GENERAL OVERVIEW
Legislation governing M&A transactions in Greece
Mergers between Greek companies are regulated by the relevant provisions of codified law 2190/1920 on joint stock companies and, subject to the fulfilment of certain conditions, either by legislative decree 1297/1972 or by law 2166/1993, which both provide tax incentives for the mergers that fall within their application.
Mergers (and acquisitions) between public companies are additionally governed by the relevant rules and regulations issued by the Athens Stock Exchange. The most important of those rules are decisions 19/1999, 57/2000 and 94/2000 of the board of directors of the Athens Stock Exchange that mainly impose certain disclosure obligations on the public company and provide for additional valuation requirements.
Acquisitions of public or private companies in Greece are concluded either through the sale of the shares of the target company or the sale of its assets. Most acquisition transactions are concluded through a sale of shares, mainly because of the lower tax rate applicable in the case of a share transfer. In particular, in a share transfer, the transfer tax payable by the seller amounts to 5% of the objective value of the shares or of the purchase price, whichever is higher. The objective value is calculated pursuant to a specific formula provided by the law, taking into account the profits of the target company for the preceding five years. With regard to the transfer of shares listed on the Athens Stock Exchange, the relevant transfer tax payable by the seller amounts to 3% of the purchase price. In the case of an asset sale, the transfer tax payable by the seller amounts to 20% of the capital gain.
Also, any transfer of shares or assets of private companies must follow the formalities imposed by tax law 2238/1994 (Articles 13 and 79, as amended), which require the payment of the relevant transfer tax before the execution of the agreement and the filing of such agreement at the competent tax authority after its conclusion.
Furthermore, in the case of an asset sale, and according to Article 479 of the Greek Civil Code, the buyer remains liable against the company's creditors for the company's debts existing before the sale, with a maximum liability that cannot exceed the value of the assets. The law provides that any contrary agreement between the seller and the buyer is, by law, null and void against the creditor, which always has the right to pursue its claims either against the seller (the target company) or the buyer. Such obligatory provision makes asset sale even less attractive.
Any sale of goods (either sale of assets or sale of shares) is governed by specific provisions of the Greek Civil Code of, Articles 513 and the following, regarding sale of goods (together with the general provisions of the law on obligations of the Greek Civil Code). Most of these specific (mainly supplementary) provisions of the Greek Civil Code are of dispositive law, meaning that they apply unless the parties otherwise agree. The specific provisions of Articles 513 and the following have been recently amended by virtue of law 3043/2002 (Government Gazette A'192/21.8.2002), which implemented into Greek law the provisions of European Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees. The Greek legislator was innovative in the implementation of the Directive because it chose to apply the Directive's favourable provisions not only to consumer contracts, but also to any contracts of sale, thereby amending the relevant specific provisions of the Greek Civil Code.
Pursuant to said provisions, the seller is by law obliged to provide the buyer with information on the legal status of the goods to be sold (that is, the shares or the assets), including information on the rights and liens over such goods, as well as to deliver any documents proving such legal status and rights. Also, according to the law, the goods do not conform with the sales contract if, without limitation, the goods do not comply with the description given by the seller to the buyer. In cases of non-conformity, the buyer has all the rights granted to it by law as alternatives, and in particular it has the right either to make a request for repair or replacement of the goods (in either case free of charge, unless this is impossible or disproportionate) or to require an appropriate reduction of the purchase price or to rescind the sales contract, unless the non-conformity is minor, or to seek compensation of damages for the non-performance of the sales contract, under the conditions provided by law.
Lastly, certain mergers and acquisitions between companies of a regulated industry (such as financial services, media or energy) may be specifically regulated (such as law 2515/1997, which regulates mergers between banks). Also, specific laws may also require certain administrative approvals - notifications to the competent supervising authorities in certain cases (for example, if the target company has benefited from a grant or subsidy by the Greek state or in case of a merger of a company holding a state licence).
Impact of recent legislative changes on M&A activities in Greece
New law 2992/2002 (Government Gazette A'192/21.8.2002) on measures for the enhancement of the capital market introduced tax incentives in the case of mergers between non-affiliated companies (public or private) to be completed before December 31 2004. Such tax incentives include a 10% and 5% reduction in the effective corporate tax rate for the first and the second fiscal year respectively after the completion of the merger and allow the merged company to set off its loss with profits to be earned over the two years after the merger. In order for such tax incentives to be used, the law requires that a certain equity ratio apply between the merged companies (depending on whether the merged companies are public or private).
The law has boosted M&A activity in the country over the last two years, which, however, due to strict legal requirements, remained weak. Also, EU has challenged this law as violating unfair competition rules.
Most significant M&A transactions in Greece in 2003
High-profile M&A transactions in Greece over the past year included the merger between Hellenic Petroleum and Petrola (total combined market capitalization of €2.1 billion ($2.6 billion) following the merger), the merger between Piraeus Bank and ETVA Bank and the acquisition of Papastratos Industry (a tobacco products maker) by Philips Morris for a total price of about €480 million.
Restrictions on foreign involvement in M&A transactions
There are no significant restrictions or regulations on foreign involvement in M&A, especially when EU companies are concerned, other than those applying on transactions with no foreign element. But under the current legal framework, a merger between a Greek and a foreign company remains infeasible.
DUE DILIGENCE
Principal disclosure requirements in a typical M&A transaction
Codified law 2190/1920 on joint stock companies provides the principal disclosure requirements in a merger transaction between companies, either private or public.
According to the law, the merging companies are obliged to publish in a daily financial newspaper a summary of the draft merger agreement as approved by their competent bodies. Creditors not having enough security for their claims have the right, within one month from publication, to demand that enough security is granted to them, provided that the financial condition of the merging companies makes such protection necessary. They also have the right to veto the prospective merger by notifying the companies in writing of their arguments. In case of dispute, the courts have the right to allow the merger if they judge that the creditor's arguments are not justified based on the respective financial condition of the companies to be merged or on the securities that the creditors have received or have been offered to them.
There are no requirements for disclosure to third parties of the private share or asset purchase agreement (with the exception of its typical filing at the competent tax authority according to the provisions of law 2238/1994, as amended).
In the case of an M&A transaction concerning a public company, and pursuant to Resolution 5/204/14.11.2000 (the Code of Conduct) of the Hellenic Capital Market Commission (CMC): "any company listed on the Athens Exchange shall ensure that any information or fact occurring in its domain of activity, which is not accessible by the public and which may cause significant fluctuation in the price of its shares, is disclosed".
Moreover, a decision to launch a tender offer or an agreement regarding participation in a merger, de-merger or takeover procedure, acquisition or disposal of shares corresponding to at least 5% of a company, in which either: (a) the listed company; or (b) a member of its board of directors; or (c) a shareholder holding over 10% in the listed company, owns a stake of at least 10% must be disclosed.
Resolution 2/258/5.12.2002 of the CMC (the Tender Offer Resolution) requires the publication of a prospectus approved by the CMC in the event of a tender offer regarding shares listed on the Athens Exchange. The prospectus must contain all information necessary for the shareholders of the company to form an adequate opinion on the tender offer and the bidder.
Pursuant to Resolution 94/13.2.2003 of the Athens Exchange, a listed company that absorbs another company by merger must file with the Athens Exchange and publish a prospectus, which must contain all material information of all merging companies, that is, all information that would be included in a prospectus prepared for the purpose of listing the companies on the Athens Exchange, including the valuations performed. If the company absorbed by the listed company is non-listed, a tax audit of the non-public company is also required.
Some other types of corporate actions, such as the merger of subsidiaries into their parent public companies, the acquisition of a non-public company by a public one (which is not funded by means of a share capital increase), and the spin-off of a business section of a public company, require the publication of an information memorandum similar to a prospectus.
Market transparency of disclosure requirements
All information to be published by a listed company is posted on the Daily Price Bulletin of the Athens Exchange. Prospectuses or information memoranda are made available to the public in the company's, the underwriter's (if any) and the Athens Exchange's offices.
Notices regarding all corporate actions related to the merger must also be published in at least one financial and one non-financial newspaper.
Prospectus liability in a typical M&A transaction
Typically, an underwriter is required to sign a prospectus published in connection with the listing of a company's shares on the Athens Exchange.
Regarding M&A transactions, a prospectus signed by an underwriter is also required in the following cases:
Merger of a non-listed into a listed company, where:
the merger results in a capital increase greater than 50% of the existing share capital; or
the shareholders of the non-surviving company end up post-merger with more than 50% holding in the listed company.
Capital increase of a listed company due to contribution in kind or contribution of business section, where:
such capital increase is greater that 50% of the existing share capital; or
the ex-owners of the business segment or the property contributed end up post-capital increase with more than 50% holding in the listed company.
An underwriter signing the prospectus is liable for the accuracy and completeness of the information contained in the prospectus and for the determination of the initial public offering price. The underwriters are jointly and severally liable even for slight negligence towards the persons who acquired securities in a public offer for every loss incurred by them provided that such loss has been crystallized through a sale of the securities acquired. The underwriter bears the burden to prove that it has acted in a diligent manner, including that it has relied on a financial and legal due diligence conducted by auditors and lawyers independent from the issuer. Claims against the underwriters of a prospectus are time barred after a year from the commencement of trading of the relevant securities.
If the prospectus contains false information, or if notification requirements are not followed, then, pursuant to law 1969/1991, the CMC may impose a fine of about €15 million on the board of directors of the listed company.
TAKEOVERS
Specific regulations and regulatory bodies governing takeovers in Greece
The Tender Offer Resolution of the CMC, which oversees its enforcement, governs takeovers of public companies.
Methods by which a takeover can be achieved
A takeover may be achieved by means of a tender offer for the purchase of shares representing at least 40% of the total number of the voting shares of the target company, including the shares that are under the offeror's control (voluntary tender).
If any person acquires shares or voting rights representing more than 50% of the total number of the voting shares of a listed company, such person must submit within 30 days a tender offer for the acquisition of the total number of the target's voting shares (mandatory tender). In the case of a mandatory tender offer, the offer price must be paid in cash and may not be less than the higher of the average share market price during the 12 months preceding the submission of the offer, or the highest price at which the bidder acquired any shares during the six months preceding the submission of the offer.
Different treatment of hostile and friendly takeovers
The Tender Offer Resolution does not differentiate between hostile and friendly takeovers and applies without a distinction to all takeovers of listed companies.
Penalties for violation of takeover regulations
In the case of violation of the Tender Offer Resolution, the CMC can impose a fine of up to €300,000.
Thresholds for disclosing bids and offers
The Code of Conduct requires a shareholder of a listed company owning at least 10% of any class of shares to notify the company and to publish their intention to purchase (or dispose of) shares of the same class corresponding to at least 5% of the company's share capital, if such transactions will be effected within the next three months.
Pursuant to Presidential Decree 51/1992, any person must, within the next business day after the purchase or sale of shares in a public company, notify the company and the competent authority on the change of their voting right and share capital participation, if the participation exceeds or falls below certain thresholds, including 5%, 10%, 20%, 33.3%, 50% and 66.6% of the total share capital of the public company.
COMPETITION/ANTITRUST
Recent developments in competition policy and legislation as they relate to M&A transactions in Greece
There has been no change in Greek competition legislation as regards M&A in 2003. But there has been a major development in the European legislation, the new merger regulation Council Regulation (EC) 139/2004, which will affect the way competition policy is administered in the EU. The new merger regulation provides for changes in jurisdictional, substantial and procedural issues and will result in a new allocation of duties between member states and the Commission.
Enforcement of competition/antitrust regulations in Greece
Law 703/77 for the protection of Free Competition, as amended, is the statute that governs competition/antitrust issues in Greece including mergers. It provides for the following enforcing authorities:
The Hellenic Competition Commission (HCC), an independent administrative body, operating under the supervision of the Minister of Development. HCC is the national authoritative body responsible for the enforcement of Law 703/77 and the protection of competition in Greece.
The Minister of Finance and the Minister of Development, acting jointly, may intervene directly and approve certain transactions/concentrations, if they deem them beneficial to the national economy, even if HCC has ruled otherwise. In a similar way, in certain cases the Minister of Development following a positive legal opinion of the HCC can exclude categories of concentrations from the prohibitions of Law 703/77.
Law 703/77 stipulates specific administrative fines in the case of violation of its provisions. HCC is responsible for the imposition of the following fines:
A fine of up to 7% of the total turnover of each undertaking involved in the merger, in case of violation of the notification requirement.
A fine of up to 15% of the total turnover of each undertaking required to notify if the undertakings proceed towards the completion of the merger, during the examination of the case by HCC do not comply with the decision of HCC.
Approach to the issue of abuse of dominant position
Generally, Law 703/77 follows the rationale of Articles 82 of EC treaty. Article 2 regulates the abuse of dominant position and Article 2a to the abuse of financial dependence.
Article 2 of Law 703/77 prohibits the abuse of a dominant position, but it does not provide for the definition of dominant position. A definition can be inferred by rulings of HCC and Greek courts' rulings on competition issues. According to their rulings, an undertaking enjoys a dominant position in a relevant market when it possesses a significant portion of the market, and is empowered to engage in commercial activities in an independent manner irrespective of the behaviour of its competitors, clientele or providers (HCC's Air Liquide Ruling 13/19.11.1981). In other words the undertaking holds a dominant position whenever, for legal or financial reasons, it can employ a financial strategy regardless of the strategies of its competitors on the market, and has the power to indicate or influence unilaterally the rules of the market.
As regards the market share of the company as an indication of its dominant position, a rule of thumb, according to HCC, is that a market share of 65% or more constitutes a dominant position per se.
As regards the definition of abuse of a dominant position, Article 2 of Law 703/77 repeats the classification of Article 82 of the EC Treaty and mentions the same four specific cases of abuse of dominant position. Under Article 2 of Law 703/77, an abuse of a dominant position may consist of:
directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
limiting production, markets or technical development to the prejudice of consumers;
applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts.
Extent to which the parties to an M&A transaction are subject to prior notification requirements
Under Article 4b of Law 703/77, a concentration must be notified to HCC within 10 days of: (a) the signing of the agreement: (b) an offer being made public; and (c) the acquisition of a share percentage, if the following criteria are met:
the agreement, public offer or acquisition of shares results in a concentration which possesses, at least, a 35% share of the combined aggregate turnover of all participants in the national market of the relative goods or services;
the annual aggregate turnover of all undertakings participating in the concentration exceeds €150 million and each of at least two undertakings concerned have an annual aggregate turnover of €15 million.
Each undertaking involved in the concentration is required to file a notice with HCC.
Author biographies
Johnny Vekris
PI Partners EY Law
Johnny Vekris is a partner at PI Partners EY Law, Athens, dealing with corporate and commercial law, arbitrations, shipping law and real estate.
He was previously associated with large shipping operators in Greece and with the Boston law firm Bingham Dana & Gould (1985 to 1986).
He speaks Greek, English and French.
Vekris was admitted in 1988 to the Bar of the State of New York and in 1986 to the Athens Bar. He is a graduate of the University of Athens (LLB, 1983), the University College of the University of London (LLM, 1984), and Harvard Law School (LLM, 1985). He is co-author of the chapter on Greece in an encyclopedia entitled Modern Legal Systems, edited by Prof Kenneth R Redden of the University of Virginia (1985).
Stathis Potamitis
PI Partners EY Law
Stathis Potamitis, managing partner at PI Partners EY Law, Athens, is a recognized expert in securities, investment services, banking and corporate transactions.
He was previously associated with the New York law firm Paul Weiss Rifkind Wharton & Garrison (1986 to 1991); was general counsel of Egnatia Bank (1991 to 1994); and was deputy chairman of the Athens Derivatives Exchange (1998 to 1999).
He speaks Greek, English and French.
He is a member of the Bar of the State of New York (1987), the Thessaloniki Bar (1992), and transferred to the Athens Bar in 2000.
Potamitis is a graduate of the University of Toronto (LLB, 1986) (MA, 1982) (BA, 1979), and Eleve Titulaire at the University of Paris IV (1983). He is author of A Synopsis of Securities Exchange Legislation published by the Athens Stock Exchange in 1996. He is member of the committee for the codification of securities exchange legislation; has drafted the Code of Conduct for investment services firms, regulations for licensing and reporting by investment services firms as well as several laws.
Potamitis Iliadou Vekris Paparrig Law Partnership
11th km National Road Athens-Lamia
GR-144 51 Metamorphosi
Greece
Tel: +30 210 28 86 549 550
Fax: +30 210 28 86 910
E-mail: pi.partners@gr.eylaw.com
Web: www.eylaw.com/greece