The International Comparative Legal Guide To Mergers & Acquisitions 2016 Edition - Slovenia

1 RELEVANT AUTHORITIES AND LEGISLATION

1.1 What regulates M&A?

In Slovenia, different aspects of M&A are regulated by different bodies of law. The company law aspects (corporate governance, corporate finance, changes of the corporate form and mergers) are subject to the Companies Act. Certain aspects of takeovers of public companies (the mandatory bid rule, the takeover offer process, target defence restrictions) are regulated by the Takeovers Act. Moreover, the Markets in Financial Instruments Act and the Ljubljana Stock Exchange Rules provide a regulation of the capital markets aspects of M&A. The Slovenian M&A framework is also set by regulations provided for, inter alia, by the Book Entry Securities Act, the Prevention of Restriction of Competition Act, the Employment Relationship Act, the Code of Obligations and the Law of Property Code.

Certain sector-specific regulations, e.g. the Insurance Act, the Banking Act, the Investment Funds Act, and the Media Act, etc., provide for special regimes with respect to M&A of certain regulated corporate entities.

Certain additional requirements with respect to acquisitions and reorganisations of municipality/state-owned companies are governed by the Public Finance Act.

In the course of 2013 and 2014, the legislative measures geared at mitigating the impact of the financial crisis (e.g. the legislation establishing the Slovenian "Bad Bank") and facilitating the privatisation process (e.g. the legislation establishing and regulating the status of the Slovenian Sovereign Holding, "SSH") have been seen to impact M&A transactions in respect of both state and privately owned target companies (see question 10.1 for further information).

1.2 Are there different rules for different types of company?

The takeovers regime stricto sensu (the Takeovers Act - mandatory bid rule, the takeover offer process, target defence restrictions) only applies to acquisitions of (i) listed companies (i.e. joint-stock companies, the shares of which are admitted to trading on an organised market), and (ii) non-listed joint stock companies if certain requirements regarding the size of the target company are met (at least 250 shareholders or total assets of at least EUR 4 million).

Similarly, capital markets regulations (such as market transparency and market abuse) only apply to such companies. For example, the Financial Instruments Market Act provides for certain reporting obligations with regard to stakebuilding in a listed company. Once a single shareholder (option holder, a person entitled to jointly exercise voting rights, etc.) has reached 5%, 10%, 15%, 20%, 25%, 33%, 50% or 75% of all voting rights in a public listed company (or if its stake has fallen below such a threshold), it is obliged to notify the management of the respective company of such a fact. In turn, the company management is obliged to publish the fact that such an acquisition has been effected. This obligation applies mutatis mutandis to non-listed joint stock companies that are subject to the Takeovers Act.

1.3 Are there special rules for foreign buyers?

As a rule, foreign buyers (especially EU/EEA-based buyers) are subject to the same regulations and requirements as the Slovenian buyers. Specific restrictions may apply to non-EU/EAA companies buying real estate in Slovenia; however, a Slovenian incorporated company may serve as a SPV for such purposes (see, however, below as regards the EU sanctions regime regarding the Russian Federation).

Certain sector-specific regulations (see question 1.4 below) provide for additional conditions that are to be met by an acquirer of a shareholding in certain regulated entities in order to obtain a respective authorisation by the competent public authority.

As of 2014, special rules apply for investors from the Russian Federation. In particular, certain blacklisted individuals are prohibited from acquiring the shares or assets of Slovenian entities and concluding certain other transactions that pertain to the parties or assets located in Slovenia. Since the sanctions are aimed at beneficial owners, SPVs cannot be used to conceal the ultimate ownership of the acquirer. The sanctions are in line with EU regulations enacted on the matter. The application of the EU sanctions by Slovenia is further detailed by the Act Relating to Restrictive Measures Introduced or Implemented in Compliance with Legal Instruments and Decisions Adopted within International Organisations and the Decree on Restrictive Measures in Respect of Actions Undermining or Threatening the Territorial Integrity, Sovereignty and Independence of Ukraine, and implementation of Council Regulations (EU) No. 269/2014, No. 692/2014 and No. 833/2014.

1.4 Are there any special sector-related rules?

Transactions within certain business sectors (banking, insurance, fund management, media) are, in addition to the general M&A regime, governed by various sector-specific rules aimed at prudential regulation and a "fit and proper" assessment. Usually, an approval by the relevant controlling public authority is required before the acquisition of a controlling stake in a regulated entity can be completed. For instance, the acquisition or sale of a shareholding in a Slovenian financial institution (e.g. bank, insurance company or fund management company) upon which the thresholds of 20%, 33%, or 50% of all the voting rights in such a financial institution are reached or exceeded, triggers the requirement for preliminary approval by the relevant regulator (e.g. Bank of Slovenia, Slovenian Insurance Supervision Agency). Similarly, an acquisition of 20% or more shares in a daily media publishing undertaking may only be effected upon consent of the Slovenian Ministry of Culture.

1.5 What are the principal sources of liability?

In addition to contractual liability (arising from e.g. misrepresentations or breaches of undertakings within the context of the transactional documentation) and directors' duties in the process of M&A transactions, the participants in M&A transactions should consider the liability provided for non-compliance with regulatory obligations.

Most notably, these would include the obligation to duly notify the Slovenian Competition Protection Agency (the "CPA") of the merger/acquisition or seek an approval by the competent public authority (in each case, when applicable - see questions 2.14 and 1.4). For example, the completion of a M&A transaction without the prior notification/clearance from the CPA (when required) may entail a penalty in the amount of up to 10% of the turnover that the undertaking (along with other undertakings of the same group) achieved in the past business year, to be imposed upon the undertaking obliged to notify. Furthermore, the CPA may require the acquirer to dispose of the respective shares (or a portion thereof) within a certain period of time.

Additionally, the fines for infringement of the rules regarding bid procedures set out in the Takeovers Act (e.g. the failure of the bidder to instigate the tender offer procedure when it acquires more than one-third of the voting capital in the target company), may reach the amount of EUR 3,750,000. Further penalties are provided under the sector-specific regulations mentioned under question 1.4 above. In addition to a monetary fine, the acquirer will also suffer a loss of the voting rights, stemming from the shares acquired outside the tender offer procedure.

Moreover, the Financial Instruments Market Act provides for a monetary penalty for the failure to report an acquisition of a significant stakeholding (please see question 1.2 above).

Lastly, the acquirer of a Slovenian public company (joint stock company) should take into account the provisions of the Financial Instruments Market Act regarding insider dealing and market abuse (closely mirroring the Directive 2003/6/EC on insider dealing and market manipulation). Breach of the respective provisions may, inter alia, entail a monetary fine of up to EUR 1,500,000 for the infringing undertaking (in cases of the most serious infringements), prohibition from further trading with financial instruments, as well as criminal sanctions (including imprisonment) for the responsible persons within the undertakings.

2 MECHANICS OF ACQUISITION

2.1 What alternative means of acquisition are there?

The control of a business is usually obtained by acquiring control of the corporation-legal entity owning the business. This may be implemented by way of share purchase, takeover/merger, demerger, share capital increase in the target company or through a management agreement (where a dominant company controls the target company based on an agreement as opposed to equity ownership). On the other hand, the acquirer may opt for acquiring control over the target business via an asset purchase.

In the case of a share purchase, the investor will generally acquire control once the transfer of the title to the shares (closing) has duly taken effect. In order to gain (positive) control, the investor should acquire at least 50%+1 of the voting shares. A more efficient level of control is obtained by the acquisition of at least 75% of the voting shares in a company and full control is obtained by the acquisition of 90% of the voting shares (as the shareholders aggregately holding at least 10% interest still have certain minority blocking rights under Slovenian corporate law).

Due to the effects of the financial crisis (and the resultant widespread over-indebtedness of the Slovenian companies), debt-to-equity ("D/E") swaps (acquisitions by corporate creditors of equity in their borrower in exchange for their debt claims) have emerged as an alternative means of acquiring (controlling) equity stakes. D/E swaps may either be effected on a voluntary/contractual basis (e.g. as a measure of financial restructuring pre-insolvency) or, in the context of statutory insolvency, as a result of court-sponsored compulsory settlement...