Energy & Infrastructure M&A 2024 Comparisons

In Portugal, the ambitious energy transition targets and stable regulatory framework continue to challenge investment. While the ongoing conflicts have certainly impacted the supply chain, with financing risk also being a factor, it has also become evident that security of supply and energy independence are key goals for the upcoming years, and the Portuguese government has approved measures to facilitate the deployment of renewable energy projects that will contribute in this respect; this is perceived by players as a clear indication that the political environment favours these types of projects. Although the energy and infrastructure M&A market feels somewhat subdued when compared against the pace of deal activity in the past few years, deals involving renewable electricity generation assets in particular, both in the ready-to-build phase and in operation, continue to be seen – often with a view towards revamping the assets through hybridisation, overpowering or repowering.

Portuguese company law offers standard asset partitioning and limited liability protections, and is in large part harmonised with other European jurisdictions in key matters such as creditor protection, director liability and corporate reorganisations.

This makes Portugal a trusted jurisdiction in which to do business through an incorporated entity, and Portuguese start-ups are typically incorporated in Portugal as limited liability companies. The most common types of companies are limited liability companies by quotas (sociedade por quotas) and limited liability companies by shares (sociedade anónima).

Furthermore, compared to other European jurisdictions, the incorporation of a new company is a fairly expeditious procedure. Even with foreign shareholders, a Portuguese company may be incorporated within a two-to-three-week period. Key steps include the following:

• obtain tax numbers for foreign shareholders and directors;
• prepare the incorporation document and by-laws;
• execute the company incorporation document; and
• register the incorporation of the company and appointment of corporate bodies before the commercial registry office (the company is deemed to have come into existence following the commercial registry procedure).

Portuguese limited liability companies have the following initial capital requirements: (i) EUR50,000 for sociedades anónimas (up to two-thirds of which may be paid-up after the incorporation of the company) and (ii) EUR1 for sociedades por quotas (paying-up of capital may be deferred until the end of the calendar year of incorporation).

To start a business, entrepreneurs are typically advised to incorporate a limited liability company rather than doing business through a partnership or in their own name (without a corporate shield). This affords founders limited liability, a default governance set up (under corporate law) and a legal structure that investors are accustomed to.

Due to the relatively high initial capital requirements, mandatory audits and more complex structure associated with sociedades anónimas, founders typically start out with sociedades por quotas.

At later stages, due to pressure from investors to have a structure that protects the anonymity of shareholders, entrepreneurs convert sociedades por quotas into sociedades anónimas, which have more governance options and require annual account audits.

The Portuguese market has been buoyant in relation to early-stage financing for start-ups. National and international private equity funds, family offices and corporate venture capital (VC) units are the most common types of investors.

Public money, notably European structural and development funds and COVID-19 recovery funds, is present in these transactions in the form of loans and/or grants attributed to “investment intermediaries”, such as private equity funds. Another dynamic that is supporting the Portuguese market in terms of early-stage investing is tax relief granted to investors in funds, who then invest in R&D-intensive companies.

Early-stage investing is typically done via priced or non-priced rounds. Priced rounds include the subscription of shares or quotas, and it is therefore required that an investment and shareholders’ agreement between investors and founders be negotiated and entered into. On the other hand, non-priced rounds are simpler as they typically involve the entering into of an agreement for a convertible instrument (usually not in security form), and the governance mechanisms of shareholders’ agreements are not typically negotiated.

VC investing has been growing steadily over the last few years in Portugal, and capital is relatively easy to access even in the current high-interest-rate environment.

Investors come both from abroad and from Portugal. As mentioned in the foregoing, the latter have been buoyed by government support – in the form of grants and other financing – provided to VC funds, and by tax breaks for funds that invest in R&D companies.

Foreign investors range from small family offices in the Iberian Peninsula to large US VC firms and the VC units of large corporates, international banks and private equity firms, depending on the target, sector and stage of development.

Unlike jurisdictions such as the United States and the United Kingdom, Portugal does not have model legal documents for start-up investments, either for priced or non-priced rounds.

Lawyers and other VC practitioners are striving to standardise certain provisions and mechanics, which may eventually lead to certain legal templates being created. However, this is still a work in progress; more importantly, such uniformisation will require bold initiatives from the industry to rally lawyers, financial and tax advisors and other consultants, and to provide the momentum for such model documents to be drafted and adopted.

When Portuguese start-ups reach a certain level of maturity and require more capital to continue growing, entrepreneurs usually look to other, more developed jurisdictions – in terms of capital markets – to incorporate in.

Therefore, there has been a trend towards start-ups performing “flips” and redomiciling to Delaware and the United Kingdom, while keeping some or all of their operations in Portugal.

Flips are usually executed through a share-for-share exchange between the new company and the shareholders of the Portuguese company (as a result thereof, the capital structure of the UK or Delaware company will mirror that of the Portuguese company).

Besides having easier access to finance, companies in these markets also have more exit opportunities, as some of the biggest and most liquid stock markets are located there along with some of the best candidate companies to acquire start-ups via a trade sale.

Initial public offerings (IPOs) in Portugal as a route for start-up exits are virtually non-existent. Start-ups that have successfully exited stock markets have done so through a re-domiciliation of their company in Delaware or another state in the United States (see 2.6 Change of Corporate Form or Migration). Although IPOs are usually contemplated in the investment documentation, entrepreneurs looking for an exit in Portugal will usually undergo an acqui-hire process (in earlier stages) or a full-on trade sale (for more mature companies).

Listings of start-ups (reserved for “unicorns” who re-domicile their companies to more mature capital markets) are made in a foreign stock exchange.

This is not to say that the Portuguese stock market has not had listings in the past few years. CTT (a postal company), Luz Saúde (a private hospital operator) and Greenvolt (a renewable energy project developer) are some of the companies making IPOs in recent years in the Portuguese stock market.

Conflicting laws regarding squeeze-out offers and delisting procedures can make cross-border listings trickier in terms of future M&A transactions.

In Europe, rules concerning squeeze-out procedures are harmonised, which can overcome certain hurdles arising when the country of incorporation and the listing country are different.

Typically, trade sale exits in Portugal have been made through bilateral sales. Given the larger size of the buyers, acquisitions of Portuguese start-ups have often been viewed as “bolt-on” acquisitions of larger, better-funded competitors or companies in the same sector (regardless of whether they are backed by VC).

Competitive processes are seldom used by more established businesses (eg, in brownfield infrastructure or healthcare), which attract a larger number of potential buyers (both strategic and financial).

Typically, in sales of Portuguese start-ups, founders and investors exit together (typical contractual mechanisms in priced rounds also provide an incentive for 100% exits, such as rights of first refusal, tag-along rights and drag-along rights). Founder-only sales and secondary sales of VC portfolios are not common.

Cash is usually the preferred means of exchange to purchase shares in private and public M&A transactions. In technology M&A, notably with US buyers, stock compensation has been on the rise (owing to rising interest rates and record stock market valuations in the United States).

Liability for breach of representations and warranties and other specific indemnities, along with the level of exposure, are by far the most hotly debated issues in acquisition agreements for Portuguese start-ups.

Typically, founders and VC funds will have different levels of exposure to liability, with founders being responsible for granting operational representations and warranties regarding the business and VC funds being limited to fundamental representations and warranties (ownership of shares, shareholder credits, etc).

Sellers will invariably want a clean exit (where VC funds have a finite period, and individual sellers want to safeguard their personal estates), and buyers are usually sensitive to that position.

Spin-offs are common in the energy and infrastructure space, as they are an efficient way to effect the separation of assets and business units previously concentrated in a single company. In a spin-off, the understanding of academic authorities and courts is that consent from counterparties in commercial agreements is generally not required. Spin-offs also offer streamlined procedures to transfer real estate properties and employment agreements.

Spin-offs are mainly considered for complicated corporate structures ripe for simplification through a tax-efficient process, and for complex businesses subject to an M&A transaction (with spin-offs offering the possibility of transferring the assets through a share deal rather than an asset deal).

As a rule, the execution of a corporate spin-off will have tax impacts at both the corporate and shareholders’ levels. At the corporate level, a company subject to a spin-off must determine capital gains/losses with reference to the transferred assets. In general terms, such gains/losses should correspond to the difference between the balance value of the demerged assets and their market value at the time of the spin-off. At the shareholders’ level, they must also determine capital gains/losses with reference to the shares held in the company subject to the spin-off that are replaced by shares in the beneficiary company of the spin-off. In general terms, such gain/loss should correspond to the difference between the acquisition value of the shares in the company subject to the spin-off and the value of the shares of the beneficiary company that are received as a result of the spin-off.

Notwithstanding the foregoing, the Portuguese tax system sets out a tax neutrality regime for certain corporate restructurings (including spin-offs) based on Council Directive No 2009/133/EC, of 19 October 2009, on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares for companies in different member states, and to the transfer of the registered office of a Societas Europaea (SE) or Societas Cooperativa Europaea (SCE) between member states, under which the described tax impacts may be neutralised. Spin-offs can qualify for the tax neutrality regime for corporate income tax (CIT) purposes, provided all the requirements are met. This tax neutrality regime will only apply if the spin-off is executed under one of the definitions set out in the CIT Code, and provided that all the requirements are met.

Within this scope, the main requirement for the application of this regime is that the beneficiary company of the spin-off must register all assets and liabilities received at the same tax values as those when they were registered in the accounts of the company subject to the spin-off. Moreover, the transferred assets and liabilities must also qualify as a branch of activity in order to apply the tax neutrality regime (except in the scenario of full spin-off and dissolution of the company; in this case, the transferred assets and liabilities do not need to qualify as a branch of activity). In turn, the shareholders must also grant to the shares received in the beneficiary company the acquisition value that they had in the company subject to the spin-off in order to apply the tax neutrality regime at their level.

Any cash payments received by the shareholders of the company subject to the spin-off do not benefit from the tax neutrality regime.

Under the specific anti-abuse clause set out in the CIT neutrality regime, this regime shall not apply where the principal purpose (or one of the principal purposes) of the transaction is tax evasion or tax avoidance, which is deemed to occur whenever the transaction is not carried out for valid commercial reasons.

Corporate restructurings subject to the tax neutrality regime (including spin-offs) must be reported in the annual simplified business information (Informação Empresarial Simplificada), and the supporting documentation for the restructuring must be included in the tax files of the parties.

A spin-off may be, and oftentimes is, followed by a business combination in Portugal. This occurs within the context of M&As or intragroup reorganisations.

Possible combinations include a share deal of the company resulting from the spin-off or a statutory demerger-merger, wherein the assets or business units that are separated are thereafter merged with one or more other corporate entities. Key requirements include the preparation and registration of a merger-demerger plan, a three-month stay period in which creditors can oppose the transaction and the approval of the demerger-merger by the shareholders of the affected companies.

Spin-offs take at least four months to complete given that there is a minimum stay period, between the date on which the project is registered before the commercial registry office and that on which it is published, of three months for creditors to oppose the transaction. Other bottlenecks in the process include the drafting of the spin-off project and the time it takes to convene the general shareholders’ meeting when shareholders do not take a unanimous decision (typical minimum notice period of 21 days).

The application for a tax ruling is not necessary for the execution of a spin-off. Nevertheless, taxpayers can apply for a tax ruling prior to the execution of the envisaged spin-off in order to obtain guidance/comfort regarding the tax treatment of such corporate restructuring.

As a rule, a tax ruling may be requested either as an urgent or non-urgent ruling. A non-urgent tax ruling request does not require the payment of any fee by the taxpayer. On the other hand, an urgent tax ruling request requires the payment of a fee that may range between EUR2,500 and EUR25,500.

The Portuguese Tax Administration (PTA) should decide on the urgency of the request within 30 days after the application therefor. An urgent tax ruling request must contain:

• a detailed description of the factual background;
• the grounds on which the taxpayer is requesting the granting of an urgent ruling; and
• a proposal for the tax treatment that should be in accordance with the facts described in the request.

If an urgent ruling is granted, the tax treatment proposed by the taxpayer shall be deemed tacitly approved by the PTA in a scenario where the latter does not make any decision within 75 days of the request. In turn, non-urgent tax ruling requests should be decided within 150 days of the application, but there is no tacit approval in case such deadline is not met.

Tax rulings cease to apply if the factual or legal assumptions change, and in any case are not applicable four years after the date on which they are granted unless the taxpayer requests renewal of such ruling. Finally, the PTA may revoke tax rulings one year after their issuance.

Given that it is customary for bidders in Portuguese tender offers to already be shareholders in the respective target companies, it is also customary for stakes to be acquired prior to the announcement of the offer. “Toeholds” or “below reporting threshold” participations are less common, but have also occurred in the past in tender offers.

Acquirers of shares in listed companies are required to report to the target company and Portuguese Securities Market Commission (Comissão do Mercado de Capitais (CMVM)) that they have acquired a position equal to or in excess of 5%, 10%, 15%, 20%, 25%, one-third, half, two-thirds or 90% of the share capital of the target company within four trading days, counted from the date such acquisition occurred.

Under Portuguese law, in reporting qualified participations, buyers are not required to disclose the purpose of the acquisition of their stake or their intentions in respect of the company. However, if there are rumours in the market regarding a possible acquisition involving the buyer, the CMVM will have powers to halt trading of the shares of the company in question and seek clarifications from the buyer, who will be obligated to respond in a timely and truthful manner as to whether or not it seeks to make an offer. However, no “put up or shut up” requirement is in place in Portugal, and buyers are therefore entitled to change their mind and announce bids shortly after answering questions from the CMVM on the subject (provided that the information previously provided is accurate and that this behaviour does not amount to market manipulation).

Holders of shares who, by themselves and/or in tandem with certain related parties (pursuant to voting attribution rules extracted from the Transparency Directive), hold more than one-third or more than 50% of the voting rights of a listed company shall be obligated to launch a tender offer over the target company.

A person holding more than one-third of the voting rights of the listed company will have to show that it does not control the company. If it succeeds in that regard, it can be considered that such obligation was not applicable in the first place.

Conversely, the holding of 50% or more of the shares shall constitute an irrefutable presumption that such control exists; the obligation to launch a tender offer shall always be due in such case unless one of the exceptions that follows applies.

Without prejudice to the previous requirements, a duty to launch a tender offer as a result of the crossing of the two-thirds or 50% of voting rights thresholds shall not be enforceable if the acquisition is a consequence of:

• the acquisition of securities by means of a previous tender offer targeting all equity and convertible securities issued by the target company, and which complies with the substantive requirements – most notably the minimum offer price (which must be the higher of the six-month volume-weighted average price (VWAP) and the highest price paid by the offeror or parties related thereto for equity or convertible securities in the previous six months);
• the implementation of a recovery or reorganisation plan;
• a merger of companies; or
• the acquisition of securities by inheritance or legacy.

A typical transaction structure for the acquisition of a public company is the incorporation of one or more special-purpose vehicles (SPVs) that raise capital from the equity sponsors and debt providers (a chain of SPVs is sometimes used for liability ring-fencing purposes between the equity sponsors and the debt providers), where the last SPV in the chain will be the offeror of record in the tender offer.

Mergers are rarely used as an acquisition structure given that the shares of the offerors are not seldom used as consideration in Portugal, and share-for-share transactions require the disclosure of information in a prospectus-like document and dilution of the offeror’s shareholders.

Public company acquisitions in the technology sector in Portugal are not common.

In public acquisitions in general, cash is by far the most common source of consideration. As explained in the previous question, share consideration poses a number of problems, including enhanced disclosure requirements on the offeror and offeror’s securities and the dilution of their shareholders.

In mandatory tender offers, the offer price must be the highest of the (i) volume-weighted average price of the stock in the past six months and (ii) the highest price paid by the offeror or parties related thereto for shares in the target company in the past six months.

In voluntary tender offers, it is also advisable to respect the minimum price given that it provides a safe harbour for a mandatory tender offer to be launched, should the offeror acquire more than 50% of the target’s shares in the voluntary tender offer.

Contingent value rights, earn-outs and other mechanisms are rarely used in Portuguese public M&A.

Offer conditions must correspond to a legitimate interest of the offeror and do not impact the normal functioning of the market.

The launching of tender offers is usually conditioned to regulatory approvals, and the closing or effectiveness of the offer to minimum acceptance conditions. In the energy sector, regulatory, foreign investment and competition approvals are often the main concerns with respect to whether a tender offer will see the light of day.

It is not common in Portugal for companies and offerers to enter into a transaction agreement in connection with a tender offer. Conversely, the execution of agreements between the offeror and the majority shareholders of the target company shall trigger the need for the offeror to launch a mandatory tender offer over the target. The price per share offered needs to be carefully calibrated by the parties given that it will condition the price that can be set in the subsequent mandatory tender offer.

The most common minimum acceptance condition to ensure control over the target company is 50% plus one of the voting rights. In transactions where the controlling shareholder is the offeror, the minimum acceptance condition is sometimes 90% of the voting rights, to allow a subsequent squeeze-out.

The squeeze-out mechanism can be exercised when the offeror holds 90% of the voting rights following a tender offer. Once this threshold is reached, the offeror has three months to acquire the remaining shares at the bid price, or at a higher price if any shares were previously acquired at a higher value. Unlike a takeover bid, a squeeze-out does not require shareholder acceptance. The controlling shareholder initiating the squeeze-out must promptly publish a preliminary announcement and submit it to the CMVM for registration. This process results in the immediate delisting of the shares from trading on a regulated market.

One of the prerequisites to launch a tender offer is that the offeror has certain funds to launch the offer. While the law mandates that the consideration be deposited in a bank account for a first-demand bank guarantee to be issued, in practice, the CMVM has accepted “cash confirmation letters” issued by reputable banks, which are backed by a facility agreement entered into with those banks.

Anti-takeover provisions are not encouraged under European and Portuguese law; therefore, deal protection measures in by-laws are seldom seen and enforced, with the only exception being voting caps wherein a shareholder will not be able to exercise voting rights above a certain threshold (to guarantee that no one shareholder can acquire the company unless it offers to buy the minorities out).

Break fees were sometimes used but are viewed suspiciously by the CMVM, which has issued guidelines warning against their use.

Additional governance rights are not common for bidders who are not able to obtain sufficient capital or voting rights to squeeze out minorities. Usually, the effectiveness of a tender offer will be dependent on the acquisition, in the offer, of over 50% of the voting rights of the target, allowing a control relationship to be established. If this is not achieved, the offer will lapse, and any shares tendered will not be acquired by the offeror and settled.

Irrevocables, in the form of a promissory agreement or ancillary undertaking in an agreement between the offeror and shareholder, are sometimes given by shareholders of the target company; “hard” irrevocables, which do not provide an out to the shareholder if a better offer is made, are challenging to justify from a legal perspective (as they stymie competing bids and the market for corporate control) and are therefore not common.

Irrevocables are also difficult to structure from an inside information disclosure perspective given that some may entail mandatory disclosure if they are known by the company, or if the issuer itself is listed (which conflicts with the duty of secrecy in preparing tender offers; see 10.4 Disclosure of Transaction Documents).

The offer is required to be approved by the CMVM (no approval from the stock exchange operator, Euronext, is needed). The CMVM has eight days to make a decision on whether to register the offer or not, but this period only commences once the CMVM is able to collate all the information and documentation it requires to make an informed assessment. In practice, this means that the CMVM’s decision can take from a couple of weeks to several months. The review process or decision will not set a timeline for the offer, as that will be up to the offeror to define.

If one or more competing offers are launched, some adjustments to the timeline may be required as all offer periods should end simultaneously.

After they are announced, but prior to launching, tender offers are usually conditional on obtaining government and regulatory authorisations, notably sectoral authorisations (common in the energy and infrastructure sectors) and competition/foreign investments.

These authorisations are required to be secured within six months (if a shorter time frame is not self-imposed by the offeror), but such a term is extendable through authorisation from the CMVM, which must take into consideration the normal functioning of the capital markets. If regulatory approvals are not secured by that time, the offer will automatically lapse.

In Portugal, access to certain economic activities is subject to prior control procedures. Within the renewable electricity subsector, this is true for the activities of generation, supply and aggregation.

The production of electricity from renewable sources and the implementation of storage facilities are subject to different licensing schemes, which vary according to the capacity of the power plants. The competent entity to grant, modify and revoke the production licence of energy-producing power plants is the Director-General of the Directorate-General for Energy and Geology, which also exercises competencies as the licensing co-ordinator responsible for the supervision and conduction of the procedures of granting, altering, transmitting and revoking pontos de recepção (national electricity grid access points), licences and authorisations.

The production of electricity from renewable energy sources, based on a single production technology, a maximum installed capacity of up to 1 MW and the intention to sell the energy to the grid, is subject to prior registration and the obtaining of an operating certificate.

For power plants with an installed capacity of over 1 MW intending to sell energy to the grid, a generation licence (licença de produção) that authorises the installation of the power plant must be obtained, as well as an operation licence (licença de exploração) that allows such power plants to enter into operation and inject electricity into the relevant grid.

The securement of a generation licence, as further detailed in the following, depends on the prior reservation of grid capacity by means of:

• a permit issued by the relevant grid operator, as per the applicant’s request;
• an agreement entered into by and between the applicant and the relevant grid operator, whereby the former undertakes to pay the costs associated with the grid’s construction or reinforcement; or
• a permit issued by the relevant grid operator under the terms established by the corresponding competitive procedure.

Electricity supply and aggregation are subject to prior registration.

The CMVM is the primary securities market regulator for tender offers.

In Portugal, foreign investments are generally granted the same treatment as domestic investments. However, Decree-Law 138/2014, of 15 September 2014, introduced certain restrictions to foreign investment in order to safeguard strategic assets. This regime applies to the main infrastructure and assets for defence and natural security, as well as for the provision of essential services in the energy, transport and communications sectors. Under this Decree-Law, the filing of foreign investments is not mandatory. An investigation may be started by the Portuguese government within 30 days of the transaction being completed, or after the transaction becomes publicly known. An opposing decision from the government results in previous legal acts related to the operation becoming null and void. Alternatively, the acquirers of assets covered by the Decree-Law may request that the government confirms that it does not plan to oppose the transaction. In the latter case, confirmation is tacitly given if no investigation is initiated by the government within 30 working days. This request has no suspensory effect.

In addition, Regulation (EU) 2022/2560 of the European Parliament and of the Council, of 14 December 2022, on foreign subsidies distorting the internal market (the “Foreign Subsidies Regulation”), can also apply to transactions involving foreign investment.

Under Decree-Law 138/2014, the Portuguese government may oppose the acquisition of control, as it is understood under competition law, over a strategic asset by a person or company of a third country to the EU or the European Economic Area, if such acquisition poses a genuine and sufficiently serious threat to national security or to the security of supply of essential services. Decree-Law 138/2014 specifies the situations where a genuine threat may arise. These include the situation where there is a link between the acquirer and third countries that do not observe the fundamental principles of the rule of law and democracy, which poses a risk to the international community as a result of the nature of the alliance or the maintenance of relations with criminal or terrorist organisations or persons. Otherwise, in national law, there are no specific restrictions for investors based on their location, apart from EU restrictive measures (sanctions) (which are applicable in Portugal).

Furthermore, as an EU member state, Portugal is subject to Regulation (EU) 2021/821 of 20 May 2021, which set up an EU regime for the control of exports, brokering, technical assistance, transit and the transfer of dual-use items. This Regulation lays out rules applicable to items that can be used for civil and military purposes. For instance, controlled items, listed in Annex I, are subject to prior authorisation for export outside of the EU. Items listed in Annex IV are subject to intra-EU trade licences. Other items may also be subject to prior authorisation for export outside of the EU according to their end use (military end use, use for chemical, biological or nuclear weapons, etc). In Portugal, Decree-Law 130/2015 of 9 July 2015 adopts the measures necessary to implement this regime (which is still under an earlier version of the aforementioned Regulation), such as determining the authorities responsible for licensing and control, the applicable procedure and the necessary licences/authorisations, as well as the sanctions framework for non-compliance.

Law 19/2012 of 8 May 2012, as amended (the Portuguese Competition Act), is the main piece of legislation governing merger control in Portugal. A transaction is subject to mandatory antitrust filing to the Portuguese Competition Authority (PCA) if it (i) constitutes a concentration and (ii) meets one of the alternative jurisdictional thresholds.

Under the Portuguese Competition Act, the following operations are deemed to constitute a concentration between undertakings:

• a merger between two or more independent undertakings;
• the acquisition of control, by one or more undertakings, over another undertaking(s) or part(s) of another undertaking(s) to which a market turnover can clearly be attributed; and
• the creation of a fully functioning joint venture on a lasting basis.

“Undertakings” encompasses all entities engaging in economic activity through the offering of goods and services on the market, regardless of their legal status. Pursuant to the PCA’s practice, incorporated legal persons with no economic activity may constitute undertakings if it is likely that the business will start operating “in a reasonable period of time”, which may vary between three and eight years.

The definition of “control” under the Portuguese Competition Act closely follows the European Commission’s practice under the Council Regulation (EC) 139/2004 of 20 January 2004 (the “EU Merger Regulation”) and is inferred from all relevant legal or factual circumstances that confer the ability to exercise decisive influence on the target’s activity, in particular through the acquisition of:

• all or part of the share capital;
• rights of ownership or use of all or part of an undertaking’s assets; and
• rights or the signing of contracts, which grant decisive influence over the composition or decision-making of an undertaking’s corporate bodies.

Furthermore, the Portuguese Competition Act provides three alternative thresholds for mandatory filing:

• turnover threshold – concentrations are subject to notification if, in the preceding financial year, the aggregate combined turnover of the undertakings taking part in the concentration in Portugal exceeded EUR100 million, after deduction of taxes directly related to turnover, provided that the individual turnover achieved in Portugal in the same period by at least two of these undertakings exceeded EUR5 million;
• standard market share threshold – even if the turnover threshold is not met, notification is mandatory if the implementation of the concentration results in the acquisition, creation or reinforcement of a share exceeding 50% in the “national market” for a particular good or service, or a substantial part thereof; and
• de minimis market share threshold – even if the standard threshold is not met, the creation or reinforcement of a share of between 30% and 50% of the national market of a particular good or service will still be subject to mandatory filing if at least two of the participating undertakings achieved a turnover of at least EUR5 million in Portugal in the previous financial year.

Furthermore, as Portugal is a member state of the EU, mergers having effects in Portugal may be subject to the EU Merger Regulation and to the exclusive jurisdiction of the European Commission where the relevant thresholds are met.

The Portuguese Labor Code foresees information and consultation duties before employees’ representatives regarding specific material issues impacting employees.

If a transaction qualifies as the transfer of a business unit – and therefore constitutes a transfer of undertaking for the purposes of satisfying Portuguese employment law – the employment contracts of the employees wholly or mainly allocated to such business will be transferred to the acquirer by operation of law. Under Portuguese law, transfer of business is subject to a legal procedure that involves a complex set of information and consultation duties before employees’ representatives (ie, in order of preference, works councils, trade unions, inter-union committees, union committees or trade union representatives within the company) or, in their absence, the employees themselves.

In case of a share deal, there is only an obligation to inform employees of the new group structure, since the employer remains the same. Any works council must also be informed. The obligation to consult with the works council will also apply if measures aimed at reducing the number of employees and/or changing the work conditions or work organisation will be adopted.

No currency control regulation exists in Portugal, and M&A transactions do not require central bank approval (unless this concerns banks or financial companies who engage in lending, deposit-taking or payment activities).

No significant court cases have occurred concerning energy M&A in the past three years. There is, however, legislation that is worth mentioning, given its impact on such transactions:

• Regulation (EU) 2022/2560, of 14 December 2022, establishes a framework to ensure fair competition within the EU internal market by introducing new notification and review requirements for certain M&A transactions involving companies that may have received subsidies from foreign governments – this regulation will have plenty of applications in the energy space, given the number of foreign government-linked companies and wealth funds purchasing European energy assets, including in Portugal;
• Regulation (EU) 2021/821 of 20 May 2021 sets up an EU regime for the control of exports, described in more detail in 7.4 National Security Review/Export Control; and
• Decree-Law No 114-D/2023 of 5 December implements Directive (EU) 2019/2121 on cross-border demergers and conversions (ie, change of registered office to another EU country), creating a level playing field for EU-wide spin-offs and restructurings.

Law No 99–A/2021 of 31 December 2021 also enacted several important changes to the Portuguese Companies Code, including permitting, in certain instances, multiple voting shares and making rules on competing bids more flexible.

Concerning the sharing of information between a target company and an offeror, especially in sensitive sectors such as the energy sector, a delicate balance must be struck between the interests of the company – to maximise shareholder value – and the equal treatment of investors in the company, the obligation to disclose inside information and confidentiality obligations under contract or law (including for reasons of national security).

As a rule of thumb, information that is publicly available or easily requested from public authorities (eg, commercial and land registration, licences and other titles for the operation of energy assets) should be disclosed. Information that is confidential, or may be sensitive due to security concerns or technology export controls, should not be disclosed.

Pursuant to the neutrality principle and the principle to treat all bidders equally, information that is required by one bidder should be shown to all bidders (in case of competing bids).

Portuguese Law on privacy and data protection does not provide for any specific restriction that would limit due diligence of an energy and infrastructure company.

Whenever due diligence implies access to and analysis of personal data, Regulation (EU) 2016/679 of the European Parliament and of the Council, of 27 April 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the “General Data Protection Regulation” (GDPR)), applies. In this case, the obligations foreseen in the GDPR must be complied with, namely (i) a lawful basis for the processing activity shall be verified (Article 6 of the GDPR) and (ii) information on the processing activity shall be provided to data subjects (Articles 13 and 14 of the GDPR).

It is required that a bid be made public when the offeror has made a final decision concerning the making of the offer. At that time, a preliminary announcement of the offer must be made to the CMVM, the target company and the market as soon as possible.

Until the preliminary announcement is made, the offeror and its advisors are bound by a duty of confidentiality regarding the preparation of the offer.

A prospectus is not required for the issuance of shares in a stock-to-stock takeover offer or merger. However, an information memorandum, not subject to regulatory approval, regarding the share consideration and/or merger must be disclosed and made available to target company shareholders and the market, highlighting the offeror’s financial condition and providing information on the shares being offered.

Furthermore, for each tender offer, even those where the consideration is made only in cash, an offer prospectus must be drawn up and filed with the CMVM and the target company. The prospectus will need to disclose the general terms and conditions of the offer, and the intentions of the offeror regarding the target company post-offer, most notably in respect to the strategy, financial conditions and labour relations.

Bidders need not produce financial statements in their disclosure documents in a cash transaction. If the transaction is a stock-for-stock transaction or merger, financial statements will need to be produced showing the financial position and results of the bidder, as well as (in certain instances) pro forma accounts showing what the combined entity would look like.

Financial information of listed companies must be prepared under International Financial Reporting Standards (IFRS), pursuant to the general rules of the prospectus regulation (this would apply to statements disclosed under the offer). If the offeror is from a third country relative to the EU, the offeror may prepare the statements in accordance with their generally accepted accounting principles (GAAPs), provided that such GAAPs are deemed equivalent to IFRS by a decision of the European Commission.

The transaction documents that are mandated to be drawn-up under the law must be filed in the CMVM’s information dissemination system and are thereafter made public.

Shareholders’ agreements, which could shape the attribution and exercise of voting rights in the target company post-transaction, must also be disclosed.

Other private documents that are entered into pursuant to the offer (eg, a share purchase agreement for the acquisition of a controlling stake in the target company, which would then trigger the need to launch a mandatory offer), but which are not specified in law as having to be shown to the market, are generally not disclosed in their entirety, even if their entering into, modification and/or termination involves inside information of the target company, the offeror or the target company’s shareholders (when the latter are listed companies).

Directors must abide by duties of care and duties of loyalty in all facets and functions, including when they are aware that the target company is the subject of an acquisition or a business combination is being negotiated.

Directors’ duties pertain not only to the company’s shareholders but also to other stakeholders, whose interests must be kept in mind when taking decisions. However, apart from creditors, stakeholders generally do not have standing to sue the company or directors for breach of duties of the latter, unless a contractual provision is breached or in case of “tort” liability. Conversely, shareholders can bring actions indirectly through the company, or directly against the directors for breach of their duties.

Directors are protected by a business judgment rule, which states that no liability arises if it can be shown that the decisions being challenged were taken in an informed and objective manner. It is more difficult to uphold a business judgment rule defence if it can be shown that the director or directors were conflicted when making such decisions.

It is not common for special or ad hoc committees of boards to be established in an M&A scenario.

The board of directors of the target company invariably plays a key role in a tender offer setting.

Generally, boards are mandated by law to make a recommendation for or against the proposed transaction. This recommendation for or against is documented in a report that must be issued eight days after the board receives the draft offer prospectus from the offeror. Shareholders can in theory bring suit to the board, indirectly via the company or directly, if they have reasons to believe that the board has not complied with its fiduciary duties in issuing the report.

Boards can also be involved in negotiations with the offeror regarding the transaction, generally as a means of finding ways to maximise value for shareholders. However, this is not very common given that tender offers are usually led by the majority shareholders of the target companies (as offerors or as willing sellers).

Boards of directors are also generally bound by the neutrality rule of the EU Takeover Directive, which in essence means that they can only manage the company in the ordinary course of business after the tender offer is announced and are barred from pursuing transformative transactions. Exceptions to the neutrality rule include a reciprocity principle when (i) the offeror already controls the target company or (ii) the offeror is, or is controlled by, a company outside of the EU that does not adhere to the same standards of neutrality as the target.

It is common for directors to seek outside advice to assist them in understanding the financial and strategic features of an acquisition offer and to protect them from potential liability, notably when target shareholders view the transaction as value-dilutive.

The advisors typically hired by the board are lawyers and financial advisors, but auditors, tax consultants and strategy consultants are also sometimes on-boarded to provide their views on the merits and flaws of the proposed offer.

Sometimes, boards request fairness opinions, usually from outside investment banks (ie, banks that do not provide financial advice, thereby preventing conflicts of interest), to support their views on the transaction. The opinions should at least be expressed in a report from the board of directors, which must be drawn up and disclosed within eight days of the remittance of the draft offer prospectus by the offeror.