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Why Us? |
Publications
Greek Chapter to "Getting the Deal Through - Mergers and Acquisitions 2006"
published by Law Business Research.
GREECE
Dimitris E. Paraskevas
Elias Paraskevas Attorneys 1933
1 Form
How may businesses combine?
Business combinations in Greece may take the following forms:
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merger: when two or more companies transfer all their assets and liabilities to an existing company, or to a newly formed company, in exchange for shares, cash, or a combination of both. Thereafter, the absorbed company/ies cease to exist;
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acquisition of shares: this can be done privately or publicly by means of a tender offer for exchange of securities; or by a combination of both. Both companies continue to exist after the transaction;
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spin-off: when a part of the assets of a company are transferred to another company;
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transfer of a business as a going concern: where the assets, liabilities and employees of the seller are transferred to the buyer; and
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division: this is a method restructuring or splitting up of one company into two or more companies. Although a division shares the essential nature of a merger, namely that of universal succession (in the sense that there is a form of continuation from the company split up and the new entities created thereby), it is not technically a combination. For this reason division is not considered in the answers which follow.
2 Status and regulations
What are the main laws and regulations governing business combinations?
The relevant regulations and statutes are as follows:
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Codified Law 2190/1920 on Greek sociétés anonymes (the SA Act) provides the fundamental statutory framework which, together with the Greek Civil and Commercial Codes, forms the corpus of the law governing the combination of corporate entities;
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Rule 2/258/5.12.2002 of the Hellenic Capital Market Commission (the HCMC) regulates public takeover bids (the Takeover Code);
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Law 3190/1955 on Greek limited liability companies (the LLC Act); and
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the provisions of competition and labour law as well as the development incentives contained in Laws 2166/1993 and 2386/1996 also have a bearing on business combinations.
3 Legal documentation
What law typically governs the transaction agreements?
Where the combination takes the form of a merger, a merger agreement must be signed. The merger agreement must comply with all the provisions of Article 69 of the SA Act, which sets out the minimum requirements of the agreement.
According to Article 9 of the SA Act, a valuation report must be prepared by independent financial advisers who are appointed by common request of each of the merging companies, the so-called ‘Committee of Experts.’ In this valuation report the committee will assess the provisions of the merger agreement taking into account the value of the company property in its entirety and the method used to calculate the share exchange-ratio proposed.
In the case where a tender offer is made to acquire a listed company, the Takeover Code governs the minimum requirements with regard to a prospectus which must be published containing all information necessary for the offerees to form an opinion about the offer.
4 Filings and fees
Which governmental or stock exchange filings are necessary in connection with a business combination? Are stamp taxes or other governmental fees in connection with completing a business combination?
Merger
A draft merger agreement must be filed with the Companies Registry and published in the Government Gazette at least two months prior to the date of the general meeting of shareholders called to approve the merger.
As noted above, the board of directors of each company involved in the merger must prepare an explanatory statement which must be submitted to members of the general meeting and filed with the Companies Registry.
The notarised merger agreement, as well as any necessary amendments to the Articles of Association, must be approved by the general meeting of shareholders of each of the companies considering merger. The resolutions of the general meetings, as well as the merger agreement, must be submitted to the Ministry of Development for approval and then filed with the Companies Registry and published in the Government Gazette.
No stamp taxes apply. The publication of the documentation above requires payment of the relevant fees for publication in the Government Gazette.
Acquisition of shares
The HCMC Takeover Code is applicable to companies whose securities are traded on Greek regulated markets and it regulates public takeover bids. In terms of the Takeover Code, any person who submits a tender offer, or is obliged to submit a mandatory offer (which must be made where an individual or a company gains 50% or more of another company’s shares or voting rights), must notify both the HCMC and the board of directors of the target company in writing before any relevant announcement is made to the public. The notification must occur as soon as the decision is made to proceed with the tender offer. In the case of a mandatory takeover bid, the notification must be made within 30 days of acquiring the shares/voting rights in excess of the 50% threshold.
The bidder must publish a prospectus in accordance with the provisions of Takeover Code. The prospectus must be approved by the HCMC, a procedure which normally takes about 10 days to complete and then published within three working days of its approval.
A transfer tax is payable upon the transfer of shares. For listed shares the applicable rate is 0.5% of the value of the shares and for unlisted shares it is 5% of the value of the shares, as determined by the revenue authorities, in accordance with a specific formula set out in their regulations.
Spin-off
The resolutions of the general meetings of the two companies approving the transfer of assets must be filed with the Companies Registry and published in the Government Gazette. No stamp duties arise. There are costs associated with the publication of the necessary notices in the Government Gazette.
5 Information to be disclosed
What information needs to be made public in a business combination? Does this depend on what type of structure is used?
Mergers
Public companies must publish the draft merger agreement in the Government Gazette and make it available for inspection at the Companies Registry as well as at their registered office during normal office hours at least two months prior to the date of the general meeting which will vote on the merger. At least one month prior to the general meeting, the company’s annual accounts and reports, the accounting statements (a provisory balance sheet, drawn up in accordance with Article 73 of the SA Act), the Report/Explanatory Statement of the board of directors and the Valuation Report of the Committee of Experts must also be published and filed.
Decision 5/204/14.11.2000 of the HCMC sets out the Code of Conduct (the Code) for companies listed on the Athens Stock Exchange (ASE) and their directors, executives and other ‘connected persons.’ The Code requires that every listed company publish any event which is deemed capable of affecting the market in its shares. Such events include, inter alia, changes in business orientation or structure, strategic decisions or agreements, decisions to launch a tender offer, changes in management, mergers and any important changes in financial status. These events must be announced only once the company has resolved a specific course of action or has concluded a specific agreement detailing the obligations of the parties. However, if there are rumours circulating in the marketplace or if there is a ‘leak’ of information, the company must immediately confirm or deny these rumours, or refuse to comment pending an investigation and final announcement. Decision 7/372/15.02.2006, amending Decision 5/204, has not introduced any changes to the above requirements.
Acquisition of shares
The board of directors of the target company must prepare a written opinion on the tender offer evaluating the financial and legal implications of the deal. The opinion must be submitted to both the HCMC and the bidder within 10 days of the approval of the prospectus.
During the acceptance period:
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The bidder and any other person who owns at least 5% of the voting rights in the target company, or a company whose securities are offered as collateral, or who controls at least 5% of the voting rights of the board of directors, must disclose to the HCMC and the ASE the acquisition of securities in the target company, or the company whose securities are offered as collateral, whether acquired through the regulated market or over the counter, as well as the acquisition price. This obligation applies to the above shareholders as well as to their agents, subsidiary companies and any other person acting in coordination with them
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Any natural person or legal entity who owns at least 0.5% of the voting rights of the target company, bidder or any other company whose securities are offered as collateral, must disclose to the HCMC and the ASE, both the details of the acquisition and any other intended acquisition of securities of the target company, or of the company whose securities are offered as collateral. The details must include the acquisition price and any voting rights of the target company which it may already own. Again, these disclosure obligations apply to the shareholder, his agents, companies controlled by him, or any other person acting in coordination with him
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Both the offeror and the offeree must provide the HCMC with all additional information requested in respect of the tender offer
The results of the tender offer are published by the bidder in the Daily Price Bulletin of the ASE as well as in financial and non-financial newspapers, within two working days following the close of the acceptance period.
6 Disclosure requirements for shareholders
What are the disclosure requirements for large shareholders in a company? Are the requirements affected if the company is a party to a business combination?
The following disclosure obligations of shareholders of companies listed on the ASE apply irrespective of whether or not the company is a party to a combination. A party to a combination should be aware of the following disclosure requirements:
Shareholders who buy or sell shares in a company and, following such acquisition or sale, hold voting rights equal to or in excess of, the threshold limits of 5, 10, 20, 33.3, 50, and 66.6% of the total voting rights, must disclose the percentage of voting rights and share capital that they hold after the transaction to both the listed company, whose shares are transferred, and the HCMC. This notification obligation also arises where a shareholder transfers shares and falls below any of the above thresholds. Such notification must be made within one day of the transaction. Where the shareholder is not aware of the acquisition/transfer, the shareholder must make the notification one day after becoming aware of the acquisition/transfer or within one day of when he ought reasonably to have become aware of it.
During the first year of trading of a listed company’s shares on the ASE, shareholders who hold voting right in excess of 10% of the company’s total voting rights, and also when they conclude transactions in shares or voting rights greater than or equal to 1.5% of the company’s total share capital or voting rights, must disclose the percentage of voting rights and share capital that they hold after the transaction to both the listed company and the HCMC. This notification must be made one hour prior to the opening of the ASE session that follows the transaction.
Shareholders who hold voting rights in excess of 10% of the listed company’s total voting rights, and who transact a deal which results in a change in their holding which is greater than, or equal to, 3%, must notify both the listed company and the HCMC of the percentage of voting rights and share capital that they hold after the transaction. This notification must be made by the day following the transaction.
During the 30-day period following the end of a listed company’s first and third financial quarters, or where share holders are in possession of confidential information, any shareholder who holds more than 20% of the company’s share capital and who intends to effect a transaction in the company’s shares (or derivatives in the company’s shares or in shares of affiliated companies which are traded on the Athens Derivatives Exchange (ADEX)) must notify the company’s board of directors and publish a notification in the Daily Price Bulletin of the ASE on the day prior to the intended transaction date.
Shareholders who hold more than 10% of the company’s share capital and who intend to enter into transactions involving more than 5% of the company’s total share capital within a period of three months, must disclose the following to the ASE: (i) the number of shares being transferred; (ii) the period within which the transactions will be carried out; (iii) the brokerage firm through which the transaction will be carried out; and (iv) whether they are acting as agents or in coordination with other shareholders.
7 Duties of directors and controlling shareholders
What duties do the directors or managers of a company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combinations? Do controlling shareholders have similar duties?
Directors owe a fiduciary duty to the company to always act in the company’s best interests and not to compete with the company. Aspects of this fiduciary duty contained in Articles 22(a) and 23 of the SA Act also apply to managers.
In relation to business combinations, the directors and managers of a société anonyme most comply with all the requirements of the SA Act (see Articles 69 and 73) and the Takeover Code. Specifically, the board of directors of a target company must advise shareholders of its views on the offer and also advice them on the substance of the advise regarding the proposed combination obtained from independent financial advisers. Vis-à-vis the creditors of all companies concerned, there is the obligation to provide sufficient guarantees upon request, if the financial situation of the combining companies renders such protection necessary (Article 70). If there are holders of bonds convertible into shares of at least one of the combining companies, there is the obligation to request the bondholders’ consent before the combination may be effected (Article 70, as amended). Article 76(1) of the SA Act provides for the liability of directors and managers for any unlawful act or commission of their duties arising out of the combination.
In relation to public bids involving listed companies, directors of the target company must act in the interests of the company as a whole. Directors also have a duty not to deprive shareholders of the reasonable opportunity to evaluate the tender offer. Moreover, directors must not take any action which may lead to the withdrawal of the tender offer. The restrictions placed on the authority of directors of offeree companies are considered in detail at question 10 below.
In addition, where members of the board of directors, the managing director and the general manager hold shares in a listed company, they also have a duty to comply with the following disclosure obligations:
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if there is a change in the percentage of the voting rights that they hold which is greater than 3%, they must disclose the percentage of share capital held after the change to the listed company and the HCMC. This notification must take place by the day after the transaction;
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daily transactions in shares exceeding the amount of €293,470.29 must be disclosed to the HCMC by the day following the transaction; and
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during the 30-day period following the end of a listed company’s first and third financial quarters or, where directors and managers of the company are in possession of confidential information, special disclosure obligations arise in respect of transactions of shares in the company. Where shareholders/directors intend to effect a transaction in the company’s shares, or derivatives, or shares of affiliated companies which are traded on the ASE, they must disclose this intention to the company’s board of directors and publish a notification in the Daily Price Bulletin at least one day before the intended transaction date. There are no similar duties on controlling shareholders. However, a controlling shareholder who is party to a business combination may be affected by the following restriction:
In terms of Law 2843/2000, shareholders of newly listed companies who hold 20% or more of a company’s share capital one day prior to the listing of a company, are prohibited:
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during the first year of a company’s listing, from selling shares in excess of 10% of the company’s share capital; and
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during the second year of a company’s listing, from selling shares in excess of 20% of the company’s share capital. The 20% limit may be increased by the percentage of shares which were not sold in the first year.
8 Approval and appraisal rights
What approval rights do shareholders have over business combinations? Do shareholders have appraisal or similar rights in business combinations?
Mergers, tender offers and spin-offs require the approval of the general meeting of shareholders. In the case of a merger, the approvals of all the merging companies are required. The resolution of the general meeting must approve the draft merger agreement and effect the necessary amendments to the company’s articles of association. If there is more than one class of shares, the resolution of the general meeting to merge is subject to approval by each class of shareholders whose rights are affected by the merger. The approval must be given by a resolution of a special general meeting of the class of shareholders affected. Such approval must be way of special resolution. (This has an increased quorum requirement, two thirds of the paid-up share capital, and also requires an increased majority, two thirds of the voting rights of shareholders who participate in the general meeting).
Although the shareholders do not have specific appraisal rights, they will assess the merger agreement, as the case may be, based on the director’s report/explanatory statement and the valuation report of the committee of experts prior to voting at the general meeting.
9 Hostile transaction
What are the special considerations for unsolicited (hostile) transactions?
Although unsolicited/hostile offers are not specifically dealt with, the Takeover Code requires the directors of the target company to issue an explanatory statement setting out their views on the terms and conditions of the merger agreement and its financial implications and the adequacy of the tender offer are also contained in the valuation report. Shareholders assess the offer based on the findings and recommendations expressed in the report before voting on the merger.
10 Break-up fees – frustration of additional bidders
What type of break-up fees are allowed? What are the limitations on a company’s ability to protect deals from third-party bidders? Describe any ‘financial assistance’ restrictions and how they can affect business combinations.
In general, defensive measures are not provided for. Article 8 of the Takeover Code provides that as soon as the board of directors of the target company has been notified in writing of the existence of a tender offer, and until the announcement of the results thereof, it is prohibited from taking any action that could lead to the withdrawal of the tender offer without obtaining the prior permission of the general meeting of shareholders. The only exception to the above rule is when alternative offers are sought by the board. The Takeover Code details the following specific prohibitions on the board of directors:
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not to proceed with an increase in the target company’s share capital, or issue convertible corporate securities, when the new issues of shares or convertible securities could be a permanent barrier to the acquisition of corporate control of the target company, unless the board of the company had been evidently authorised to do so by the general shareholders meeting at least 18 months prior to the submission of the tender offer, and when the increase in the share capital does not abolish or restrict old shareholders’ preferential rights; and
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not to proceed with managerial actions that would substantially alter the assets or liabilities of the target company, or would decisively bind the company’s future business strategy, unless the competent administrative organ prior to the submission of the tender offer evidently decided upon these actions.
Other than the above, there are no specific provisions dealing with break-up fees.
11 Governmental influence
Other than through relevant competition (antitrust) regulations, or in specific industries in which business combinations are regulated, can governmental agencies influence or restrict the completion of business combinations?
The merger agreement must be notarised and approved by the Ministry of Development/division of the local prefecture before the merger comes into effect. The approval is granted or refused on the basis of the merger agreement’s compliance with the statutory provisions of the SA (or the LCC) Act and with any other relevant law.
12 Conditions permitted
What conditions to a tender offer, exchange offer or other form of business combination are allowed? In a cash acquisition, can the financing be conditional?
The offeror may specify the maximum number of securities which it is committed to acquire, unless it is a mandatory offer.
The offeror may also specify the minimum number of securities that has to be accepted in order for the tender offer to be binding, unless it is a mandatory offer.
The offer may be made subject to obtaining of approvals from the competition authorities or any other authorities whose approval is required (eg for the issue of new shares).
The offer may state that it will be withdrawn if an unexpected event occurs, independently of the will of the offeror, which changes the prevailing circumstances and makes the terms and conditions of the tender offre unworkable. Such a condition requires the approval of the HCMC. The tender offer may also be withdrawn in the event of the competing offer being submitted. The tender offer cannot be withdrawn if it is a mandatory offer.
In a cash acquisition, financing cannot be conditional. In the case of a tender offer for cash, the offeror must provide confirmation by a credit institution located in Greece, or another member state of the EU, that it possesses the means for the payment of the whole amount to be paid out in cash. In the case of a tender offer for exchange of securities, the offeror must provide confirmation by a credit institution acting as a custodian that it possesses the transferable securities the surrender of which is proposed as means of payment; or, that it has taken all measures necessary to make possible the payment of the price, consisting in an exchange of transferable securities. When a tender offer for exchange is made for securities which are not listed on a regulated market of a member state of the EU, the offeror is obliged to pay the price to the offeree alternatively in cash, if the offeree so desires.
13 Minority squeeze-out
Can minority stockholders be squeezed out? If so, what steps must be taken and what is the time frame for the process?
Minority stockholders cannot be squeezed out.
14 Cross-border transactions
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
Current company legislation does not specifically provide for cross-border mergers. In practice, an SPV may have to be established within Greece in order to give effect to a merger. Other than this practicality, the major regulatory controls would be the same as those that apply to domestic deals, as well as EU regulations on concentrations.
15 Waiting or notification periods
Update and trends
There are two EU directives which may alter the current legal framework.
EU Takeover Directive
The EU Takeover Directive (2004/25/EC, the Directive) will have to be implemented in the EU member states by May 2006. it is not anticipated that the Directive will have a major impact on the Greek legislation governing takeovers save in respect of Article 11. Article 11 of the Directive allows offerors to break through certain target company restrictions so that they can achieve full control of the target company. Article 11 includes a requirement which would freeze members’ extraordinary rights (such as multiple voting rights, appointment rights and restrictions on the transfer of securities) during the bid and which might be used to frustrate the bid. The Bill that has been drafted for the implementation of the Directive makes in its current, not finalised form, use of the opt-out from Article 11, allowed by Article 12 of the Directive. If this opt-out is eventually adopted, it will mean that the provisions of Article 11 may only be applied optionally by a company wishing to do so, subject to certain conditions relating to the decision-making procedure and notification requirements.
Besides this most significant point, and although finalisation is yet awaited, the Bill is in general expected to free optional public bids from submission requirements, introduce a right to take over the remaining shares after a successful public bid, as well as to lay down a more efficient regime of sanctions.
Directive 2005/56/EC of the European Parliament and of the European Council of 26 October 2005 on Cross-border Mergers of Limited Liability Companies
EU member states will have to implement this newly adopted Directive by 15 December 2007. This Directive aims to facilitate the mergers of limited liability companies on a cross-border basis, which are either impossible at the time being or may only be effected at substantial costs. It is expected to enhance legal certainty in cross-border mergers by establishing a regime that mainly draws on national provisions governing mergers, and it purports to avoid the winding up of the Directive’s impact, it can be expected to give a boost to the operation of small and medium sized enterprises.
16 Tax issues
What are the basic tax issues involved in business combinations?
The taxation of companies involved in a merger, takeover or spin-off is regulated by two separate laws, namely Legislative Decree 1297/1972 (the LD) and Law 2166/1993 (the Law). Each sets out different specifications and pre-requisites for the transformation procedure, and each has district tax consequences. However, in practice, the vast majority of transformations are effected by the more recent Law, as this provides two important advantages: a) the procedure set out in the Law is more expeditious than that in the LD; and b) the determination of the exchange ratio in the transformation procedure of the Law is carried out by the parties to the combination.
In terms of the Law, companies in transformation must keep accounting books of a special category (category C), as provided for in the Greek Code for Accounting Books and Records. Further, the companies under transformation must have drafted, prior to the transformation, a balance sheet for a 12-month (or greater) fiscal period.
The Law provides for the following tax advantages:
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any action or act taken in connection with the transformation procedure (for example the merger agreement, the publication of the resolutions of the corporate bodies for the merger in the Government Gazette, etc) is exempted from any tax assessment. This includes any transfer taxes on movable and immovable assets, stamp duty or any other duty or right in favor of the state or third persons. However, there is no exemption from capital gains tax; and
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tax-free deductions and formed tax-free capital reserves of the companies under transformation are deductible in the hands of the new company following the transformation and they are not subject to taxation during the transformation.
17 Labour and employee benefits
What is the basic regulatory framework governing labour and employee benefits in a business combination?
Presidential Decree 178/2002 (incorporating EU Directive 98/50/EC) governs labour and employee benefits matters in a business combination and provides that the employment terms of employees subject to a transfer remain unaltered. If the transferor or the transferee wishes to amend the terms of employment of transferring employees, then consultation with the representatives of the employees involved is required. In exceptional circumstances, a business combination could lead to the dismissal of employees if this is necessary for financial, technical or organisational reasons and the acquiror complies with the procedures set by the law.
18. Restructuring, bankruptcy or receivership
What are the special considerations for business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
When a Greek company is in financial distress, the law provides for either the declaration of the company as bankrupt (according to Greek Commercial Law) or its placement under reorganisation (according to the Law 1892/1990). The following should be noted with respect to business combinations:
Bankruptcy
Greek law explicitly provides for a situation where a company or companies considering merger or division are declared bankrupt before completion. In this case, a merger is permissible only when a settlement or compromise with creditors has been reached. However, a merger is not possible if the distribution of the company assets has already begun. The acquisition of a Greek company in liquidation is not permissible.
Reorganisation
There are two reorganisation procedures provided for under Greek law:
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reorganisation by agreement (the most common procedure) known as the Article 44 and Article 45 procedure (of Law 1892/1990): an agreement is negotiated between the debtor company and its creditors (holding at least 60% of all claims against the company, 40% of which must be those of secured creditors) for satisfaction of the debt. This procedure requires the written consent of the majority of shareholders and must be formally endorsed by the Court of Appeal (located in the district of the debtor’s seat/domicile). Article 45 provides for a different route to an agreement under Article 44 by placing the company under receivership. The merger of a company in financial distress with another, or the transfer of the business as a going concern may be included in the Article 44/45 agreement provided that a sale by auction of a substantial part of the assets necessary for the continuation of the business activity of the company has not taken place; and
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reorganisation procedure of Article 46 and 46(a) of Law 1892/1990: a special liquidator, appointed by the court, sells the whole or part of the company’s assets and pays the company’s debts out of the proceeds of this sale. Although a merger with another company is not possible, the special liquidator may proceed with the sale of part or the whole of the company’s assets at his discretion. This means that in the case of the Article 46(a) procedure (sale of the whole of the assets of the enterprise by virtue of a public auction), the acquisition of the enterprise is effected by a call for tenders and a public auction. The liquidator will evaluate the offers and accept the offer of the highest bidder. The evaluation report and the acceptance of the highest bidder, by the liquidator, are subject to the approval of the company’s creditors representing at least 51% of the total claims against the company. Once approval is gained, an agreement for the acquisition of the company’s enterprise may be signed.
As per Article 2 (3) L. 3372/2005 the above reorganisation procedures will not apply to athletic societes anonymes.
| © Elias Paraskevas Attorneys 1933 |
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