Corporate M&A 2024 Comparisons

2023 saw a significant decline in M&A activity in Croatia, caused mostly by inflation, rising interest rates and the costs of financing in general, resulting in a smaller number of deals closing or even being initiated/pursued. In a somewhat previously unexpected turn of events, there was an increase in the average number of closed deals where the acquirers were local players rather than foreign investors.

Stakeholders are cautiously optimistic about M&A activity in 2024, which is expected to pick up in the second half of the year, although is not likely to reach the levels of 2021.

This being said, the COVID-19 pandemic did not affect deal activity in any significant way.

Regardless of the decrease in overall M&A activity, strategic investors remained an important force on the buyer side over the past year, while the majority of exiting shareholders/sellers were local corporates rather than foreign investors leaving the Croatian market.

IT and tourism have been at the forefront of M&A activity. There has also been steady interest in the energy sector, particularly with respect to renewables.

The COVID-19 pandemic no longer affects the majority of industries and did not play an important role in distinguishing certain industries as being less interesting for investors.

In Croatia, M&A deals are most typically structured as share deals, with asset/business transfer deals being somewhat less frequent.

Deal structuring is dependent on many factors, such as:

• whether the company is listed or privately owned;
• the size of the company;
• whether financing is required to fund the acquisition; and
• whether regulatory approvals are required to close the transaction.

Most frequently, private transactions (which form the most significant part of local M&A activity) will not be signed and closed on the same day, but rather there will be a particular period between the signing and closing (the duration of which is dependent on the complexity of the transaction) during which conditions precedent will need to be fulfilled (or ultimately waived, if waiver is possible).

There is no singular regulator in charge of M&A activity in Croatia.

A change of shareholder is registered with the court registry of the competent commercial court in Croatia (ie, the court with which the target company is registered) and/or the Central Depository & Clearing Company Inc. (abbreviated in Croatian as SKDD – registered with the central securities depository and a registry of non-materialised securities).

The acquisition of a qualifying interest in a credit institution is subject to prior approval of the Croatian National Bank, and the acquisition of a qualifying interest in companies such as insurance companies, pension insurance companies, leasing companies and investment companies is subject to the approval of the Croatian Financial Services Supervision Agency.

Certain transactions may also be subject to merger clearance by the Croatian Competition Agency; see 2.4 Antitrust Regulations for more detail.

The Croatian government has adopted the necessary regulations to implement Regulation (EU) 2019/452 (“EU FDI Screening Regulation”) and established a national contact responsible for co-ordination and communication with other EU member states and the EU Commission in the context of the Regulation’s implementation. However, Croatia does not yet have a national foreign direct investment (FDI) screening mechanism in place. The Croatian government has announced the introduction of a national FDI screening regime based on Article 3 of the EU FDI Screening Regulation by way of adopting a separate national FDI screening act, but there are still no concrete developments with respect to the adoption of said act. Based on the Plan for alignment of Croatian legislation with EU law (as adopted by the Croatian Parliament on 28 February 2024), the FDI screening act is still expected to be adopted in the second quarter of 2024, but the draft act has not yet been made available for consultation with the public, and at this point there is no publicly available information on the expected date of publication of the draft act.

Even though Croatian laws generally provide for the equal treatment of foreign investors and Croatian citizens and entities, there are certain regulatory restrictions on FDI in specific sectors that apply to the acquisition of assets or the conduct of business operations in Croatia by foreign investors, including the acquisition of real estate and the conduct of regulated business activities.

The Croatia merger control regime is governed by the Croatian Competition Act. Croatian merger control rules follow the key principles of the EU merger control regime, as governed by the EU Merger Regulation (139/2004). In addition, the Croatian Competition Act expressly provides that, in case of gaps or uncertainties in interpretations of Croatian competition laws, the criteria set forth by the rules of EU competition laws shall be applied as appropriate. The relevant merger control authority in Croatia is the Croatian Competition Agency (CCA).

Definition of a Concentration

The regime applies to concentrations of undertakings that involve the change of control of the undertaking on a lasting basis through a merger by acquisition or a merger by forming a new company, or through the acquisition of direct/indirect control or a controlling influence by one or more undertakings over one or more other undertakings or parts thereof by way of the acquisition of a majority shareholding or a majority of the voting rights, or by other means. This also includes the creation of a full-function joint venture.

The Croatian Competition Act exempts internal reorganisations from the duty to notify.

Merger Control Thresholds, Procedure and Clearance

Under the Croatian Competition Act, a concentration is notifiable to the CCA if the following thresholds are cumulatively met:

• the combined worldwide annual turnover of all undertakings concerned is at least EUR132.72 million in the financial year preceding the concentration and at least one undertaking party to the concentration has a seat or a branch office in Croatia; and
• the aggregate national turnover in Croatia of each of at least two undertakings concerned is at least EUR13.23 million in the preceding financial year.

However, these thresholds do not apply to transactions in the media sector, where transactions must be notified regardless of whether the above thresholds have been reached, provided that the acquirer is also a media company. If an acquisition of electronic communications operators does not meet the above thresholds, the transaction would not need to be notified to the CCA, but would still need to be notified to and cleared by the Croatian Regulatory Authority for Network Industries (abbreviated in Croatian as HAKOM) if the transaction would involve operators with significant market power or operators that hold a licence for use of RF spectrum for the Croatian territory.

The CCA is required to conclude its Phase I investigation within 30 days from the date of receipt of the complete notification. If the CCA does not adopt a decision on the commencement of a Phase II investigation, the notified concentration will be presumed approved. On the other hand, if the CCA finds that the concentration may give rise to an appreciable effect on competition in the relevant market, it will take a decision on the commencement of a Phase II investigation. The Phase II process must generally be completed (with an unconditional or conditional clearance decision, a prohibition decision or a remedial decision after the implementation of a prohibited concentration) within three months from the CCA’s decision on the commencement of Phase II proceedings, with a possibility for the CCA to extend this deadline for an additional three months.

Investments in Croatia may also meet the thresholds for review under other merger control regimes, including the EU merger control regime and national merger control regimes for special sectors such as the media, electronic communications, credit institutions, insurance and investment activities.

In the sphere of M&A, it is paramount for the acquiring party to meticulously evaluate the landscape of employment laws and regulations governing acquired rights, collective engagement requirements and employee entitlements. Both local statutes and pertinent Collective Labour Agreements (CLA) can be implicated with respect to these issues, as can the internal policies of the target company.

Acquired Rights

Since the implementation of the European Acquired Rights/Transfer of Undertakings Directive, the Employment Act provides that, in the transfer of a business unit as a going concern, all employment contracts pertaining to the transferring (part of a) business unit will transfer to the acquirer automatically by operation of law. Consequently, the acquirer will assume employment contracts pertaining to the business unit to be transferred as they exist at the time of the transfer (including the full gamut of employment rights, benefits and entitlements). While the transferring employees do not possess the right to object or refuse to such transfer, prior consultation with the employee representative body – be it a works council or, if there is no works council, an appointed union trustee – is mandatory.

Collective Engagement Requirements

Typically, a share deal will not trigger collective engagement requirements, unless there is a CLA or an internal policy at the target company providing for such a requirement, or if the share deal would result in the loss of benefits for the employees of the target company.

Notably, in share deals involving a target company that has both a management board and a supervisory board, the acquirer should consider that the Employment Act mandates that one supervisory board member must be an employee representative, facilitating their involvement in significant business decisions.

In the context of a public takeover, the acquirer should also consider that the Croatian Act on the Takeover of Joint Stock Companies (“Croatian Takeover Act”) states that the target company’s management board must give a reasoned opinion on the takeover offer to the target company’s employee representatives or to the target company’s workforce directly if there are no such representatives. The employee representatives or workforce may comment on the offer and their comments have to be attached to, and published with, the target’s management board’s reasoned opinion.

In a cross-border merger, the target (disappearing) company’s management board must prepare a merger report (outlining the reasons and implications of the merger) and enable the entire workforce to review it and provide comments on the proposed merger, and must inform all affected employees of their transfer to the acquiring entity. Any employees’ comments on the merger must be enclosed with the merger report at the Annual General Meeting to decide on the merger.

Employee Rights and Benefits

The legislation to be considered by the acquirer as relevant in the post-closing period notably includes the provisions of the Employment Act regulating and restricting the employer’s ability to terminate employment contracts in general and in particular with regard to specific protected categories of employees (such as pregnant women, disabled persons, members of works council, senior employees, etc).

In principle there is currently no national security review of acquisitions in Croatia, but it will be interesting to see the extent to which the anticipated FDI screening process will deal with national security requirements.

Most M&A deals in Croatia (especially larger scale deals) are subject to arbitration, and decisions in disputes involving M&A deals are typically not publicly available due to the confidentiality of arbitral proceedings.

In December 2019, a decision of the High Commercial Court of Croatia caused a stir in the local legal and business community in relation to M&A deals, particularly regarding the share transfer agreements required to effectuate and register a transfer of shares (ie, business quota) in Croatian limited liability companies. Under the law, these share transfer agreements must be made in a special form provided under Croatian laws before the Croatian notary public. Typically, in practice, the relevant agreements were signed locally on the basis of the powers of attorney on which the signature of the party (or the party’s representative) was notarised. However, the High Commercial Court decided that, due to general parity of form requirements, the power of attorney should be made in the same form as the share transfer agreement (ie, that it is not sufficient for the signature on the power of attorney to merely be notarised). The High Commercial Court’s decision did not set a precedent proper (ie, the decision was only binding on the parties in the relevant proceedings), but it nevertheless resulted in uncertainty until the Croatian Companies Act was amended in early 2023 to expressly provide that it is sufficient to notarise the signature on the power of attorney used for execution of the share transfer agreement.

The latest amendments to the Croatian Takeover Act are now more than a decade old. According to publicly available information and the government’s plan of legislative activities for 2024, no changes to the relevant legislation are expected in the coming months.

Stakebuilding in public companies prior to reaching the threshold for mandatory offer publication is possible (and is not uncommon), but is subject to certain statutory requirements.

Disclosure thresholds are applicable to stakebuilding in publicly listed companies and apply when a natural person or legal entity directly or indirectly reaches, exceeds or falls below the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of voting rights in a public issuer of shares. The relevant person/entity is required to simultaneously notify the issuer and the Croatian Financial Services Supervisory Agency of the fact that the above listed thresholds have been reached or exceeded, or that voting rights have been disposed of below the relevant thresholds.

The rules on mandatory takeover and the disclosure requirements are compulsory; companies cannot deviate from compulsory provisions, subject to penalties provided under the applicable laws.

Dealings in derivates are allowed, but are also subject to disclosure requirements.

The disclosure requirements listed under 4.2 Material Shareholding Disclosure Threshold are applicable to the majority of derivatives.

Shareholders are not expressly required to disclose the purpose of their acquisition and their intention regarding control, but certain information on the intentions of the acquirer are required to be included in the takeover bid, including:

• intentions related to the future business of the target company and, to the extent this is influenced by the takeover bid, intentions related to the future business of the acquirer;
• strategic plans of the acquirer in relation to the target company and the potential consequences of the implementation of those plans on recruitment policies and the employment status of employees of the target company and the acquirer; and
• intentions of the acquirer with respect to the management board of the target company.

The majority of M&A deals in Croatia are private deals, typically concerning acquisitions of shares in limited liability companies (which cannot be public), so in principle there are no statutory deal disclosure requirements.

This being said, where a deal concerns a publicly listed company (whether the listed company is a target company or an acquirer or seller), inside information must be disclosed (made public) when required under Article 17 of the Regulation (EU) No 596/2014 (the “Market Abuse Regulation”). Information related to the financial instrument or an issuer is considered inside information if the following conditions are met:

• it is precise;
• it is not made publicly available;
• it directly or indirectly relates to one or more issuers of the financial instruments or one or more financial instruments; and
• if publicly available, it would likely have a significant impact on the price of the relevant financial instruments (noting that there is a likelihood of a significant impact if a reasonable investor would consider such information when making an investment decision).

In light of the above, it is rather unlikely that the target would be required to disclose information when first approached or when negotiation commences. Depending on the level of detail, the disclosure requirement may be triggered when a non-binding letter is signed or at any other point in the transaction when the above criteria have been met with respect to information. The signing of the definitive agreement would certainly trigger the disclosure requirement.

When disclosure is mandated under the Market Abuse Regulation, there are essentially no deviations regarding market practice on the timing of disclosure and the legal requirements, as the market Abuse Regulation requires that the disclosure is made as soon as possible.

In Croatia, investors typically opt to conduct legal, financial and tax due diligence, although in recent years separate environmental due diligence is also conducted in more and more transactions, distinct from the legal due diligence (this is becoming customary for acquisitions related to industries in which there is a higher likelihood of significant exposure in relation to environmental issues).

The exact scope of the legal due diligence usually depends on the specifics of the target company, but in general it will cover corporate, commercial agreements, employment, regulatory, litigation, financing and real estate.

If the transaction is structured so that there is a bidding process in which multiple potential buyers participate, then it is more likely that the data room will be pre-populated by the target/seller, and then updated on the basis of requests made by specific potential buyers/bidders. Otherwise, it is rather common for the data room to be populated with documents requested by the potential buyer.

There have been no major changes to the scope of due diligence as a result of the COVID-19 pandemic, although perhaps more emphasis has been placed on force majeure and material adverse change clauses in the review of commercial agreements specifically.

Exclusivity is rather frequently demanded and agreed in private deals where there is only one potential buyer, or in a bidding process with respect to the successful potential buyer.

In private M&A deals, the parties will negotiate the terms of the transaction and reflect those agreed terms in the definitive agreements.

When it comes to the acquisition of publicly traded companies and publication of the takeover bid, the deal is essentially made on the basis of the terms provided unilaterally in the takeover bid, without negotiations with the shareholders. In such cases, the definitive agreement is made based on the acceptance of the takeover bid and subject to the terms provided in the takeover bid.

The total length of the process for the acquisition/sale of Croatian target companies depends on factors such as the size of the deal, whether financing is required to close the transaction, whether any regulatory approvals (and especially merger clearance) are required to close the transaction, etc. In private M&A, smaller deals tend to close within several months, while larger deals (especially where there are conditions precedent whose fulfilment cannot be waived and/or that are dependent on third parties) may take up to a year to complete.

Transactions that are subject to the Croatian Takeover Act typically take several months to complete, due to different deadlines imposed under the Croatian Takeover Act (such as a 30-day deadline to file an application to approve the publication of the bid, a 14-day deadline for the regulator to approve the bid, a subsequent seven-day deadline to publish the bid, and the period of validity of the bid, which cannot be less than 28 days or more than 60 days).

Croatia does have a mandatory offer threshold in place, under which a natural person or legal entity that has directly or indirectly (and solely or jointly) acquired more than 25% of the voting shares of a joint stock company seated in Croatia and traded on a regulated market in Croatia or another EU member state (if not traded on a regulated market in Croatia) is required to publish a mandatory takeover bid and undertake the mandatory takeover procedure in accordance with the Croatian Takeover Act.

Cash is predominantly used as consideration in M&A transactions in Croatia (with only a limited number of transactions using shares as consideration, either partially or in whole). Deferred payments and earn-outs are typically discussed as means of bridging the value gaps where there is a high valuation uncertainty.

In transactions where the Croatian Takeover Act applies, consideration under the takeover bid must be offered in cash or securities, or as a combination of cash and securities, in which case the acquirer is authorised to freely decide on the ratio between the cash and securities offered. If the acquirer offers consideration in the form of securities, or a combination of cash and securities, the Croatian Takeover Act requires them to offer cash consideration as an alternative.

In principle, mandatory takeover bids are not allowed to be made subject to the fulfilment of particular conditions (other than those mandated under the law, such as merger clearance). By way of exception, the acquirer is allowed to provide in the takeover offer that any encumbered shares would not be subject to the takeover bid.

The voluntary takeover bid may be subject to the minimum acceptance threshold, which cannot be lower than the controlling threshold.

Where the Croatian Takeover Act is not applicable (ie, in private M&A deals), no minimum acceptance conditions are prescribed under the law, but the acquirers are typically interested in acquiring either the entire shareholding or either 95%, 90%, 75% or above 50% shareholding. This is because the default rule is that the shareholders’ meeting shall adopt decisions by simple majority (above 50%) of the votes cast, where the law or the Articles of Association do not provide for a higher majority. A vast number of shareholders’ meeting decisions require a simple majority, including most notably the adoption of annual financial statements, the distribution of profits, and the appointment and revocation of management board members.

Decisions requiring a 75% majority of either the votes cast or capital represented at the shareholders’ meeting include a number of decisions that might be classified as material in running the company’s operations, and most notably including decisions on each of the following:

• amendments to the Articles of Association;
• share capital increase;
• share capital reduction;
• dissolution/liquidation of the company;
• merger; and
• transformation of corporate form.

Finally, only a handful of decisions require a majority above 75% – usually 90%, 95% or 100% under law – notably including decisions related to:

• imposing additional obligations on the shareholder(s);
• the company’s waiver of damage claims against its founders; and
• the company’s waiver of damage claims against management board members.

Private M&A deals are somewhat frequently financed by way of debt financing, and there is nothing preventing the transaction being conditional on the acquirer obtaining financing, but in practice it is generally expected that such financing will be obtained (or that the acquirer already has the necessary funds and as a consequence the deals rarely include an exit possibility where financing would not be obtained).

Takeover offers subject to the Croatian Takeover Act cannot be conditional on obtaining financing since the acquirer is mandated under the law to deposit the required cash or alternatively provide a first call bank guarantee, in the amount equal to the amount required for payment for all the shares subject to the takeover offer.

In principle, there are no restrictions on deal security measures in private M&A deals, provided that the parties agree on such mechanisms. In practice, the parties most commonly agree on contractual penalties for the party that fails to close the deal for a reason not specifically allowed under the definitive agreement. Non-solicitation provisions are also frequently used, as are provisions on material adverse changes.

Deal security measures are far less scarce in transactions where the Croatian Takeover Act applies, as conditions in these deals are regulated under the law.

In terms of managing pandemic risks, there have been some changes/updates to the frequently used material adverse change clauses and related provisions, but the length of interim periods has largely not been affected by the pandemic.

If the bidder is not acquiring 100% ownership of the target, the bidder will usually aim to have a shareholders’ agreement in place, regulating specific corporate governance issues that are not expressly dealt with under the Croatian Companies Act (or that may be regulated differently from the default statutory rule). Such provisions typically include:

• the right of the bidder to appoint a particular number of management board members (ie, directors) or supervisory board members (if the target company has a supervisory board in place);
• tag-along and drag-along provisions;
• pre-emptive rights provisions;
• provisions on reserved matters; and
• the allocation of profit in ratios other than the share ration, etc.

Shareholders are allowed to vote by proxy in Croatia. In joint stock companies (ie, corporations), the powers of attorney granted to the proxies must be made in writing, but additional formalities (such as notarisation requirements) may be imposed under the company's Articles of Association.

On the other hand, certain decisions in Croatian limited liability companies may be voted on/made only on the basis of the notarised written power of attorney (although again, even where the law does not specifically require the power of attorney to be notarised, such a requirement may be imposed under the Articles of Association).

In Croatia, squeeze-outs are possible only in joint stock companies (which may be private or public).

In private joint stock companies, a shareholder holding at least a 95% share in the company may request the shareholders’ meeting to squeeze out the remaining minority shareholders, subject to the payment of adequate compensation. Relevant shareholders’ resolutions cannot be challenged on the grounds that the compensation is not adequate, but the minority shareholder may request judicial review and request the competent court to determine the adequate amount.

In addition, under the Croatian Takeover Act, an offeror and persons acting in concert with the offeror which after the takeover offer hold at least a 95% shareholding are allowed to squeeze out the minority shareholders in a public joint stock company, subject to providing just compensation to the minority shareholders. The squeeze-out right may be exercised within three months from the date of expiry of the takeover offer. The request to implement the squeeze-out is filed with the SKDD, and is subject to the notification of minority shareholders, the target company and market operator, and the local regulator of the fact that the request for the implementation of the squeeze-out has been made (this needs to be published as well). A deposit needs to be made or a bank guarantee provided in order to guarantee payment, and all the costs of the process are borne by the offeror.

In general, irrevocable commitments to tender or vote are not frequent in Croatia but may most typically be used with respect to the acquisition of shares in companies where a smaller, limited number of shareholders hold a large portion of the company. It is not uncommon in those situations for such shareholders to be approached in advance, with the aim of securing their commitment.

This being said, the Croatian Takeover Act provides that the shareholder is allowed to withdraw from accepting the takeover offer at any time before the expiry of the takeover offer, and this right cannot be waived. Also, the offeror cannot rely on the statement of the shareholder waiving its right to withdraw from accepting the takeover offer. In this regard, with respect to publicly traded companies, an irrevocable commitment may be regarded as void if the shareholder decides not to go through with the sale to the offeror.

If a transaction concerns the acquisition of shares in a private company, there is no requirement to make the bid public until the transaction is closed (although general information on the contemplated transaction will often be made public after signing if signing and closing do not occur on the same day, noting expressly that closing is subject to closing conditions being met or waived).

With respect to public companies to which the Croatian Takeover Act applies, a natural person or legal entity that has directly or indirectly (and solely or jointly) acquired more than 25% of the voting shares of a joint stock company seated in Croatia and traded on a regulated market in Croatia or another EU member state (if not traded on a regulated market in Croatia) is required to publish a mandatory takeover bid.

The relevant offeror is required to notify the local regulator, without delay, that the mandatory takeover obligation has arisen, and must also publish the relevant notification.

In addition, if the situation on the market indicates that a natural person or a legal entity is intending to undertake a takeover, the local regulator may request a statement from said person/entity regarding their intention to undertake the takeover, especially when:

• circumstances point to the existence of an agreement to undertake a takeover;
• the scope of trading and the price of shares of the target company on the regulated market have changed significantly; or
• the person/entity otherwise makes its intention to undertake the takeover known – eg, by way of public announcements.

The offeror is required to file the request for approval for publishing of the takeover offer with the local regulator within 30 days from the date on which the mandatory takeover obligation arose, and the local regulator has 14 days to decide on whether to allow the publishing of the offer. After the local regulator’s approval has been granted, the offeror is required to publish the takeover offer within seven days from the date of receipt of the regulator’s ruling. The offeror is also required to deliver the takeover offer to the target company and the market operator (and depository company) without delay after receiving the regulator’s approval. Finally, immediately after the publishing of the takeover offer, the offeror is required to inform each target company shareholder of the content of the offer.

Please see 7.1 Making a Bid Public and 6.3 Consideration regarding the type of disclosure required with respect to public companies. Other than this, prospectus obligations apply for public issuances of shares (unless such obligations would be exempt under EU or Croatian law).

There is no express statutory obligation for the bidders to produce financial statements with respect to the takeover offer, but financial statements are expected to be produced with respect to prospectus obligations, as mandated under the EU Prospectus Regulation.

In private M&A deals, in order to preserve the confidentiality of the majority of the terms and conditions of the deal, the parties will opt to register a change of shareholder (or transfer of assets in an asset/business transfer deal) on the basis of the short-form agreement, providing the minimum details required to complete the registration, while the full-form documents such as the sale and purchase agreement (SPA) will remain available to the parties only.

The disclosure of full-form agreements (such as the SPA) is required for the purpose of merger control filing (to the extent merger clearance is required for the transaction).

The principal directors’ duty under Croatian law is to act in the best interest of the company. In this regard, directors’ duties are owed primarily to the company, and subsequently to the shareholders (noting that directors in joint stock companies are generally more independent than directors in limited liability companies). Directors are not prohibited from considering the interests of other stakeholders, noting that such interests would not be relevant if they are in conflict with the interests of the company.

The Croatian Takeover Act reiterates the obligation of the directors (ie, the management board) to act in the best interest of the company during the takeover process. Furthermore, the management board of the target company is required to publish its opinion on the takeover offer within ten days from the date the offer is published.

It is not common for the management of Croatian companies to establish special or ad hoc committees in business combinations or when certain directors are conflicted (nor do Croatian corporate laws expressly provide for such a possibility).

The Croatian equivalent of the business judgement rule is the obligation for the management of the company to act as prudent business people and to keep the business secrets of the company confidential. The management will not be in breach of this statutory duty if they reasonably believe that they are acting for the benefit and in the interest of the company, on the basis of appropriate information. This rule applies to any and all activities of the company and is not related exclusively to takeover situations.

In Croatian practice, in a business combination scenario directors usually seek financial and legal advice on various directors’ duties as well as the obligations for the company and directors stemming from the particular business combination.

Court decisions on conflicts of interest of directors and shareholders (as well as advisers) are rather scarce in Croatia and fail to provide clear guidance on the interpretation of laws in this respect.

Croatian corporate laws do contain provisions on conflicts of interest, primarily with respect to the company’s management, where the law requires the directors/management to obtain prior approval from the supervisory board of the company (or from the shareholders if there is no supervisory board) for particular conflicting activities.

Hostile tender offers are generally permitted under the Croatian Takeover Act but are not common, seeing as takeovers are rather scarce in general. The majority of deals are private deals, where hostile tender offers are not possible.

In principle, directors are prohibited from using defensive measures under the Croatian Takeover Act. In this regard, unless they have the approval of the shareholders’ meeting, the directors of public target companies are not allowed to undertake the following activities in the period between the publishing of the notification that the obligation to undertake the takeover has arisen and the publishing of the takeover offer:

• increase the share capital of the target company;
• conclude transactions outside of the target company’s regular scope of business;
• act in a way that might significantly jeopardise the future business of the target company;
• decide on the acquisition or disposal of treasury shares; or
• act with the aim of obstructing or preventing the takeover offer.

Considering the limitations listed in 9.2 Directors' Use of Defensive Measures, the most common defensive measures would be limitations on the transfer of shares or limitations regarding voting rights that may be included in the Articles of Association. This is especially relevant for private deals involving limited liability companies, where the transfer of shares is often made subject to the consent of other shareholders (or a particular shareholder) or the target company. Such limitations may be imposed with respect to the transfer of shares in joint stock companies, where in particular situations the Articles of Association may also subject the transfer of shares to the consent of the target company. The Articles will typically list the reasons for which consent can be withheld, but if the Articles are silent on those reasons, the consent may be withheld only if doing so would be in the interest of the target company.

General rules apply to directors’ duties when enacting defensive measures.

Directors of the target company are not able to prevent the deal from occurring, but to a certain extent they may be able to influence the shareholders examining the takeover offer to decide against accepting an offer by voicing their concerns with the transaction in the opinion that the management is required to issue on the takeover offer (see 8.1 Principal Director's Duties).

Litigation is rather rare in Croatia in connection with M&A deals (please also see 3.1 Significant Court Decisions or Legal Developments).

Disputes related to M&A transactions (which would most typically be decided in arbitration rather than litigation, so the decisions are commonly not publicly available) would primarily be brought after the closing, most likely in connection with breaches of particular provisions of the SPA.

Broken-deal disputes are not common in Croatia and there is no significant case law in this area.

Traditionally, shareholders in Croatia were generally rather passive, but in recent years the market has seen a number of associations of minority shareholders of different local companies. The association that probably gained most visibility in the media was the association of minority shareholders of Agrokor, the local giant whose insolvency was dealt with in a special insolvency procedure designed immediately prior to the initiation of the insolvency proceedings. The association of minority shareholders actively tried to abolish the new legislation that put the new insolvency proceedings in place. It was mostly not successful in its endeavours, but it did raise awareness of shareholder activism as a means of protection for all shareholders, including minority shareholders.

So far activists have predominantly not focused on encouraging companies to enter into M&A transactions or similar. Rather, activismhas focused primarily on protecting the interests of minority shareholders, although often with not much success. Another area where shareholder activism has gained more traction is the issue of the payment of dividends.

Shareholder activists rarely seek to interfere with the completion of announced transactions in Croatia.