutory withholding tax rate is 15 per cent, which under certain circumstances may be reduced. For instance, a zero per cent rate is applicable with respect to payments made to corporate shareholders established in the EU or the EEA holding 5 per cent or more of the shares in the distributing entity. Qualifying shareholdings are exempted from tax on capital gains. With certain de minimis thresholds excessive costs on loans and certain related expenses are not deductible, however, there are no other thin capitalisation rules in place any more.
IX COMPETITION LAW
i The Dutch Competition Act
The Dutch Competition Act (DCA) provides a system of merger control for operations that affect the Dutch economy. It incorporates and largely copies the system of European merger control and prohibits mergers that create or strengthen a dominant position resulting in a significant restriction of effective competition on the Dutch market or a part thereof.
ii Concentration
The provisions regarding merger control set forth in the DCA apply to mergers, acquisitions, public bids and all other transactions that may bring about a concentration. The concept of a concentration is defined along the lines of the rules developed by the European Commission in the context of EC concentration control. Consequently, concentrations shall be deemed to arise where:a two or more previously independent undertakings merge; orb one or more persons or legal entities already controlling at least one undertaking,
or one or more undertakings acquire, whether by purchase of securities or assets,
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by contract or by other means, direct or indirect control of the whole or parts of one or more other undertakings; or
c a full-function joint venture is established.
iii Turnover thresholds
A concentration that meets certain thresholds as regards the turnover of the undertakings concerned will have to be notified to the Dutch Authority for Consumers and Markets (ACM).6 A concentration remaining below the threshold turnover levels may be effectuated without a notification to the ACM.
Section 29 DCA provides that a concentration must be notified to the ACM if:a the combined turnover of all undertakings concerned exceeds €113.45 million in
the calendar year preceding the concentration;7 andb at least two undertakings concerned each achieved a turnover of at least €30
million in the Netherlands.
iv Alternative thresholds for specific industry sectors
Notwithstanding the general thresholds set out above, alternative thresholds exist for undertakings in certain specific industry sectors. Such specific thresholds apply to concentrations in – for instance – the health-care sector, which is a sector that recently has seen substantial M&A activity in the Netherlands.
A concentration between at least two health-care undertakings must be notified to the ACM if:a the combined turnover of all undertakings concerned exceeds €55 million in the
calendar year preceding the concentration; andb at least two of the undertakings concerned each achieved at least €10 million in
the Netherlands, of which at least €5.5 million turnover is achieved by providing health care.
These sector-specific thresholds have been implemented due to the fact that the Dutch health-care market is a fast-changing market and is deemed to require specific attention to prevent a concentration from creating or strengthening a dominant position. The thresholds are intended to be temporary and will apply until at least 1 January 2018.
Specific rules also apply to concentrations involving insurance companies and for credit and financial institutions within the meaning of the Dutch Financial Supervision Act.
6 Formerly the Dutch competition authority, the NMa. The ACM is the successor of the NMa and is the result of the merger between the NMa, the Dutch Consumer Authority and the telecoms authority (OPTA), which merger was effectuated on 1 April 2013.
7 Legislation has been proposed to raise the threshold for the combined worldwide turnover to €150 million.
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v Assessment in two phases
The process with the ACM is divided into two phases, the first being the assessment by the ACM on whether a licence is required, which has a filing fee of €15,000. If a licence is required the second phase is entered, which has a filing fee of €30,000. If no licence is required the transaction can be executed.
vi Sanctions
A concentration that has been effectuated without having been duly notified or without the waiting period having been observed will be regarded as being null and void under the laws of the Netherlands.
In addition, the ACM has wide powers to impose fines and orders in the context of concentration control. Failure to notify a concentration will usually lead to a fine upon discovery by the ACM. Fines may run up to 10 per cent of the worldwide turnover in the year preceding the year of the fine. Moreover, the ACM may order injunctive measures or may impose periodic penalties in order to force the undertakings concerned to remedy their infringement of the law on both the companies and the directors involved.
vii Exemptions standstill period
A number of exceptions can apply to the prohibition on implementing a concentration prior to clearance from the ACM. In the event of a public takeover bid, the prohibition does not apply, provided that the bid is immediately notified to the ACM and the acquirer does not – without the prior approval of the ACM – exercise the voting rights attached to the share capital until the ACM has assessed the transaction.
The ACM can also grant an exemption from the standstill obligation if the waiting period would seriously jeopardise the concentration, for instance, in the event of a relaunch of a business following bankruptcy.
X OUTLOOK
A glance ahead suggests that quite a number of deals are either in progress or planned, according to current intelligence. Expectation is that in the coming period we can expect to see more activity in the industrials and chemicals sector, as well as in TMT. Higher stock market prices, along with companies increasing their price-to-earnings ratios, are helping to drive a growing confidence in the market.
Coupled with the current improvement of financial resource availability, this combination would traditionally herald an increase in the number of transactions. What is more, given that deal value has been at a historically low level in early 2014, we can expect this to rise too. Leading the way should be the industrials and chemicals, TMT and consumer sectors.
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ABOUT THE AUTHORS
CARLOS PITA CAOAKD N.V.Carlos Pita Cao obtained his MA in European and International Law at the Catholic University in Brabant, and completed the post-graduate study programme in EC Competition Law at King’s College London.
Carlos works at the corporate law and M&A practice group of AKD, where he concentrates primarily on national and international mergers and takeovers, management buyouts, joint ventures, shareholders’ agreements, partnerships, commercial contracting, corporate recovery and providing general advice for Dutch and foreign companies. He frequently works in a multidisciplinary context for both national and international clients.
Carlos speaks fluent Spanish and English.
FRANÇOIS KOPPENOLAKD N.V.François Koppenol obtained his MA at Leiden University. He has been involved in many national and international M&A transactions, which included a great number of private equity deals and venture capital investments. Currently, besides assisting clients on strategic takeovers and buyouts, he regularly advises several Dutch investment funds on their investments and exits. In that setting François also often acts as counsel to sellers.
Combining this knowledge with his knowledge and experience in the area of insolvency and restructuring François also advises clients on the various aspects of distressed M&A.
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AKD N.V.Gustav Mahlerlaan 2998AmsterdamNetherlandsTel: +31 88 253 55 89Fax: + 31 88 253 55 [email protected]@akd.nlwww.akd.nl