четвъртък, 31 март 2011 г.

Bulgarian Takeover Rules

The purpose of this memorandum is to provide a brief outline of the Bulgarian legal provisions applicable to acquisitions of interests in public companies ("PC") and investment companies ("IC").

I. Applicability of Bulgarian takeover rules
Bulgarian takeover rules are applicable to the acquisition or alienation of interests in Bulgarian PC's and IC's. PC's are joint stock companies that: (i) have issued shares by initial public offering; (ii) have registered in the public companies and other securities issuers registry at the Financial Supervision Commission (the "FSC") an emission of shares to be traded on regulated capital markets; or (iii) have more than 10,000 shareholders at the last day of two consecutive calendar years. PC's are registered with the commercial registry at the relevant district court ("Commercial Registry"), must comply with the Bulgarian Law on Public Offering of Securities ("LPOS") and are registered in the public companies and other securities issuers registry at the FSC. IC's are public joint stock companies incorporated by capital subscription. They are public issuers under the LPOS and are of two types –"open" (the IC is obliged to constantly offer investors its shares at price of issue) or "closed" (IC with specific scope of activities, whose shares are traded on a regulated capital market). The LPOS requires IC's to be licensed by the FSC, which license must be filed with the Commercial Registry.
When any natural or judicial person, either local or foreign, acquires or alienates a certain percentage of shares (please refer to Section II, A and B. herein) in a Bulgarian PC or IC, the LPOS takeover rules apply.
II. Reporting Obligation
A. Thresholds
Pursuant to Art. 145 of the LPOS, any person that (directly or indirectly) reaches, exceeds or drops under 5% or a figure divisible by 5% of the voting shares issued by a PC, shall report on such transaction by submitting a written declaration to: (i) the Board of Directors/Managing Board of the PC; (ii) the FSC; and (iii) the regulated capital market, where the company's shares are accepted for trading. The reporting company must also file information on any of its (direct or indirect) controlling shareholders. The reporting deadline is seven (7) days from: (i) filing of the company or of its capital increase in the Commercial Registry, where the shares are acquired at initial public offering; (ii) registration with the Central Depository of shares acquisition or transfer, other than under point (i); or (iii) the occurrence of an event that leads to a change in the number of voting shares in cases of indirect capital control transactions. The declaration should be submitted by the reporting company or its duly authorised representative in Bulgarian, or in English plus an official translation into Bulgarian, in which case the Bulgarian translation shall prevail if there are any inconsistencies.
The above described takeover rules also apply to convertible bond or warrant acquisition or transfer.
The 5% minimum reporting threshold is imperative under Bulgarian legislation and companies cannot derogate from it by prescribing lower thresholds in their constitutive documents. The abovementioned reporting obligations also apply in cases of subsequent acquisition or alienation of each additional 5% of the voting shares (i.e. reaching, exceeding or dropping under 10%, 15%, 20%, etc.), and in all cases of acquisition of more than 50% of the total voting shares of a company.
The above reporting obligations apply also to open and closed IC's.
B. Legal Consequences of Breach of Reporting Obligation
Pursuant to the LPOS, any person acquiring or alienating voting shares in a PC or IC who does not comply with the reporting obligations may be subject to fines, as follows: (i) for natural persons - up to BGN 5,000 (appr. EUR 2,500), and for subsequent violations up to BGN 10,000 (appr. EUR 5,000); and (ii) for companies and entrepreneurs - up to BGN 10,000 (appr. EUR 5,000), and for subsequent violations up to BGN 20,000 (appr. EUR 10,000).
III. Statutory Public Takeover
A. Thresholds
Under Art. 149 and following of the LPOS, more than 50% and then more than two thirds (i.e. 66.67%) of the total voting shares of a PC can only be acquired, directly or indirectly (including through related persons), through a formal public takeover procedure. Notwithstanding the foregoing, if a shareholder holds (directly or indirectly) more than half of all the voting shares, then acquisition (directly or indirectly) within one year of more than 3% of total voting shares shall require the completion of a formal public takeover procedure. If a shareholder possesses at least 5% of the voting shares of a PC, then it/he may initiate a public takeover procedure for acquiring more than one third (i.e. 33.33%) of the voting shares.
The Regulation on tender offering for buying and exchanging shares (the "Tender Offering Regulation") prescribes certain exclusions from the formal public takeover regime of the LPOS; for e.g., when exceeding thresholds as a result of privatisation deals under the Law on privatisation and post privatisation control (the "Privatisation Law"), where the deal is not negotiated on the stock exchange.
B. Summary of Procedure
Any person acquiring (directly or indirectly) more than 50% of the total voting shares of a PC (the "Offeror"), must register with the FSC within 14 days following such acquisition (increased to one month in certain cases set by the Tender Offering Regulation), a tender offer (the "Tender Offer") to all other shareholders holding voting shares for buying all of their voting shares and/or exchanging them for shares that will be issued by the Offeror for this purpose. If the company is listed on any stock exchange then, depending on the by-laws of such stock exchange, the Tender Offer shall also be reported to the stock exchange. Such a Tender Offer must be also registered with the FSC, if the percentage of voting shares acquired is more than two thirds of the total voting shares of a PC, or where such acquisition takes place in a 14-day term following acquisition of more than 50% of voting shares, one Tender Offer will be registered. No Tender Offer need be submitted for any acquisition of more than two thirds of a PC voting shares, which has taken place prior to the entry into force of LPOS, i.e. acquisition prior to January 31, 2000. No Tender Offer need be submitted if the acquisition of more than two thirds of a PC voting shares has occurred within one year after acquiring more than 50% of its voting shares. Also no Tender Offer need be submitted if a person holding more than 50% of a PC voting shares acquires more than two thirds of its voting shares as a result of an increase of the capital in proportion to shareholders’ capital participation.
Any person holding (directly or indirectly) more than half of the voting shares of a PC, who wishes to acquire (directly or indirectly) within one year, voting shares representing more than 3% of the company’s total voting shares is also required to submit a draft Tender Offer with the FSC for approval. The acquirer is not required to register a Tender Offer if such acquisition takes place within one year after registering a Tender Offer for exceeding the 50% or 66.67% threshold.
In all described cases, the Tender Offer must be conducted through an authorised investment broker.
The Tender Offering Regulation also stipulates tender takeover procedures that apply where a PC acquires, during one calendar year, more than 3% of its own voting shares in cases of a capital decrease by share annulment or repurchase.
The LPOS provides shareholders that possess at least 5% of the voting shares of a PC, who are willing to acquire more than one third (i.e. 33.33%) of the voting shares, with the opportunity of registering for approval a draft Tender Offer for acquiring or exchanging shares to the rest of the shareholders with voting shares, upon the prior confirmation of a draft Tender Offer by the FSC.
Offerors have to register Tender Offers with the FSC, submit them to the relevant PC managing body and to the relevant regulated capital market. They must also publish the Tender Offer in two central daily newspapers and, if issued, the statement of the company's managing body regarding the acquisition. Pending publication, the acquirer may not exercise any voting rights attaching to the shares acquired.
The FSC has 14 days following registration to approve the Tender Offer, however, the FSC may request the modification of the Tender Offer once, by setting a 14 business days time period (or 3 business days for persons holding at least 5% of the voting shares, who wish to acquire more than one third of them) for the Offeror to comply with such a request. The FSC then has a further 7 days to approve the modified and re-submitted Tender Offer.
The period that may be set forth in the Tender Offer for its acceptance by shareholders (the "Acceptance Period") shall be at least 28 days, but shall not exceed 70 days following registration.
In the Tender Offer, the Offeror who has acquired more than 50% or more than two thirds of the voting shares shall make an expressed purchase offer with regard to all of the remaining voting shares of the company. In all other cases, the Offeror can make an expressed purchase offer with regard to all or a specified number of the company's voting shares. The Offeror shall also give rationale of and specify the purchase price, or the exchange rate, in the Tender Offer, which may not be less than the higher of: (i) the share fair price; and (ii) the weighted average market price paid for the shares during the last three months, and where such does not exist, the highest share purchase price paid by the Offeror during the last six months preceding the Tender Offer registration. Where the share price cannot be determined according to the latter method, then it shall be fixed as the higher of the last value of issue and the last value paid by the Offeror. Where persons holding more than half of the voting shares are willing to acquire within one year more than 3% of total voting shares, and persons holding at least 5% of the voting shares are willing to acquire more than one third of total voting shares, the purchase price may not be less than that described in (ii) above. The Tender Offer for exchange of shares must contain an alternative possibility of buying the voting shares of the remaining shareholders.
The shareholders of the PC shall be free to accept the Tender Offer within the Acceptance Period with respect to all or any part of their shares held in the company's registered capital. The Tender Offer should be accepted by an explicit written statement and by depositing appropriate certifying documents at an investment broker or in the Central Depository, as well as by carrying out all other necessary transfer activities.
The Offeror shall be obliged to purchase all, and not less than all, of the shares offered by the shareholders of the PC for sale in accordance with the Offer, unless the Offer is only for a specified number of voting shares. The LPOS prescribes certain terms and conditions, under which the Tender Offer can be withdrawn or terminated.
The share purchase agreement ("SPA") between the Offeror and the selling shareholders shall enter into effect automatically, at the moment of expiration of the Acceptance Period, unless the acquisition is subject to the prior approval of the Competition Protection Commission, in which case the SPA shall enter into effect only on the date of the resolution of the Competition Protection Commission approving the acquisition. The rights allocated to the shares that are the subject of the Tender Offer transfer to the Offeror upon registration of the transfer at the Central Depository.
The Offeror shall report to the FSC and to the relevant stock exchange on the results of the takeover procedure after the Acceptance Period expiration, and shall also publish the same.
C. Counteroffer
Pursuant to the Tender Offering Regulation, any third party can make a counteroffer at any time between the start of the Acceptance Period and three (3) days before expiration of the Acceptance Period. A counteroffer shall be registered with and subject to the prior approval of the FSC. The FSC may only grant its approval to such counteroffer if it offers "improved conditions" as compared to the original offer, for example if the purchase price specified by the counterofferor exceeds the purchase price offered in the original one.
D. 90 % Threshold
Under the LPOS, if a person has acquired more than 90% of the voting shares of a PC, it may register a Tender Offer for purchasing all the remaining voting shares issued by the PC, exercisable within 14 days upon acquisition of said 90%. Currently, there is no squeeze-out procedure prescribed by Bulgarian takeover law. More specifically, no duty of the holders of the remaining voting shares correlates to the right of the bidder to acquire minority shareholdings if it has acquired more than 90% of the shares.
Simultaneously with the above, the remaining shareholders of the PC shall ex lege have a put option vis-a-vis the Offeror, pursuant to which they can require the Offeror to purchase their shares at the price provided above.
The Tender Offering Regulation regulates an additional hypothesis, according to which a person that as a result of privatisation under the Privatisation Law acquires (directly or indirectly) more than 66.67% but less than 90% of the voting shares of a state-owned company having less than 50 percent state participation, can submit a Tender Offer. Such a person may register a Tender Offer for purchasing all the remaining voting shares of the company within 14 days following acquisition of the threshold amount of the shares.
The outlined statutory public takeover rules are also applicable to closed IC's, but not to open IC's.
E. Legal Consequences due to Breach of Takeover Obligation
If an acquisition of voting shares of a PC or a closed IC is conducted in breach of the applicable takeover provisions of the LPOS, the acquirer must transfer a sufficient number of such shares so that it possesses (directly or indirectly) less than the relevant percentage of total voting shares that triggered the reporting obligation. In addition, the FSC fine for persons breaching such obligations is: (i) for natural persons - up to BGN 10,000 (appr. EUR 5,000), and for subsequent violations up to BGN 20,000 (appr. EUR 10,000); and (ii) for companies and entrepreneurs - up to BGN 20,000 (appr. EUR 10,000), and for subsequent violations up to BGN 50,000 (appr. EUR 25,000).
The Offeror and the investment broker who has signed a Tender Offer are jointly responsible for damages caused by false, misleading or incomplete data in the Tender Offer.

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