Corporate M&A 2025 Comparisons

Two factors played significant role in determining M&A and investment activities in Bulgaria in 2024. Firstly, the ongoing war in Ukraine continued to damage the investment climate in Bulgaria, keeping strategic investors cautious towards Eastern Europe, and secondly, there was the internal political climate, with seven general elections in a period of three years, followed by parliaments that were not capable of forming stable governments. Still, economic activity in the M&A sector remained steady and, indeed, there was a slight improvement compared to the previous year, amounting to over 80 transactions (including major business real estate deals), an achievement that is fairly standard for an economy the size of Bulgaria. M&A activity in Bulgaria did not decline due to the global anti-inflation measures, despite the fears expressed in this direction, yet we did not see a significant growth in either the number of M&A activities or their scale. As in previous years, the vast majority of corporate transfers were rather small in size, and outside of renewable energy and technology companies, most buyers were local. For the first time in 15 years, there were no transactions exceeding EUR100 million in value. Still, we witnessed one acquisition in the banking sector – the acquisition of 99% of the capital of Tokuda Bank (a relatively small portfolio bank) by Bulgarian American Credit Bank – and one acquisition in the insurance sector – the full acquisition of United Health Insurance Fund Doverie (one of the leading players in the field of health insurance) by Generali CEE Holding, which already owns and operates an insurance company in Bulgaria, Generali Insurance AD. Given the small size of the Bulgarian banking and insurance markets, transactions of this type are very rare.

The expectations for 2025 are for a comparable number of small and medium-sized deals and for two megadeals – the sale of the oil refinery in Burgas, owned by the Russian energy corporation Lukoil, and the potential sale of the business of Vivacom, one the largest telecoms companies operating in Bulgaria, owned by United Group (United Group has already sold its business in Serbia as well as a part of its business in Bulgaria). There are indications that the IT sector, which had been facing difficulties towards the end of 2023 and to some extent throughout 2024, will “wake up” and return to the level of activity known from previous years. The role of local private equity funds is also becoming more and more noticeable, with some of them already daring to turn their eyes towards neighbouring markets such as Croatia, Serbia and North Macedonia. The war in Ukraine will continue to be a huge destabilising factor across the entire region, negatively affecting normal political and business life in the country, yet certain efforts to put an end to the conflict are already visible at the time of writing (February 2025). On the other hand, the efforts of Bulgaria to become a full member of the Schengen area were successful, and on 1 January 2025, the land border barriers with the neighbouring EU Member States were effectively lifted. As for the last remaining step towards Bulgaria’s full EU integration, namely admission to the eurozone, the earliest this could be expected is in the beginning of 2026, and the government plans to request a Convergence Report in early spring 2025. This adds a certain optimism regarding the business future of the country, M&A activity included.

The most active sectors in the past 12 months include energy (renewables in particular), IT and fintech and business real estate (large office centres and mid-sized commercial malls).

The typical legal means of acquiring a company is through acquisition of shares in its capital. Acquisition of the entirety or a part of a company’s going concern is also common.

In principle, no state authority regulates M&A activity in Bulgaria. However, depending on the sector in which the target operates, an approval may be required, for example from the Bulgarian National Bank if the target is a credit institution, the Financial Supervision Commission if the target is an insurance company, etc. In the case of a concentration of business activity, an antitrust clearance from the Bulgarian Commission on the Protection of Competition may be required, provided certain rather low thresholds are exceeded.

Foreign nationals or non-resident legal persons may acquire a right to ownership of land in Bulgaria under the terms arising from the accession of the Republic of Bulgaria to the EU, or by virtue of an international treaty which has been ratified by, has been promulgated in, and has entered into force for the Republic of Bulgaria, as well as through legal succession.

There are restrictions on certain foreign investments coming from so-called “offshore” zones – companies registered in such zones or their subsidiaries are prohibited from owning shares in banks, insurance companies and some other regulated entities, and from participation in public procurement procedures, tender procedures for the sale of state-owned or municipality-owned properties, etc. These restrictions could be overcome subject to proper disclosure of specific data about the company registered in the offshore zone and its ultimate beneficiary owner.

The Bulgarian antitrust legislation is harmonised with the relevant EU regulations, which are also directly applicable in Bulgaria. A concentration of a business activity resulting in a change of control is subject to notification to the Bulgarian Commission on the Protection of Competition, if the combined turnover of the undertakings concerned in Bulgaria exceeds EUR12,782,297 and each of at least two of the undertakings concerned had a turnover in Bulgaria exceeding EUR1,533,875 in the year preceding the transaction, or the target company had a turnover in Bulgaria exceeding EUR1,533,875 in the year preceding the transaction.

The labour law regulations are provided in the Bulgarian Labour Code and other applicable legislation, depending on the type of transaction. Executions of share deals do not require prior notification to the employees. Transfers of the entirety or a part of a company’s going concern, as well as mergers and spin-offs, require a notification two months in advance and negotiations with the affected employees. The TUPE rules for protection of employees are applicable to such transactions.

In March 2024, Bulgaria introduced a general approval regime for foreign investments in accordance with the requirements 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 European Union. In summary, FDI by a foreign investor (a non-EU investor, or an EU entity controlled by a non-EU entity or entities) in the areas of activity listed in Article 4(1) of the EU Screening Regulation that exceeds the threshold of EUR2 million or targets at least 10% of the share capital of a company operating in the country must be notified and approved in advance by a special Interdepartmental Council on FDI Screening. In view of the vagueness of the legal regime and the fact that the secondary legislation, which is expected to add the necessary detail to the regime’s implementation rules, is still to come, this screening regime could become a rather serious factor to be accounted for in the planning of M&A transactions in Bulgaria. The secondary legislation is unlikely to be adopted before May 2025, and only then will the regime become operational and the notification and suspension obligations start to apply.

Many changes introduced in connection with the COVID-19 pandemic have become permanent. For example, the temporarily extended deadlines for filing annual financial statements with the tax authorities and for their announcement by Bulgarian companies (from 31 March to 30 June and, respectively, from 30 June to 30 September of the following accounting year) have become the regular deadlines. Public companies continue to have the right to conduct their general meetings without the physical presence of the shareholders, including online participation.

Some of the amendments to the Public Offering of Securities Act (POSA) in the past three years aim at transposition of the Shareholder Rights Directive II into the Bulgarian legislation. Such amendments include regulation of proxy advisers, General Meeting of Shareholders’ approval and publication of the policy on remuneration for Board members, as well as publication of a report on the fulfilment of the remuneration policy, etc.

One of the most interesting developments of 2023 continued to be in effect in 2024. This concerns the change in practice of the tax authorities regarding the payment of so-called “advance dividends”, which are not regulated by the Bulgarian corporate legislation (with the exception of public companies). As a rule, the tax authorities would have viewed such distributions as “hidden distribution of profit”, which could have resulted in serious charges and penalties to the company making them. Now, the practice of the tax authorities has changed, and they have issued a formal opinion allowing companies to make advance distributions of dividends before the year end subject to certain conditions, such as the presence of a balance sheet showing the existence of a profit or other distributable items as of the moment of passing of the resolution on the distribution of the dividends and the presence of an opinion from the management of the company, usually supported by an opinion from the chief accountant, that the company is also expected to make an annual profit at least equal to the advance dividends to be distributed.

In order to ease the process of creation of start-ups, changes were introduced to the Bulgarian Commercial Law allowing for the creation of companies with variable capital. However, the rather low maximum amount of the turnover or the assets of the company, ie, not more than EUR2 million, will probably make those types of company not so popular, as above that threshold they will need to transform themselves into standard commercial companies (eg, LLC). 2024 saw the registration of the first couple of companies with variable capital, but interest in them remains rather low, despite the initial expectations, especially in the IT and software development community.

Undoubtedly, the ongoing change that will most affect the M&A market in Bulgaria is the introduction of a screening regime for foreign direct investments, as mentioned in 2.6 National Security Review. To the extent that at the time of writing this has still not been implemented in practice, it is difficult to say how significant the delay will be that the implementation of this regime may cause to various transactions affecting areas that relate to the national security of the Republic of Bulgaria, such as energy or finance, for example. As discussed, the secondary legislation on the application of the FDI screening regime is not expected to become effective before May 2025, and the effects thereof could become clear enough to be discussed towards the end of 2025 at the earliest.

Arguably, the most significant amendment to the M&A legislation in Bulgaria that happened in 2024 is the implementation of the requirements of Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions. In summary, the forms of cross-border transformations under Bulgarian law prior to these amendments were limited to two (merger by acquisition and merger by the formation of a new company), whereas there are now three additional options for cross-border transformations, namely full division, partial division and division by separation. The new amendments also provide that any company formed in accordance with the law of a Member State, which has not only its (i) registered office but alternatively its (ii) central administration or (iii) principal place of business in the same or another Member State, may be subject to a cross-border transformation with a company formed under Bulgarian law.

Another amendment, which was introduced in line with the above, is the introduction of an option for a capital company (converting company) that has its registered office in the territory of Bulgaria (departure Member State) to “move” to another Member State (destination Member State) provided that: (a) the converting company changes its registered office to one in the destination Member State; and (b) the converting company adopts the legal form of a company that was established in accordance with the legislation of the destination Member State, which needs to be one of the types listed in Annex II to Directive (EU) 2017/1132. The same applies vice versa for any company formed under the laws of a Member State other than Bulgaria which intends to “move” its registered office to Bulgaria.

In 2020, the POSA was amended to include measures for implementation of 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. In addition, in 2022, the POSA was amended to include measures for implementation of Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937.

No significant amendments were made to the laws regulating the public offering of securities in 2024. In the overall legislation related to this sector, amendments were made aimed at further harmonising it with the requirements of European regulations and directives. In particular, the amendments adopted in 2024 were mainly concerned with some fine touches as to the mandatory content and standards regarding the information contained in various management reports and declarations.

In Bulgaria, it is not common for a bidder to build a stake in the target prior to launching an offer. The main reason is the low liquidity of the Bulgarian stock market. Nevertheless, Bulgarian law does not prohibit stakebuilding, but it should be noted that stakebuilding may trigger certain reporting obligations if the thresholds described below are exceeded.

Any shareholder that acquires or transfers directly or indirectly (under Article 146 POSA) voting rights in the General Meeting of a public company must notify the Financial Supervision Commission and the public company if, following the acquisition or transfer, their voting rights would go above the threshold of 5% or would fall below that threshold, or a multiple of 5% of the number of voting rights in the General Meeting of the public company. The voting rights are calculated based on the total amount of voting shares, regardless of whether a restriction is imposed on the right to exercise them. Calculation is made for each class of shares. Where the thresholds above are reached or exceeded because of direct acquisition or transfer of voting shares, an obligation also arises for notification to the central securities depository.

Bulgarian law does not provide for the right of a public company to introduce different reporting thresholds. The potential situation where a bidder may become subject to a mandatory takeover bid requirement may be considered as another hurdle to stakebuilding.

Dealing in derivatives is allowed in Bulgaria.

Bulgarian public companies are obliged under the POSA to disclose any changes in the rights given by derivative financial instruments issued by them which give the right to acquire shares of the company. Bulgarian law does not provide for specific competition rules relating to derivatives, and the merger control rules will be triggered if the option to acquire shares is exercised.

In addition, under the Collective Investment Schemes and Other Undertakings for Collective Investments Act, the so-called Managing Company shall provide the Financial Supervision Commission with periodic information about the types of derivative financial instruments in which it invests, the major risks associated with the underlying instruments, the quantitative limits and the methods which have been chosen in order to estimate the risks associated with transactions in derivative instruments for each collective investment scheme managed thereby.

If a takeover bid is made, the bidder is obliged to include in its tender offer certain information. This information must include the intentions of the bidder regarding the future operations of the public company subject to the tender offer and of the bidder, if it is a legal entity, to the extent the latter is affected by the tender offer. Furthermore, said tender offer must include information regarding retention of the members of the management bodies and the public company’s staff, including any material changes in the terms and conditions of the employment contracts. In particular, the bidder’s strategic plans for the two merged companies and regarding the likely implications of the tender offer on the employees must be included in the information provided. In addition, information about the locations of the companies’ places of business and potential withdrawal from trading on a regulated market must be included as well.

Public companies are obliged to disclose a deal in accordance with the principles of Article 17 of the EU Market Abuse Regulation (Regulation (EU) No 596/2014) (MAR). Hence, an analysis on a case-by-case basis should be made as to whether and when the information about the deal is to be disclosed. In principle, a public company should inform the public as soon as possible of any inside information which directly concerns that public company.

According to Article 148б of the Public Offering of Securities Act, a public company is obliged to announce to the public, within three days of its receipt, inter alia, any notification for acquisition or transfer of shares, where the voting rights associated with such shares would go above the threshold of 5% or would fall below that threshold, or a multiple of 5% of the number of voting rights in the General Meeting of the public company.

Non-compliance with the disclosure requirements may lead to serious financial sanctions. Therefore, in theory, the timing of disclosure should not differ from the legal requirements. However, there might be cases of discrepancies between the practice on timing and the legal requirements.

In private M&A transactions, there are standard areas which are covered in almost all legal due diligence processes, such as title over shares, arrangements with the management, contracts with clients and suppliers, employment, litigation, relationships with state authorities and data protection. Depending on the specifics of the sector in which the target operates, some other areas of focus may be added, such as title over real estate, IP rights, regulatory licences and permits, etc. In public M&A transactions, the legal due diligence process is usually based on public information and more in-depth analysis, and if it is based on non-public information, this would be possible subject to the restrictions upon disclosure of information provided by the legislation and subject to compliance with the insider trade and anti-market abuse requirements imposed by the MAR legislation.

In recent years, some of the additional requirements that became regular practice during the pandemic, such as the hybrid or remote working model, have persisted amongst the elements subject to employment-related review and analysis.

Exclusivity and standstills are common in negotiated private M&A transactions. Standstills are also common in private M&A transactions organised as auctions, but exclusivity is agreed at a later stage of the auction process, when one or a few of the bidders are shortlisted. The restrictions over the seller may cover the due diligence period through to the negotiation process until a definitive agreement is signed. Standstill arrangements are not common in public M&A transactions. In the context of tender offers, the principle of ensuring equal treatment of the shareholders, enjoying equal status in the company subject to the tender offer, and protection of the other shareholders upon acquiring control of the company applies. The tender offer must specify the term for its acceptance, which must not be shorter than 28 days or longer than 70 days after the date of publication of the tender offer. If there is a competitive tender offer, then the term of the original tender offer is to be extended until expiry of the term for acceptance of the competitive tender offer.

It is permissible for tender offer terms and conditions to be documented in a definitive agreement. In private M&A transactions, this is the common way of documenting the terms and conditions of the offer. In public M&A transactions, the tender offer contains the terms and conditions of the offer. A tender offer is accepted by means of an express statement and the depositing of the documents certifying the shares with an investment firm or with the central securities depository. The transaction is considered concluded at the time of expiration of the term for acceptance of the offer, and payment should be effected within seven days as of conclusion of the transaction.

In public M&A transactions, the timeframe of the process is generally regulated by law. As noted in 5.4 Standstills or Exclusivity, the tender offer must specify the term for its acceptance, which must not be shorter than 28 days or longer than 70 days after the date of publication of the tender offer.

In private M&A transactions, the timeframe depends on several factors, such as the type of the transaction (share deal vs. going concern deal vs. asset deal), the legal form of the target (limited liability company vs. joint-stock company), the size and complexity of the business of the target, and the necessity of merger control or other regulatory clearance. In terms of allowing the possibility to carve out certain assets or liabilities from the scope of the deal, going concern/asset deals may have an advantage over share deals. However, the finalisation of going concern/asset deals may be more time-consuming, in light of the requirement for prior notification to the revenue authorities and to affected employees and the necessity of transfer or renewal of certain regulatory permits.

In public M&A transactions, any person that acquires more than one-third of the votes in the General Meeting of a public company, provided no other person holds more than 50% of the votes in the General Meeting, must make a tender offer to the voting shareholders for purchase of their shares. The tender offer must be made through registration with the Financial Supervision Commission within 14 days of the relevant acquisition, or within one month of the registration of the reorganisation or decrease of the capital, if the threshold is passed due to reorganisation or cancellation of shares.

The obligation described in the paragraph above also arises for any person that acquires more than 50% of the votes in the General Meeting of a public company, as well as for any person that acquires more than two-thirds of the votes in the General Meeting of a public company.

If a person simultaneously exceeds more than one of the thresholds referred to above, within 14 days of the relevant acquisition, or within one month of the registration of the reorganisation or decrease of the capital exceeding the lowest threshold, such person must register a single tender offer. The tender offer registration time limit is the period that would expire first, if an obligation arose to file separate tender offers upon exceeding each threshold.

In both public and private M&A transactions, cash consideration is the principle. In public M&A transactions, the law also provides the opportunity for the bidder to offer to the rest of the shareholders, instead of cash, exchange of the acquired shares for shares which will be issued by the bidder for this purpose.

In private M&A transactions, combined consideration of cash and equity is sometimes also applied, especially if the acquirer is a public company (or has a parent company which is publicly traded), or if the management of the target is also the seller or one of the sellers (used as an incentive for the management to continue working for the target together with additional earn-out provisions or alone). The latter mechanism is also applied to bridge the gap in a deal environment or industry with high valuation uncertainty, together with other tools, such as closing accounts.

The law does not regulate the possibility to include conditions in a takeover offer. Based on the legal framework, we may conclude that a takeover offer is to be unconditional. Exceptions are possible to the extent that a competition clearance or other type of regulatory approval is required for the takeover.

As noted in 6.4 Common Conditions for a Takeover Offer, mandatory offers cannot be subject to conditions, save for the conditions for obtainment of regulatory clearance. Furthermore, in those cases where a person holding at least 5% of the votes in the General Meeting of any public company seeks to acquire more than one-third of the votes in the General Meeting of said company, that person may publish a tender offer to all voting shareholders – but in such case the offeror is obliged to purchase or to exchange, as the case may be, all voting shares held by any shareholder that has accepted the offer. Purely voluntary offers may contain conditions for any minimum threshold of acceptance.

The relevant control thresholds in respect of Bulgarian public companies are:

• A shareholder of more than one-third, more than 50% or more than two-thirds of the votes in the General Meeting of a public company is obliged to make a tender offer to the voting shareholders for purchase of their shares;
• The holding of more than 50% of the votes in the General Meeting enables a shareholder to take most of the decisions in the General Meeting, including electing members of the Board of Directors or the Supervisory Board, which, in turn, elects the Managing Board’s members, adoption of the annual financial statements and distribution of dividends, amending the statutes of the public company, etc;
• The holding of two-thirds of the votes present at the General Meeting enables a shareholder to make the decision to delist the public company from the regulated market subject to certain conditions; and
• The holding of three-quarters of the votes present at the General Meeting enables a shareholder to make the decision to conclude transactions which involve disposal or acquisition of a certain percentage of the company’s assets or enter into a joint venture contract.

In private M&A transactions, the securing of financing may be included in the transaction documents as a condition (condition precedent) to completion of the transaction. However, the sellers would rarely agree to such a condition.

In public M&A transactions, the tender offer can be made only after providing an opportunity for full payment or exchange of the shares to the shareholders that have accepted the offer. Furthermore, the tender offer must contain the terms and conditions under which the offeror is to finance the acquisition of the shares and provide proof of availability of the resources necessary for the purchase, or of the securities necessary for the exchange.

Security measures in M&A transactions may be negotiated during any stage of the deal process, to the extent that they do not contradict the law or morals. Outside the security measures which represent collaterals in the strict sense of that concept (such as participation bonds in the form of bank guarantees or pledges) and which are listed in the law, the parties may negotiate other provisions which provide certain security to one of the parties as to the safeguarding of its interest. Examples of such provisions are exclusivity clauses, standstill obligations, break-up fees and non-solicitation provisions.

If the shares in a company are held by at least two shareholders, additional governing rights may be negotiated in a shareholder agreement. Such rights may include the right to appoint a certain number of Board members (including members with certain functions, eg, CFO, COO, etc). The additional governance rights may comprise certain minimum quorum and majority requirements (including veto rights) in the Boards and the General Meeting, which are higher than the requirements under the law. Most of those additional rights, in order to be enforceable, must be replicated in the company’s by-laws (articles of association, deed of incorporation, statutes). However, not all additional governance rights may be replicated in the company’s by-laws, in which case only contractual remedies, such as liquidated damages, may be used to make them enforceable towards the counterparty to the shareholder agreement.

Voting by proxy in a General Meeting is allowed. The power of attorney must be issued in writing. The members of the Boards cannot represent a shareholder, except in a General Meeting of a public company where the shareholder has expressly stated how such shareholder wishes to vote on each item on the agenda. In addition to being issued in writing, the power of attorney for voting in the General Meeting of a public company must be express, be given in view of a specific meeting and have the contents provided by the law. Reauthorisation of a third person with the rights granted, as well as non-compliance with the mandatory requirements, would make the power of attorney null and void. The public company may pose additional formal requirements to the authorisation, such as notarisation of the signatures under the power of attorney. The public company must provide a template of the written power of attorney on paper or electronically, where applicable, together with the materials for the General Meeting. A person willing to represent a shareholder/shareholders holding more than 5% of the voting rights in a public company must publish an offer in a central newspaper and send the offer to each shareholder to whom it is addressed. The offer must have content predetermined by law.

Bulgarian law allows a squeeze-out right to any person that acquires, whether directly, through related parties or indirectly, more than 90% of the votes in the General Meeting of a public company. Such person has the right to register a tender offer for purchase of the shares held by the rest of the shareholders. If such person fails to register a tender offer within 14 days after the acquisition of 90% of the votes in the General Meeting, such person is obligated to notify the shareholders, the regulated market and the Financial Supervision Commission of such person’s intention to register a tender offer at least three months in advance. A special case of squeeze-out mechanism is applied when a person that, as a result of a tender offer, acquires directly, through related parties or indirectly at least 95% of the votes in the General Meeting of a public company. In such case, such person has the right, within three months of the term of the tender offer, to purchase the voting shares from the remaining shareholders that did not accept the tender offer. The proposed purchase must be approved by the Financial Supervision Commission.

In Bulgaria, in practice, irrevocable commitments to tender or vote are seldom obtained from principal shareholders in a company. However, there are sound legal and corporate strategy arguments for obtaining such commitments.

Takeover bids, whether mandatory or voluntary for the other shareholders in public companies, must be registered with the Financial Supervision Commission. The tender offer is effected through an investment firm, using the opportunities for remote acceptance of the tender offer through the central securities depository. Once a tender offer is registered with the Commission, it may be published, unless the Commission issues a temporary prohibition within 20 business days. Any failure of the Commission to deliver a decision within the said term of 20 business days is presumed to be tacit approval of the tender offer concerned. On the day of the registration, the bidder is obligated to submit the offer that has been made to the management body of the public company subject to the tender offer to the representatives of its employees or, where there are no such representatives, to the employees themselves, as well as to the regulated market on which the shares in the relevant public company are traded. Any such notices must expressly state that the Commission has not yet issued a decision on the tender offer. If the Commission does not issue a final prohibition against the publication of an offer within the statutory deadlines, the bidder may publish the said offer. Within three business days of the expiry of the time limits, the bidder must publish a notification of the tender offer and the material conditions thereof in a national daily newspaper or on the website of a news agency or other media which can ensure the effective dissemination of the regulated information to the public in all Member States, and shall submit the final version of the tender offer to the public company and to the regulated market on which the shares are admitted to trading. The public company, the investment intermediary, and the regulated market on which the public company’s shares are traded must disclose the tender offer on their websites within the time limit for acceptance of the said offer, and the public company must also make a disclosure of the position of its management body on the offer.

The offer document must contain the offered price for the shares and/or the ratio of exchange of the shares offered in exchange for the shares of the public company subject to acquisition, the issue price, the term for acceptance of the offer, evidence in support of the fact the offeror has the necessary funds to pay the price/owns the securities offered in exchange, and particulars of the rights attaching to the shares offered as a consideration, deal closing details in case of offer acceptance, etc. Details must be provided about the key information necessary, so that the shareholders to whom the tender offer is addressed can understand the substance of the bidder’s business and the features of the securities proposed for exchange, and also any risks associated with the bidder and the securities, in cases where an exchange of securities is also proposed. The tender offer must include a justification of the proposed price or of the proposed rate of exchange. The justification should name the fair price per share in the company, calculated on the basis of generally accepted valuation methods. The contents of the justification and the requirements for the valuation methods are regulated in a special ordinance.

If the bidder offers shares issued by it in exchange for the shares subject to the offer, the bidder must provide financial and other information which is normally contained in its financial statements. Although this is not explicitly stated in the law, the most reliable financial information about the bidder will be contained in the financial statements prepared in the form required by the law.

The transaction documents that are to be disclosed in public M&A deals are listed in the law. In private M&A transactions, some of the documents may need to be disclosed to the commercial registry pertaining to the relevant registration which the law requires, such as the notarised transfer deeds for shares in limited liability companies and the endorsement of the share certificates if the target is a single-shareholder joint-stock company.

Bulgarian directors have a fiduciary duty to both the company and its shareholders (although in some cases they may have conflicting interests). In the context of an M&A deal, the directors of the target would most often be required to prepare the disclosure of the information during the due diligence process (of particular importance when the seller is a private equity fund). Furthermore, the directors could be required in such context to give some representations and warranties, including against compensation. During the acquisition process, they are to continue managing the company in the ordinary course of business and with the diligence and loyalty to the target company and its shareholders as required by the law. In public M&A transactions, upon receipt of the tender offer and until publication of the results of the tender offer, or until closing of the said offer, as the case may be, the management body of the target company may not perform any acts, save for seeking a competitive tender offer, that aim at frustration of the acceptance of the tender offer or infliction of material difficulties or material additional expenses on the bidder, such as issue of shares or conclusion of transactions, which would result in a significant change in the property of the target company, unless said acts are performed with the prior approval of the General Meeting of the offeree company.

It is not common in Bulgaria for the Boards to establish special or ad hoc committees in business combinations or in case of a conflict of interest. Conflicted members of the Board must at all times timely and exhaustively disclose any direct or indirect conflict of interest, refrain from voting or even participating in the meeting.

A concept similar to the “business judgement rule” is introduced in the Bulgarian criminal law – the concept of justified business risk. Thus a director or manager shall not be prosecuted if his/her actions were aimed at achieving a substantially positive result or to prevent the occurrence of considerable damages, provided those actions were not in breach of an explicit legal prohibition, complied with modern scientific and technical achievements and experience, and did not endanger the life and health of another, and provided the director or manager did everything within his/her capacity to avert the occurrence of harmful consequences. In deciding whether the risk was justified, the court must take into consideration the correlation between the expected positive result and the eventual negative consequences, as well as the probability of their occurrence. This concept aims at protecting the directors from criminal prosecution and to encourage them to use reasonable business judgement. Directors in Bulgaria may have a more active and important role in the case of a tender offer where they are expected to issue a reasoned opinion on certain aspects of the tender offer and have the right to seek a competitive tender offer. In those cases, they will be expected to exercise their reasonable business judgement on the basis of proper information and following the required procedures.

The directors in a business combination may seek advice from outside consultants relating to the performance of their duties towards the shareholders and the target company. Quite often, in deals involving private equity funds as buyers, for example, the directors are offered continuation of their directorship, various incentive schemes, participation in the target/acquirer, etc, so in those cases it is quite typical to see them using lawyers, employment and tax advisers.

The law provides for obligations for the directors to avoid or mitigate conflict of interest situations. As a rule, should a conflict occur, the director is required to report it to the Board and is prohibited from participating in further deliberations or voting on the subject. However, disputes relating to conflicts of interest rarely end up in court.

Bulgarian law does not provide for the classification of takeovers that may be defined as friendly or hostile.

As mentioned in 8.1 Principal Directors’ Duties, the management body of the target company may not perform any acts aiming at frustration of the acceptance of the tender offer or infliction of material difficulties or material additional expenses on the bidder. However, the directors are expected to issue a motivated statement on certain aspects of the tender offer, and as mentioned in 7.1 Making a Bid Public, the public company is to make a disclosure of such statement. In addition, the management body may seek a competitive tender offer containing more favourable terms. Hence, the management body has its means to oppose a takeover attempt, should, in its motivated view, this be in the interests of the company and the shareholders.

The most common defensive measure is the entitlement of the management body to search for an alternative, more favourable tender offer and to express negative views on the presented tender offer.

Upon enacting defensive measures, the directors must comply with the law. Within seven days after receipt of any tender offer, the management body of the affected company must present a reasoned opinion on the proposed transaction to the Financial Supervision Commission, to the bidder, and to the representatives of the employees, or, where there are no such representatives, to the employees themselves, inter alia as to the repercussions on the company and the employees from accepting the tender offer and the strategic plans of the bidder for the target company and their likely implications for the employees and the place of business.

In taking defensive measures, the general obligations of the directors of due care and loyalty to the company and to the shareholders still apply.

The directors are not entitled to “just say no”. However, they can influence the takeover process by seeking an alternative, more favourable offer or by delivering a well-justified and convincing negative opinion on the takeover.

Litigation relating to M&A deals is not frequent. Prudent parties, especially in private M&A deals, would typically agree on reasonable protective measures aiming at sparing unnecessary court disputes (eg, reasonable de minimis and basket amounts). During the recent years, we have been seeing more and more cases of representation and warranties insurance, thus further reducing, if not eliminating, the risk of litigation between the parties to the deal. Another factor that may influence a decision to litigate is the cost. Apparently small amounts of damages, which could be even lower than the cost of the litigation (if not caught by a de minimis clause), would not justify the commercial and administrative effort to start a lengthy and expensive trial with uncertain outcome. The larger the damage (especially in a sizeable M&A transaction), the higher the likelihood of litigation, since the parties tend to accept the higher costs of those proceedings in such cases, yet, again, cases of M&A-related litigation in Bulgaria are very rare.

Most litigations occur after closing. They are mainly connected with untrue representations and warranties, or with calculation of the price, in the cases in which adjustments may be applied. Potentially, a litigation is possible in case of breach of the pre-contractual obligations: in Bulgaria, parties (i) have the statutory obligation to conduct the negotiations in good faith, (ii) may enjoy exclusivity rights under a contract or (iii) may have their contractual non-disclosure right breached, yet given the complexity of the litigation process these cases would be difficult to conduct.

Only a few transactions failed due to the pandemic and the lockdowns in Bulgaria in early 2020. Since such deal failures never became common, there are no notable lessons to be learned with regard to “broken deal” disputes in this period.

In Bulgaria, shareholder activism is not common. When it exists, it is focused on the selection of subcontractors of the company, related parties’ agreements, conflicts of interest of the managing bodies, protection of consumer rights and social responsibility.

Activists may encourage a company to enter M&A transactions, if that will make the company more socially responsible.

Shareholder activists may seek to interfere with the completion of announced transactions in Bulgaria, if this will help them to achieve their goals.