This paper points out the chief principles of acquisition of shares in joint-stock companies admitted to the regulated securities market. According to the law, a joint-stock company whose shares were listed for trading on the securities exchange is considered a public joint-stock company.
Joint-stock company
A public joint-stock company is a joint stock company:
(i) which issues shares or a portion of its shares pursuant to a public offer to subscribe shares, or
(ii) whose shares were admitted to trade on the securities exchange.
The §5a) Act 594/2003 Coll. On Collective Investment defines the term public offer as any notice, offer or recommendation to collectively invest money by a legal entity or a natural person for the benefit of such person or for the benefit of a third party, through any publishing means which reaches a group of more than 50 natural persons.
According to §120 section 2 of the Securities Act (566/2001 Coll on Securities, as amended), there is a similar definition of a public offer of securities, which means any notice of which a larger group of persons becomes aware, in any format and by any means that contains sufficient information regarding the terms of the offer of the securities and of the actual securities which enables investors to decide whether to buy or subscribe such securities. A public offer of securities also means placement of these securities, through securities brokers or foreign securities brokers, if this placement takes place according to the first sentence.
Regulated securities market
According to the Securities Exchange Act (429/2002 Coll on The Securities Market, as amended), the securities exchange market (hereinafter the market) organises a securities market:
(i) on a market of listed securities, and
(ii) on a regulated free market.
The market of listed securities and the regulated free market comprise the regulated securities market.
Takeover bid
Shares may be acquired based on:
1) a takeover bid;
2) exercising the right of squeeze-out;
3) the right of sell-out;
4) a public offer; or
5) a direct sale.
A takeover bid is governed by the Securities Act and can be made only on the regulated market. A takeover bid means a public offer to conclude a contract, the subject of which is the purchase of all shares in the offeree company or a part thereof or an exchange of such shares or a part thereof for other securities.
A takeover bid is submitted by the party interested in the shares of the offeree company. It is intended for the shareholders of the offeree company. The group of recipients of the offer is therefore designated in advance – the owners of the shares of the offeree company. It is also intended for the acquisition of a controlling percentage in the offeree company or follows the acquisition of a controlling percentage in the company. Controlling holdings means holdings of at least 33% of the voting rights carried by the shares in one offeree company. The offer may be announced pursuant to the offeror's lawful duty or may be announced voluntarily. The offer may be to purchase or exchange, whether all shares in the offeree company or a part thereof.
The takeover bid is associated with the offeror's reporting duty. By deciding to make the takeover bid or when the duty to make a takeover bid arises, the offeror, without undue delay, must notify the board of the offeree company and National Bank Slovakia in writing. In the case of a mandatory takeover bid, the offeror's notice must state the day and reasons this duty arose, and must attach to the notice to National Bank Slovakia a request for designation of an expert or expert valuation (for the manner in which an expert is selected, see the last paragraph of this section). The offeror must publish the takeover bid in a daily publication, which must be either a national publication or a publication with sufficient coverage throughout the Slovak Republic.
The offeror must, within 10 business days of publication of the notice, submit a written takeover bid to National Bank Slovakia along with documents evidencing such publication. The Securities Act contains a detailed schedule of the requirements for the takeover bid.
National Bank Slovakia will approve or reject the takeover bid by the deadlines and in the manner governed by the Securities Act. The offeror must deliver the takeover bid, approved by National Bank Slovakia, without undue delay to the offeree company and publish it in a daily publication, which must be either a national publication or a publication with sufficient coverage throughout the Slovak Republic. The effects of the takeover bid, approved by National Bank Slovakia, occur upon its publication. The draft takeover bid must include the manner in which the offer may be accepted, including the procedure and manner of concluding a share purchase contract or contract to exchange shares for other securities, including the method, conditions and procedure for payment of the purchase price or the exchange of securities.
A separately governed method of bid is a mandatory takeover bid. According to the Securities Act, a person that alone or together with persons acting in concert achieves or exceeds a controlling percentage is obliged to make a takeover bid for all shares in a company. The obligation to make a takeover bid is not applicable to:
a) A person that acquired a controlling percentage in the offeree company as the result of a takeover bid and if such bid was not partial or conditional;
b) A legal successor that enters into all rights and obligations of a shareholder in the offeree company if such shareholder fulfilled the obligation to make the takeover bid or if as the result of the legal succession the percentage of such shareholder in voting rights in the offeree company is not increased,
c) A person that acquired shares in the offeree company by purchasing the enterprise or part thereof through a procedure set out by special law, if as a result the person's percentage in the voting rights in the offeree company was not increased,
d) A person acting in concert with another person if the total percentage in the voting rights in the offeree company with the person acting in concert remains unchanged and the only changes relate to the internal structure of the company.
If a controlling percentage in the offeree company constituting the duty to make the takeover bid is achieved or exceeded by acting in concert, all persons acting in concert are obliged to make the takeover bid; the obligation is fulfilled if any of said persons makes the bid.
If an offer is made to purchase the shares of the offeree company, the purchase price offered for one share of equal class and form must be stated. If an offer is made to exchange shares of the offeree company for other securities, the quantity, class, form, likeness and nominal value of such securities must be stated as well as the exchange ratio for shares in the offeree company. The price or exchange ratio of substitutable securities must be determined
This is the same for all persons for whom the takeover bid is intended. The takeover bid must also state the methods used to determine the purchase price or exchange ratio, including data on whether the method used takes into account the revenues of the offeree company and the value of the business assets, including intangible assets, of the offeree company and whether their value and revenues of the offeree company were calculated on the individual shares based on their relative percentage in the offeree company's registered capital.
Whilst with a voluntary takeover bid the pricing method (aside from stating the method of its calculation in the draft – see previous section) is not detailed, with a mandatory takeover bid a significant criterion is the equitableness of the consideration. Consideration in a mandatory takeover bid may be cash, securities or a combination.
If the offeror is offering even part of fulfillment in the form of securities, he must also as an alternative offer cash. Consideration with a mandatory takeover bid must be equitable to the value of the shares of the offeree company. Equitableness of consideration is shown by expert valuation, which is prepared in accordance with special law.
If a mandatory takeover bid is preceded by the exercising of the right of squeeze-out (see above), the expert valuer must designate the general value of the enterprise as a whole using the asset method as well as the business method; equitable consideration determined by the expert valuation is deemed the higher of the resulting values of the enterprise as a whole determined by the asset method and business method, evenly spread over the individual shares of the offeree company based on the relative percentage in the registered capital.
According to the Securities Act, equitable consideration is consideration which:
(i) is not lower than the highest consideration that the offeror or person acting in concert with the offeror provided for shares in the offeree company during the 12 months prior to when the duty to make the mandatory takeover bid arose; and
(ii) is not lower than the consideration determined by the expert valuation; and
(iii) is not lower than the net asset equity valued.
In the case of listed shares, equitable consideration further cannot be lower than the average rate of these shares on the securities exchange for the past 12 months prior to when the duty to announce a mandatory takeover bid arose.
Exercising squeeze-out
The Slovak Republic, by approving Act 644/2006 Coll that amends and supplements the act on banks and certain other acts (including the Securities Act), implemented into the legal environment the concept of squeeze-out, which in Slovak is frequently referred to as the buy-out right. This new governance enables a majority shareholder to acquire all remaining shares in the offeree company that are traded on the securities exchange. This must take place for reasonable consideration by the purchase or exchange thereof for other securities, notwithstanding the minority shareholders' disagreement with such purchase or exchange.
For the majority shareholder (offeror) to exercise the buy-out right he must have made a takeover bid (whether voluntary or mandatory) that was neither partial or conditional. The offeror may exercise the right of squeeze-out within three months of the time allowed for acceptance of the bid, otherwise the right expires. The offeror must also have held securities representing not less than 95% of the capital carrying voting rights and 95% of the voting rights in the offeree company.
The offeror that has decided to exercise the buy-out right must notify the offeree company, National Bank Slovakia and all remaining shareholders in the offeree company of such decision without undue delay, including statement of the facts pursuant to which he incurred the right. The right of squeeze-out is effective toward the affected shareholders only after National Bank Slovakia has granted consent. National Bank Slovakia will grant the offeree consent only if the conditions for exercising this right have been fulfilled.
Minority shareholders must accept the draft share purchase contract or contract of exchange for other securities within the period set out in the draft or within 10 days of the day National Bank Slovakia granted consent to the right of squeeze-out (if the offeror concurrently with lodging his application for the consent of National Bank Slovakia also exercised his right of squeeze-out against the minority shareholders and notified them that his right was conditional on such consent). If a minority shareholder requests an expert evaluation regarding the adequacy of consideration, the offeror must provide such evaluation.
If the minority shareholder rejects the draft contract within said periods, the offeror may go to court to order acceptance of the draft.
The consideration when exercising squeeze-out may be monetary, securities or a combination. If the offeror is offering even part of fulfillment in the form of securities, he must also as an alternative offer cash.
Right of sell-out
If the majority shareholder that made a takeover bid which was neither partial nor conditional holds shares whose overall nominal value represents not less than 95% of the capital carrying voting rights and 95% of the voting rights in the offeree company, the shareholder holding the remaining shares in the offeree company has the right to require the majority shareholder to buy his securities for equitable consideration.
The remaining shareholder may exercise this right within three months of the time allowed for acceptance of the bid, otherwise the right expires. The remaining shareholder exercises this right by dispatching a draft share purchase contract to the majority shareholder. The draft contract will contain:
- the required equitable monetary consideration or equitable consideration in securities;
- the time allowed for acceptance of the draft contract; and
- the time allowed and procedure for transfer of securities.
The majority shareholder must accept the draft contract within the period set out in the draft or within 10 business days from delivery. If the majority shareholder does not accept the draft contract within this period, the remaining shareholder may go to court to order acceptance. This right must be exercised within three months of expiration of the period set out in the first sentence, otherwise it will expire. The majority shareholder may, without undue delay following delivery of the draft contract, request a court to examine the equitableness of the required consideration. This right will expire if not exercised within one month from the day the draft contract was delivered. If the consideration was not determined by expert appraisal, the burden of proof regarding equitableness of the offered consideration is borne by the remaining shareholder. The provisions of the Securities Act on the right of sell-out apply mutatis mutandis to matters such as consideration in the exercising of the right of sell-out.
Public offer
A public offer of securities is any announcement to a wider group of persons in any form through any means that contains sufficient information on the terms of the offer of securities and on the securities, allowing investors to decide to buy or subscribe to the securities. A public offer of securities is also placement of the securities through securities traders or foreign securities trades if carried out in the manner set out in the first sentence.
Thus, the target audience of a public offer is a wider group of persons that may be potential buyers of these securities (in this case shares). The offeror is the person that desires to sell the offered shares.
The law prohibits a public offer of securities without prior publication of an approved securities prospectus. However, the Securities Act enumerates some parameters of an offer (especially with respect to the volume of shares offered and the entities to whom these shares are offered) which are not subject to the duty to publish a prospectus, as well as a circle of securities which are not subject to this duty.
A prospectus in general must contain the data necessary to enable the investor to make a good judgment of the issuer, its assets and liabilities, financial situation, profit and losses and outlook and the persons that assumed guarantee for payment of the securities or the yields and rights associated with the securities that are the subject of the public offer.
The completeness of the prospectus and its compliance with the Securities Act is ensured as it is approved by National Bank Slovakia.
The issuer or offeror of the public offer of securities must publish the prospectus reasonably in advance of making the public offer of securities.
Direct trade
In addition to the aforementioned methods of acquiring shares on the regulated market, where chiefly under a takeover bid and public offer the outcome of the transaction is not apparent in advance, there is also the option of a direct agreement between the seller and buyer in a contract to purchase securities. However, the actual transaction on the regulated market must be carried out by members of the securities market through a securities broker.
A contract to purchase securities where no purchase price is set out is valid only if the parties explicitly manifest their will therein to conclude the contract without stating a purchase price. In such cases the buyer must pay a purchase price corresponding to the lowest rate for which the substitutable security was sold on the securities market on the day the contract was concluded.
Reporting duty of the acquirer
Following an acquisition of shares that are traded on the regulated market, the persons that acquired these shares have a reporting duty to the issuer of said shares. The acquirer has this duty whenever the following thresholds of percentage of voting rights in the issuer are exceeded (whether higher or lower): 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%. Voting rights are calculated on all shares carrying voting rights, even if the voting rights are not active. This information is also stated for all shares of the same class that carry voting rights.
| Author biography |
Daniel Futej
Futej & Partners
Daniel Futej JUDr CSc, LLM is the managing partner of the leading Slovak law firm Futej & Partners. He is responsible for the negotiation of a wide variety of transactions involving acquisition of pension companies, debt and equity financing and real estate investments. For the past 10 years he has been engaged in transactions in Central and Eastern Europe. He has been involved in a broad range of financing and joint venture projects including real estate projects. He has published various articles and is co-author of a book on EU law. |