In a time of many market consolidations, mergers, and acquisitions, issues related to minority shareholders have occupied many companies and law firms. Legislation that will settle the current regulation of takeovers is on its way, as Slovakia adopts EU directives.
Takeovers are regulated by the Slovak Act on Securities and Investment Services (566/2001 Coll). According to the Securities Act, a takeover bid is a public offer to acquire listed shares carrying voting rights, interim certificates that replace these shares, and convertible bonds conveying the right to acquire such shares.
A legal or natural person, or persons acting in concert, whose share of the voting rights exceeds 33%, 50%, or 66% of all voting rights are obligated to make a takeover bid to buy all listed shares of a joint stock company (a mandatory bid). The bid price in a mandatory bid may not be lower than the shares' average price quoted on the stock exchange over the six months before the acquisition of shares with voting rights, nor may it be lower than the price set in an expert opinion, which has often led to legal disputes between majority and minority shareholders.
Also, the bid price for shares in a mandatory offer may not be less than 50% of the net asset value a share, according to the most recently audited financial statements as of when the bid was published. The period of validity of the takeover bid must be between 30 and 60 calendar days, starting on the date the takeover bid is published.
The long-awaited squeeze-out and sell-out regime, legislation that was adopted in the neighbouring Czech Republic in 2005, has not yet been regulated in Slovakia. The missing legal framework has led to unconventional practices, such as changing the legal form of a company from a joint stock company to a cooperative society to exclude minority shareholders. In such cases, the minority shareholders become members of the cooperative society and must pay a cooperative membership fee, which is often set too high for them to pay. Unable to do so, their membership in the cooperative society is terminated and they are entitled to a settlement payment. However, this settlement is not regulated, and adequate compensation is not guaranteed.
An amendment to the Securities Act is being prepared to implement Directive 2004/25/ES on Takeovers, which harmonizes methods of takeovers within the EU. Among other changes, the amendment will specify conditions and mechanisms for the execution of takeovers and will introduce the squeeze-out and sell-out regime after a takeover bid.
Under this amendment, an applicant who (after acceptance of the offer) acquires shares carrying voting rights representing at least 95% of the total face value of the target company, and who simultaneously acquires at least a 95% share of the voting rights of the target company to which the takeover related, can demand the purchase of the remaining shares from the remaining minority shareholders. This rule would not apply if the takeover was partial or conditional, and it could be exercised only within three months of the expiration of the takeover validity period.
If an applicant acquires a 95% shareholding, a minority shareholder could, within three months after expiration of the takeover validity period, exercise its right to sell-out (that is, to request that the applicant purchase its shares for an adequate price). If the applicant does not accept the sell-out offer, the minority shareholder could seek to enforce its right in court.
Based on the proposed version of the amendment:
- The provisions on takeovers will refer only to shares, interim certificates, and other convertible securities with voting rights listed on a regulated market (and on the regulated free market) in Slovakia or in another member state.
- The obligation of the applicant or a person acting in concert to announce a mandatory offer will arise when their share of the voting rights exceeds 33% of all voting rights attached to the shares of one joint stock company.
- Takeovers will be executed through a financial market administrator.
- The consideration paid for the mandatory takeover will be proportional to the price of the shares of the target company.
- The period for accepting the takeover bid will be extended to 30 to 70 calendar days.
This new regime could increase the competitiveness of companies by simplifying settlements with minority shareholders and by increasing the speed of takeovers and mergers, attracting more foreign investors to Slovakia.
Luboso Frolkovic and Petra Hollá