Corporate M&A 2022 Comparisons

Last Updated April 21, 2022

Contributed By Bondoc si Asociatii

Law and Practice

Authors



Bondoc si Asociatii is a leading Romanian law firm that covers the entire range of legal services, housing highly experienced lawyers with in-depth knowledge of the Romanian market's specific regulatory and economic local environment. The team has practical experience at an international level and has worked on many of the largest, most complex transactions in the Romanian market in recent years, providing integrated advice on virtually every aspect of the legal work associated with complex cross-border transactions and domestic projects. The team can assist with virtually any type of M&A project, of any size, in any industry in Romania, including highly regulated sectors or in connection with public authorities, and assists both strategic and private equity investors on a regular basis. In the last three years, the team was involved with more than 45 M&A projects, including 11 that were the largest of their industries in the relevant year.

The Romanian mergers and acquisitions (M&A) market in 2021 seems to have further recovered after the initial slowdown caused by the COVID-19 pandemic, having recorded an overall increase, with a total estimated value between EUR4.2 to EUR4.6 billion (versus the 2020’s EUR3.7 billion to EUR4.3 billion, factoring in both disclosed and estimated undisclosed deal values). The number of transactions also increased, offering numerous counselling opportunities.

The main trend remains linked to consolidation in many sectors, the Romanian market remaining one with more players per industry than most other European Union (EU) countries. This trend has been noticeable in most sectors, from IT and energy to real estate, healthcare and logistics. As more and more private equity players have entered the Romanian market, the number of transactions involving such funds has also remained significant, although he volatility of the market favoured more strategic investors.

Notwithstanding the difficulties in the mid-term evaluation of companies the pandemic initially generated in 2020, there is a notable number of sectors in Romania experiencing significant M&A activity, mainly due to the still fragmented market in many industries.

The sectors with the most deals included IT, energy, real estate (parts of it), retail, while sectors such as healthcare and pharmaceuticals and the banking sector have also seen notable M&A activity.

Following the global trend, the industries which were most affected by the COVID-19 pandemic have continued to include hospitality, manufacturing, distribution and regular transportation.

Typically, companies are acquired through the acquisition of shares. However, depending on due diligence findings or the situation of the target company (eg, insolvency), transfers of assets are also common and some involve large businesses.

There are no regulators for private M&A activity per se in Romania, but depending on the industry concerned, there may be certain requisites, usually conditions to closing the deal (eg, certain prior approvals of a regulator like the National Bank of Romania or the National Agency for Mineral Resources may constitute a validity condition for the transaction).

However, regardless of the industry concerned with a particular business combination, the involvement of the competition authority might be legally required. The same goes for the Commission for Examination for Foreign Direct Investments (CEISD) (which is about to replace the Supreme Council of State Defence (CSAT) in light of the legislative changes of April 2022); see 2.6 National Security Review.

There are a few restrictions on foreign investment. For example, foreign nationals outside the EU and EEA cannot acquire land, other than in a limited number of exceptions. Also, a number of investments are subject to scrutiny by CEISD; see 3.1 Significant Court Decisions or Legal Developments.

As part of the EU, Romania is subject to both EU regulations and relevant national legislation, the latter harmonising with the former. Among details worth considering are the rather low thresholds triggering a merger control requirement.

More specifically, business combinations resulting in a change of control (be it sole or joint) of an undertaking on a lasting basis, are subject to compulsory clearance by the Romanian competition authority (ie, the Competition Council) if the combined turnover of the undertakings concerned are in excess of EUR10 million at a worldwide level, and each of at least two of the undertakings concerned had a turnover in Romania exceeding EUR4 million in the year preceding the transaction.

Prior to a transaction, acquirers should carefully review individual templates and collective bargaining agreements, as well as any other arrangements (eg, protocols etc), between the employer and the trade union/employees’ representatives and/or employees, and human resources related policies and procedures applicable within the target company so as to assess potential non-compliances with the law, certain cost trends that could entail a target company’s liabilities at post-deal closing, including but not limited to potential sale bonuses, benefits, severance payments, etc, as well as other potential implications of the transaction over the target company’s employees (eg, potential mandatory prior information and consultation of employees).

Depending on the type of transaction, there may also be certain obligations incumbent for the acquirer. Asset deals are also typically subject to the TUPE rules.

Among the most relevant employment regulations are the Romanian Labour Code (Law 53/2003), the Social Dialogue Law (Law 62/2011), Law 81/2018 on teleworking activity, Law 467/2006 establishing a general framework for informing and consulting employees, the law on the protection of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses (Law 67/2006), the Government Decision providing the minimum gross salary guaranteed for payment at national level (GD 1071/2021), the law on health and safety at work (Law 319/2006), Government Decision No 1425/2006 on the Methodological Norms for the enforcement of Law No 319/2006 on Safety and Health at Work etc.

Mergers and acquisitions susceptible to pose a risk to national security are subjected to a security review conducted by CEISD (following the legislative changes enacted on 18 April 2022). The definition is broad.

Any transaction subject to merger control is automatically submitted to the attention of CEISD if the Competition Council deemed the transaction to fall within the scope of security review. Transactions below the relevant merger control thresholds might also be subject to CEISD’s scrutiny, depending on their features.

M&A-related litigation is not common in Romania, considering that many investors prefer arbitration and discretion regarding a dispute.

Money Laundering and Terrorism Financing

Concerning legal developments, there have been certain developments affecting the M&A sphere, eg, the Law 129/2019 on the prevention and combating of money laundering and terrorism financing (transposing the 4th AML Directive) which entered into force in July 2019, was amended several times in 2021, including by Law No 315/2021 (Law 315/2021). The Law 315/2021 came into force in January 2022 and introduces, amongst others, a series of amendments to the rules regarding the obligations of reporting entities and rules for identifying and declaring the ultimate beneficial owners. Additionally, the National Office for the Prevention and Combating of Money Laundering has also issued a guide at the beginning of 2022 for the identification of ultimate beneficiary owners.

New Rules on Security Review and Foreign Direct Investments

The legal regime of both foreign investments and national security review was amended by means of Government Emergency Ordinance No 46/2022 for the implementation of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, as well as for the amendment and supplementation of Competition Law No 21/1996 (GEO 46/2022), which came into force on 18 April 2022.

According to the amendments brought by GEO 46/2022 to Competition Law No 21/1996, the Commission for Examination for Foreign Direct Investments (CEISD), a new regulatory body to be established in 30 days as of GEO 46/2022’s entry into force, will be conducting the security review for transactions susceptible to pose a risk to national security, replacing the former regulatory body, the Supreme Council of State Defence (CSAT).

CEISD will perform its review with respect to both transactions falling under the merger control of the Competition Council pursuant to Competition Law No 21/1996 and to other types of foreign direct investments, as defined under GEO 46/2022. The new legislation has a number of unclear areas that will need to be considered in handling M&A projects on a case by case basis.

Amendments to the Companies Law

There haven’t been significant developments in addition to the amendments brought last year to the Companies Law (Law No 31/1990) which removed certain restrictions, such as the so-called “anti-chaining” rule, or having eased up on certain requirements for the incorporation of a company, such as the removal of the interdiction of having multiple headquarters of companies registered at the same exact address, or the easing up on the registration of share transfers to third parties by removing the so-called opposition term (ie, non-shareholders) regarding limited liability companies. There are certain legislative projects on the Parliament’s agenda (including a project which would allow the issuance of certain so-called “executive shares” that would grant their holders multiple voting rights per share), however, it is too early to consider such proposals relevant as, at this time, there is no certainty regarding the timing of effective implementation or the final form of the act.

Public M&A

On the public M&A side, the Law No 158/2020 which came into force in August 2020 (except for certain provisions which came into force in September 2020) brought several important amendments including, amongst others, to the Law 24/2017 on issuers of financial instruments and market operations (Law 24/2017 or the Issuers Law). For example, the new amendments aim to implement the Shareholders Rights Directive II (SRD II), by regulating aspects such as:

  • new provisions regulating the means whereby issuers are entitled to identify their shareholders;
  • enhanced transparency obligations of institutional investors, asset managers and proxy advisors (this category of advisors being regulated for the first time in Romania);
  • new obligation for issuers to prepare and publish a directors’ remuneration policy (following the shareholders’ approval of the policy) and, subsequently, to prepare and publish a remuneration report;
  • new obligations regarding related-parties material transactions, including the obligation to prepare and publish a report covering material related-party transactions, etc.

The capital markets legislation was subject to several important changes both in 2017 and 2018. Essentially, the new piece of capital markets legislation on issuers of financial instruments and market operations was adopted and entered into force in 2017, namely the Issuers Law, aiming among other things to better implement the relevant EU directives, including Directive 25/2004 on takeover bids (the Takeover Directive). As an example, the Issuers Law introduced the breakthrough rule in takeover bids laid down in the Takeover Directive. As mentioned in 3.1 Significant Court Decisions or Legal Developments, the Issuers Law was amended by the Law 158/2020 which besides implementing the SRD II, brought certain amendments to ensure the correlation of the national legislation with the Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (EU Prospectus Regulation).

In 2018, the competent authority, ie, the Financial Surveillance Authority (FSA), adopted implementing norms to the Issuers Law, namely FSA Regulation 5/2018 on issuers of financial instruments and market operations (FSA Regulation 5/2018), which came into force in June 2018. FSA Regulation 5/2018 was amended by FSA Regulation 1/2020 which came into force in January 2020 and ensures the correlation with certain provisions of the Issuers Law and the Regulation (EU) 2018/815 supplementing the Directive 2004/109/EC on regulatory technical standards on the specification of a European single electronic reporting format (ESEF).

In 2021, FSA Regulation 13/2021 came into force and amended FSA Regulation 5/2018 in order to ensure correlation with the provisions of (the "Prospectus Regulation") and the European regulations issued in relation thereto, as well as with the provisions of Issuers Law following its amendment under Law 158/2020, which implemented SRD II. Furthermore, the FSA Regulation 5/2018 suffered certain minor amendments under FSA Regulation 2/2022 essentially related to the allocation method for public offers of transferable securities.

As regards the ESEF rules, in 2021 the FSA adopted Regulation 7/2021 which requires issuers with securities listed on a regulated market to prepare and publish their annual financial reports in accordance with the single electronic reporting format, starting with reporting for financial years beginning on or after 1 January 2021.

Currently, no other legislative changes are expected to significantly impact upon the securities legislation governing takeover bids.

Stakebuilding is not prohibited in Romania, however in practice, its use seems to be rather limited for various reasons, including the low liquidity of the Romanian capital markets, the impact of stakebuilding on the price to be offered where the bidder is subject to a mandatory takeover bid requirement or where he or she wishes to make a voluntary takeover bid to acquire control over the company.

There are also implications related to the incidence of market abuse rules considering that certain safe-harbours applicable to public takeovers and mergers do not apply in the instance of stake holding (the EU Market Abuse Regulation being directly applicable in Romania).

The notification requirements regarding the acquisition or disposal of major holdings laid down in the Romanian legislation implement to a large extent the provisions of the Transparency Directive 2004/109 (as amended). As such, disclosure of material shareholding applies where a shareholder acquires or disposes of shares of an issuer listed on a regulated market and to which voting rights are attached, if the percentage of the voting rights held following the acquisition or the disposal concerned, reaches, exceeds or falls below one of the 5%, 10%, 15%, 20%, 25%, 33%, 50% and 75% thresholds.

The disclosure obligation also applies where the relevant thresholds are reached either directly or indirectly by holding financial instruments of similar economic effect to holdings of shares and entitlements to acquire shares, whether or not they give right to a physical settlement.

The notification must be made to the issuer and to the FSA (if Romania is the home member state of this issuer) in Romanian or a language of wide international financial circulation, within four trading days. The issuer must make the notification public within three working days of its receipt.

Where the 33% threshold is exceeded, either on an individual basis or together with other persons acting in concert, the obligation to launch a mandatory takeover bid may apply, unless the bidder can rely on an exemption (see 6.2 Mandatory Offer Threshold).

Issuers are prohibited from determining thresholds in their constitutive acts other than the ones laid down by law. See 4.1 Principal Stakebuilding Strategies in relation to general stakebuilding hurdles.

Dealings with derivatives are not prohibited under Romanian law. However, transactions with derivatives are taken into account to determine whether shareholding disclosure obligations apply if the relevant thresholds, indicated in 4.2 Material Shareholding Disclosure Threshold, are reached.

The filing/reporting obligations under the European Market Infrastructure Regulation (EMIR), a European regulation on over-the-counter (OTC) derivatives, apply, as EMIR is directly applicable in Romania.

In the case of a takeover bid, the bidder is required to disclose in the offer document the plans for continuing the business of the target company, for example, including any significant change in working conditions, in particular the offeror’s strategic plans for the two companies, if any, and possible repercussions on the jobs and business locations of the companies.

Explicit information will also be provided regarding the bidder’s plans on a potential winding up, changing the object of activity and withdrawing from trading on a regulated market.

In public M&A deals, disclosure requirements dictate that the application of an inside information disclosure regime must be considered in line with the EU Market Abuse Regulation. Therefore, the target must make a case-by-case analysis and decide at what stage of the deal the relevant non-public, price-sensitive information is accurate enough in order to qualify as inside information subject to disclosure obligations.

As a rule, the issuer must disclose any inside information as soon as possible, but no later than 24 hours as of the event or after the date when the information is brought to its attention.

If a piece of information made public in the press or via an online post that was not made on the issuer's initiative in the context of its reporting obligations or in the case of a rumour in the market that explicitly refers to a piece of information/pieces of information that is privileged information at the issuer's level, in accordance with the EU Market Abuse Regulation the issuer must immediately publish that information if it is sufficiently precise to indicate that its confidentiality is no longer assured. Publication must be carried out under the same conditions and using the same mechanisms as those used for the communication of inside information so that an ad hoc announcement is published as soon as possible.

As per the EU Market Abuse Regulation, the issuer may delay, at its own responsibility, disclosure of inside information to the public, subject to the observance of certain conditions (eg, immediate disclosure is likely to prejudice the legitimate interest of the issuer; the delay of disclosure is not likely to mislead the public; and the issuer can ensure the confidentiality of that information).

Considering the severe sanctions applicable in connection with breaches related to disclosure and misuse of inside information, the normal market practice on timing of the disclosure should not differ from the legal requirements. Even so, there may be cases of legal uncertainty as regards the exact moment when the disclosure obligation arises.

In public M&A deals, due diligence is typically made on the basis of publicly available information only. In some cases (eg, takeover or merger deals), it may be possible to have access to some additional non-public and price-sensitive information, subject to compliance with the EU Market Abuse Regulation as well as to compliance with the obligation to ensure that investors have equal access to relevant information about the issuer prior to the deal.

As such, disclosure of non-public and potentially price-sensitive information should be treated with great care, especially as, unlike other jurisdictions, there are no official guidelines from the Romanian authorities regarding the setting up of data rooms in relation to public M&A deals and disclosure of inside information in this context.

In scoping due diligence exercises for private M&A deals, some factors are of particular relevance, such as the deal structure (eg, share or asset deal), the sector experience of the party commissioning the due diligence (ie, the vendor or the buyer), any on-going investigation on the target entity, as well as the size of the deal. Since the beginning of the COVID-19 pandemic, a closer look is given to the supply chain’s potential causes of disruption and the target’s ability to perform in this pandemic (IT infrastructure, remote working employees, etc).

As a rule, however, nowadays there are more due diligence exercises limited in scope (usually covering title-related matters, material contracts, regulatory, employment, litigation), than those covering all aspects of a company’s business life. For example, where a vendor commissions a due diligence exercise to put its company up for sale (commonly known as a "vendor due diligence" or VDD), typically encountered in sizeable deals, while the buyer may still (legally) rely on the VDD findings, it often elects to conduct a supplementary review (top-up) departing from the VDD findings, aimed at identifying and filling out potential "gaps".

In public M&A deals, standstill agreements imposing obligations on the bidder are in some cases concluded, but they are not common. In the context of a mandatory takeover bid, the law imposes a prohibition to the shareholder and persons acting in concert against acquiring shares in the issuer prior to carrying out the bid in question.

Typically, in private M&A deals, exclusivity is agreed upon for the benefit of the buyer via term sheets or similar, ie, restricting the vendor for a period of time estimated to cover all the main milestones of the transactional process (eg, from the commencement of due diligence, through the negotiation process and up to the (tentatively set) signing date of the definitive transaction documents), also effectively setting a time-cap on the deal itself, benefitting the vendor who, unless an extension is agreed, may walk away from the deal with that particular buyer, by the mere passage of time. 

The terms and conditions offered within a bid are commonly documented in definitive agreements.

Further, in public M&A deals, the terms and conditions of any takeover must be included in the bidder’s offer document, which is subject to publicity to ensure that the offer is addressed to all the shareholders. The offer is irrevocable for the entire duration of the takeover bid.

In public M&A deals, the process is highly regulated (eg, the norms provide for a minimum of ten working days and maximum of 50 working days for the takeover bid) and involves obtaining approvals from the competent authority (the FSA) and compliance with publicity requirements.

Timeframes

The timeframe for the acquisition/sale of a business in non-public M&A deals may depend on a series of factors, eg, whether a share deal or asset deal is envisaged or, in case of a share deal, whether the target company is a limited liability or a joint stock company and the acquisition structure, whether subject to merger control (and if only phase I or phase II), whether it is subject to CEISD’s scrutiny, etc. Any debt registered in the Romanian investor’s tax record (cazier fiscal) could further impact the timeframe of the transaction.

In addition to the above, certain other prior clearances may be legally required with respect to a particular transaction that would naturally expand the process (eg, in the area of certain natural resources).

While the initial governmental response to the COVID-19 outbreak (ie, a strict lockdown) could have been problematic where physical presence of all parties would have been required to close a deal (eg in front of the notary public, in case of real estate deals), this was not the case, as most of the M&A processes were already performed online. Moreover, physical meetings under the M&A activity have started to gradually resurface in late 2021.

Share Deal v Asset Deal

In terms of a share deal versus an asset deal, while an asset deal may prove beneficial for the buyer in terms of liability inheritance, which, generally, does not follow the transferred assets but rest with the seller (ie, company owning the transferred assets), the transfer process in itself may prove cumbersome and time consuming. This may be due to requirements imposing the renewal or re-issue of some licences to the new owner, individual re-registrations for registrable assets, assignment of contracts etc.

Mandatory takeover requirements apply when persons, as a result of their purchases or of the persons with whom they act in concert, hold securities that entitle them, directly or indirectly, to more than 33% of the voting rights of the issuer. Here, the persons are required to launch a public offer addressed to all securities holders at a fair price and covering all their holdings, as soon as possible but no later than two months after the achievement of that holding.

However, the requirement to conduct a mandatory takeover bid does not apply if the holding reaching the above-mentioned threshold is the outcome of an "exempt transaction", ie:

  • in the process of privatisation;
  • by acquisition of shares from the Ministry of Public Finance or from other legally empowered entities, in the process of budgetary claims enforcement;
  • following transfers of shares between a parent company and its subsidiaries or between subsidiaries of the same parent company; or
  • following a public voluntary takeover bid addressed to all those securities holders and covering all their holdings.

If more than 33% of the issuer’s voting rights are unintentionally acquired, the holder of such a position must, within three months:

  • carry out a public offer, under the conditions stipulated under the Issuers’ Law; or
  • transfer a number of shares, for the purpose of losing the position unintentionally acquired.

The acquisition is considered "unintentional" if it is the result of operations such as:

  • the reduction of the capital through the buy-back by the company of its own shares, followed by their cancellation;
  • the exercise of the preference right, subscription or conversion of the rights originally granted, as well as the conversion of preference shares into ordinary shares; or
  • merger/de-merger or succession.

Generally, in public M&A deals, the preference is for cash consideration, although the norms regulating takeover bids allow for the bidder to offer cash, or a combination of cash and securities. In the latter case, the bidder of a public exchange offer must also propose a cash alternative for the securities offered in exchange, so that the investors can opt to receive either cash, securities or a combination of the two.

Likewise, in non-public business combinations, the consideration is typically cash.

As regards the valuation of companies, as in several sectors generally at least one party stands to lose from the pandemic’s effects, while the other stands to win, bridging the valuation gap became more difficult (however, it should be noted that the deals have started to regain a certain degree a predictability over the last year).

In public M&A deals, the applicable norms do not regulate the possibility of making conditional takeover offers. By way of interpretation, the conditions for reaching a minimum threshold in a voluntary takeover bid or obtaining the clearance/approval of relevant competition authorities should be deemed acceptable, but it is recommended to seek any updated interpretation of the competent authority in relation to the opportunity to submit conditional offers.

The key control thresholds in Romanian public companies are:

  • the 33% threshold, which triggers the bidder’s obligation to launch a mandatory tender offer; the threshold is also relevant for a voluntary takeover bid where the bidder intends to acquire more than this percentage of the voting rights in the target (see 6.2 Mandatory Offer Threshold);
  • the 75% threshold: if, following a takeover bid, the offeror holds 75% or more of the capital carrying voting rights, no restrictions on the transfer of securities or on voting rights, nor any extraordinary rights of shareholders concerning the appointment or removal of board members provided for in the articles of association of the offeree company shall apply; and
  • the 90%/95% threshold, which enables the bidder to initiate the squeeze-out procedure (see 6.10 Squeeze-Out Mechanisms).

In public M&A deals involving a takeover bid, the offer cannot be conditional upon obtaining financing, as the offer document to be submitted to the competent authority for approval must include either proof of a deposited guarantee representing at least 30% of the total offer value in a bank account of the bidder’s broker (the amount to be blocked for the entire period of the offer), or a guarantee letter issued by a credit institution in the European Union or by a non-banking financial institution registered in the special register kept by the National Bank of Romania covering the entire value of the offer, issued in favour of the bidder’s broker and valid until the settlement date of the transaction related to the offer.

A non-public business combination may be conditional on the bidder obtaining financing, although the condition usually consists of requiring the bidder to prove the financial capacity to ensure the payment of the consideration, whether or not with additional financing. Furthermore, sellers are obviously cautious with bidders who have not yet secured financing.

In the bidding phase, buying participants do not usually have the option to resort to such means of securing the deal, although there are regular attempts to negotiate break-up fees and match rights.

As regards the management of the “pandemic risk” in the interim period, the parties typically exclude pandemic reasons from triggering the application of hardship, force majeure and material adverse change/event clauses, as the pandemic is no longer the "wild card" that it was in the beginning, the risk in this respect generally being assumed by the buyer.

Outside of its shareholdings, additional protection within the decision-making process may be sought at the company’s managing bodies level, by securing a position for the appointee(s) within such bodies, together with the right of that/those appointee(s) of becoming involved in all decisions that may adversely affect the interests of the appointer, pre-agreed selection of company auditor(s), etc. 

In the case of companies listed on the regulated market, shareholders have the right to grant a valid proxy for a period of no more than three years (unless the parties have expressly provided for a longer period) to their respective representatives for voting on all aspects of the GMS of an issuer or a category of issuers, either by inserting a specific wording or by using a more generic language. Such general proxies may be granted only to an authorised intermediary or to a lawyer.

In non-public companies, voting by proxy is permitted, subject to certain limitations prescribed by law or the bylaws of the company in question (eg, power of attorney is granted for a single and specific shareholders meeting; the proxy may not be member of the company managing bodies; and publicity rules must be observed).

Squeeze-out procedures are regulated in Romania and to date have been applied quite often for publicly traded companies.

Following a tender offer addressed to all shareholders and for all their shares, the bidder is entitled to require those shareholders who have not subscribed to the offer to sell all their shares at an equitable price, if one of the following conditions is met:

  • the bidder holds at least 95% of the total number of shares that provide voting rights and at least 95% of the voting rights that can effectively be exercised; or
  • the bidder has acquired, within the that takeover offer, shares representing 90% of the total number of shares that provide voting rights and at least 90% of the voting rights targeted in the offer.

The latest norms on the squeeze-out right of the "supermajority" shareholder impose a term of a maximum three months as of the finalisation of the tender offer to exercise the squeeze-out right.

Sell-out procedures are also regulated and applicable in case the bidder is in one of the cases described above. Under a sell-out procedure, the minority shareholder who has not subscribed to the takeover bid is entitled to ask the bidder to buy its shares at an equitable price.

Practices such as obtaining irrevocable commitments to tender or to vote by the target company’s principal shareholders are rare in Romania.

In the case of a voluntary takeover bid, the offeror must submit to the competent authority (the FSA) a preliminary announcement. Following approval by the FSA, the announcement must be sent to:

  • the target company; and
  • the regulated market in which the securities are traded. It must be published in at least one central and one local newspaper within the issuer's local area.

Following the publication of the preliminary announcement, the bidder must submit an offer document and related materials to the FSA within 30 days. The FSA will make a decision on approval of the offer document within ten working days.

Where the bidder issues shares as consideration for the offer, the offer document must be accompanied either by the offer prospectus relating to the relevant securities or by a document providing information about these securities. These documents are subject to the FSA’s approval/review including as regards compliance with the provisions of the Prospectus Regulation. Additionally, the offer document must include the exchange report by the independent valuator, as well as the cash value of the securities offered in exchange.

In the case of voluntary or mandatory takeovers, the offer document and preliminary announcement must contain economic and financial data pertaining to the bidder, in line with the latest approved financial statements (eg, total assets, total equity, turnover, result of the financial exercise, etc).

If part of the offer is to be settled in securities, a prospectus must be included (in line with the Prospectus Regulation and the Commission Delegated Regulation (EU) 2019/980) or an offer document, as the case may be.

In public M&A, the terms and conditions of the transactions are included in the offer document. This is made public and there are no requirements to disclose other transaction documents. However, full disclosure of some transaction documents to the competent authority may be required, eg, the underwriting agreement).

As the principal duty of directors is to manage the company, their attention is all the more required where the company is involved in an M&A process, to assess the findings of due diligence procedures; to consider/decide with respect to the transaction structure; and to ensure that all the necessary formalities are followed, etc.

The directors’ duties are mainly owed to the company and its shareholders. Under certain circumstances, the directors may be liable to other stakeholders. Yet, even in this instance, a third party having suffered damage as result of an action or omission of the director, should normally sue the company, not the director, to the extent that the director acted within the apparent limits of his or her powers as a director. If the director acted outside his or her powers as a director, a third party could directly file a claim against the director based on his or her personal tort liability.

The establishment of "ad hoc" committees is not common in business combinations in Romania.

In Romania, courts of law rule on the legality of matters and not on opportunity or business-related aspects.

In more complex business combinations, especially where the buyer offers to retain the company’s management following the deal closing, legal, financial and tax advice is often sought on behalf of the managers.

The legislation contains specific provisions in respect of shareholders and directors and potential conflicts of interest, and there have been disputes on such matters, eg, involvement in the decision-making process despite existing conflicts of interest.

Romanian law does not distinguish between hostile and friendly offers. Consequently, the rules mentioned above with respect to the conduct of takeover bids will apply accordingly.

Romanian legislation has implemented the board neutrality rule and consequently, as of the takeover announcement and until the closing of the offer, the board of directors cannot take actions that would affect the possible takeover. That is, they are prohibited from taking any measures that may affect the property or the objectives of the takeover bid, except for ordinary administration measures.

The board neutrality rule prevents the board of directors from taking any adverse action without the specific post-bid approval of an extraordinary general meeting (EGM) of shareholders, except in the course of ordinary business.

However, directors may seek out another more favourable bidder (or "white knight") and attempt to build a defence by expressing a negative opinion of the strategy to be implemented by an offeror, or the potential consequences of this strategy, thereby attempting to convince the shareholders to resist to the hostile takeover bid. The opinion of the board of directors must be sent to the competent authority, the bidder and the regulated market.

The most common defensive measure when facing a hostile takeover bid is probably for the EGM of shareholders to empower the board to search for an alternative bid. The outbreak of the COVID-19 pandemic did not seem to change the prevalence of this measure, although the holding of physical gatherings for the general meeting of shareholders was generally affected by the applicable restrictions. However, the FSA adopted new regulations aiming to ensure that the shareholders’ meetings continue to be held, by favouring especially the voting by correspondence or the holding of the meeting at a distance by using appropriate electronic means.

Since directors must comply with the board neutrality rule, their primary duties are to comply with applicable legal requirements in cases of takeover bids seeking to obtain control of the target company. For example, expressing the board’s opinion within five working days of the receipt of the preliminary offer announcement and deciding whether to convene the EGM of shareholders to inform the shareholders about the board’s opinion and to seek the approval for the implementation of defensive measures.

In taking these measures, the general duties of the directors apply, including observance of the legal prohibition against abuse of their position as directors by using disloyal or fraudulent measures, which may prejudice the shareholders.

Directors may not take measures aiming to affect the hostile bid in the absence of a decision of the EGM of shareholders. However, by presenting a well-grounded opinion they may prevent a business combination by convincing the shareholders of the negative consequences of the transaction.

In Romania, litigation is not common in connection with M&A.

M&A-related litigation is not common in Romania.

Parties generally try to avoid actual disputes regarding broken deal scenarios. Much depend also on the clarity of the conditions precedent (and of any pre-agreements). An important point to consider certainly is that any company negotiating or signing a deal should be very careful about the possibilities to no longer proceed to closing in case of really atypical situations. Obviously, the sellers have an opposite interest.

The way forward will likely include not that much focusing on listing additional possible events in force majeure definitions and alike, but to be additionally careful also when defining material adverse change events (basically an approach more by effect, as opposed to by particular type of cause).

Shareholder activism is not systematic; however, it is seen increasingly. An obstacle that remains is the need for resources and access to sufficient information. Focus seems placed on intra-group/related party arrangements, directors’ duties to the company and alleged conflicts of interest at the level of the main shareholder. This focus does not seem to have been affected by the COVID-19 pandemic, although the practicabilities became more difficult/nuanced.

Activists seek to encourage companies to enter into M&A transactions as they look for opportunities to exit or consolidate their position.

Activists seek to interfere with the completion of announced transactions, although these remain rare in Romania.

Bondoc si Asociatii

34 Londra Street
Sector 1, 011764
Bucharest
Romania

+40 31 224 8400

+40 31 224 8401

office@bondoc-asociatii.ro www.bondoc-asociatii.ro
Author Business Card

Law and Practice in Romania

Authors



Bondoc si Asociatii is a leading Romanian law firm that covers the entire range of legal services, housing highly experienced lawyers with in-depth knowledge of the Romanian market's specific regulatory and economic local environment. The team has practical experience at an international level and has worked on many of the largest, most complex transactions in the Romanian market in recent years, providing integrated advice on virtually every aspect of the legal work associated with complex cross-border transactions and domestic projects. The team can assist with virtually any type of M&A project, of any size, in any industry in Romania, including highly regulated sectors or in connection with public authorities, and assists both strategic and private equity investors on a regular basis. In the last three years, the team was involved with more than 45 M&A projects, including 11 that were the largest of their industries in the relevant year.