One of the major features of the Monaco economy is that it is government-driven. The main actors are well-structured family businesses in the construction and property sectors, subsidiaries and branch offices of a large international group of companies, mainly in the banking and finance, shipping and luxury sectors, as well as the State-owned Société des Bains de Mer, which controls the casinos and most of the luxury hotels in Monaco.
Generally, these businesses have stable or even important cash and benefits, due to good financing from the banking sector, which enables them to prosper without the need for significant third-party investments.
Consequently, M&A activity in the principality is relatively limited. There was little M&A activity of importance in Monaco in 2020, and this continued over the first quarter of 2021, especially in light of the COVID-19 pandemic and its effects worldwide.
Over the past few years, there has mostly been activity within the financial and banking sectors. Despite the COVID-19 pandemic, the highlight of 2020 involved Monaco Telecom. The latter, which recently acquired Epic – the first alternative operator in Cyprus – has succeeded to complete the acquisition of Vodafone Malta by end of March 2020. Monaco Telecom committed to be fully focused on Vodafone Malta especially during the extraordinary period in which the world is struggling to counter the disruption caused by the pandemic.
In the past year, the banking sector has experienced the most substantial M&A activity, alongside the telecommunications and air transport industries. However, in light of the COVID-19 outbreak and the restrictions resulting thereof, numerous sectors were heavily affected.
The most affected industries by the COVID-19 pandemic are particularly the accommodation sector as well as the catering industry. Those hospitality services have known a severe drop in demand with great uncertainty towards recovery, which led to the collapsing of both industries due to the pandemic. Their cumulated turnover decreased by 50%.
Other sectors were also heavily impacted by the pandemic, notably the wholesale and retail trade. Monaco has also witnessed a sharp decline in other service activities, due to the decline in sports and recreational activities, as well as the decline in gambling, artistic and entertainment activities.
It should be noted that all companies are private in Monaco, as there is no stock market in the Principality (see 4.6 Transparency for the only exception, the state-owned Société des Bains de Mer). Businesses of a certain size and turnover are usually acquired through a private share purchase agreement or through a capital increase. Small businesses tend to be acquired through an asset deal. This consists of the purchase of a company's main assets by a company incorporated by investors in Monaco for that particular purpose. Mergers and contributions of assets are less frequent but may also be used.
The primary regulators for M&A activity in Monaco are – as explained in 2.3 Restrictions on Foreign Investments – the Monaco government, which exercises a control over deals involving foreign acquirers through the Minister of State (equivalent to a Prime Minister) and the Economic Expansion Directory (Direction de l'Expansion Economique).
Other key regulators supervise M&A activity in specific sectors, eg, the Commission for the Control of Financial Activities (CCAF) for any deal relating to the financial sector (financial activities run by the banks and asset management companies), the Prudential Supervisory Authority (ACPR, the French authority supervising banking activities, including Monaco by application of Franco Monegasque treaties) and the CCIN (the Independent Authority of Monaco Data Protection).
Pursuant to Law No 1.144 of 26 July 1991 and the Ordinance of 5 March 1895, foreign investors who wish to have a business activity in Monaco must request prior authorisation to perform an activity in Monaco, be it as shareholders or as directors of a Monaco-based company, sole traders, or as foreign companies opening a branch in Monaco.
The application must be filed with the Minister of State, through the Economic Expansion Directory, the authority responsible for delivering the above-mentioned authorisation within a three-month period. (This may be renewed for six months if the Economic Expansion Directory deems it necessary to obtain information from a foreign authority on the applicant). Where no reply from the Economic Expansion Directory is forthcoming within this period, the authorisation requested is deemed granted.
This authorisation is personal and cannot be transferred or sold to a third party. It expressly defines and limits the business activity that has been authorised, which implies that no change to the activity or its headquarters can take place without a new application to the Economic Expansion Directory.
The general prior authorisation regime, although not common, enables the Monaco government to play a key role in the economy. The regime has proven its efficacy and works well within the economy of a small state such as Monaco. Although the system could appear to make the incorporation process in Monaco tedious and longer, this is not the case, as access to the State administration is generally smooth and fast (the Minister of State generally taking six weeks to deliver an authorisation to conduct a business). However, certain activities considered to be sufficiently represented in the Principality may lead the Monaco government to reject a request for authorisation.
There are no Monegasque antitrust regulations that apply to business combinations relating to activities in Monaco. The absence of regulations is mainly due to the relatively small size of the Monaco market (note that Monaco is the second smallest country in the world after the Vatican). The impact of such regulations would be very low or non-existent.
However, an acquisition or a merger carried out in Monaco can be subject to the economic concentration rules provided for by European Union member states (for instance, the French legislator if, in the context of a concentration, the transferred or merged Monegasque companies lead a significant activity in France).
Amendment No 12 of 28 July 1970 to the National Collective Bargaining Agreement of 5 November 1945 provides that if a collective dismissal is contemplated within a maximum period of six months following a merger, a takeover deal or the acquisition of an undertaking, the management of the target company must communicate in writing to staff representatives before the deal occurs (within one-three months after the target company’s decision to merge, to be taken over or to sell its assets) the relevant information concerning the extent of the dismissals contemplated, and the professional categories concerned, as well as the economic and technical reasons for the collective dismissal project and the measures planned to limit the number of dismissals.
If no such collective dismissal (upwards of two dismissals) is contemplated, there is no obligation to inform the target company’s employees about the contemplated deal, except where a collective bargaining agreement between the target company and unions provides for such an obligation prior to the merger/acquisition being effective.
Apart from the above, acquirers should be informed that neither the change of ownership structure of a company, be it through a takeover or a merger, nor the transfer of its assets to another company, can justify the termination of an employment contract. If a company merges or transfers all or part of its assets, all employment contracts within the target entity must be transferred to the acquirer/newly registered company, it being specified that the employee whose employment contract has been transferred retains all the rights they had acquired under the employment relationship until the date of the transaction taking effect.
See 2.3 Restrictions on Foreign Investments.
There is no substantial M&A-related case law in Monaco.
There were no significant changes to takeover law since 2017, and the body of rules susceptible to be relevant to takeover transactions is not under review. It is, however, worth pointing out that a draft law bill for the modernisation of Monegasque business law was proposed to Parliament in 2013 and withdrawn in 2016. Although the title of the bill might give the impression that it aimed at liberalising company law and takeover rules in Monaco, it appears from the preamble of the bill that there was no plan to consider waiving the principle of governmental prior authorisation for all foreign investments in the principality.
It is also worth noting that the Law No 1.488 of 11 May 2020 had authorised during the first lockdown in March and until the end of July 2020, Monegasque entities, to remotely hold the shareholders meetings and/or the board of directors' meetings, even when their articles of association did not authorise such meetings. These rules have been reinstated by the Ministerial Decision of 18 February 2021 until the 30 April 2021 thus providing a welcomed flexibility to the foreign shareholders and directors of Monegasque companies.
Stakebuilding in the target prior to launching an offer is not common, given the relatively small size of companies in Monaco and the usually small number of shareholders.
There are no material shareholding disclosure thresholds or filing obligations in Monaco takeover law. The only legal obligations that exist relate to money laundering and oblige each Monaco-based company to disclose information about each natural person who ultimately holds or controls directly or indirectly at least 25% of its capital or voting rights (a beneficial owner) at the Monaco Companies Register (Répertoire du Commerce et de l’Industrie).
The information is then compiled in a register relating to beneficial owners that is accessible to the Monaco anti-money laundering service (SICCFIN), the judicial authorities, the Monaco tax services (Direction des Services Fiscaux) and to any person on condition that it justifies of a legitimate interest and that it obtains an order to have access handed down by the President of the Monaco First Instance Tribunal.
The reporting threshold and filing obligation imposed on all Monaco-based companies regarding their beneficial owners is mandatory. There are no provisions under Monaco law allowing companies to increase or decrease the reporting threshold relating to beneficial owners.
There are no provisions in Monaco law that forbid dealings in derivatives. However, as there is no stock market in Monaco, there are generally no dealings in derivatives.
See 4.2 Material Shareholding Disclosure Threshold.
As there is no stock market in Monaco, all companies are private and there is no requirement to make known the purpose of an acquisition. It is worth noting that the Société des Bains de Mer, controlled by the State and running the Monaco casinos and major hotels, is the only Monaco-based company having its shares admitted to trading on a regulated market, Euronext Paris.
Under Monaco law, there is no obligation for a target company to disclose a deal.
This is not applicable to Monaco (see 5.1 Requirement to Disclose a Deal).
Due diligence is usually conducted as a two-phase process in Monaco deals. First, the target company makes general information on the company available to potential buyers (annual accounts, audit reports, real estate, intellectual property, analysis of compliance of the company's activity with the regulatory requirements applying to it, review of commercial and employment contracts, etc).
Following this phase, a selected number of potential buyers are given access to a second phase, during which special requirements may be negotiated to enable the conclusion of the deal.
Potential buyers have tended to request more projection information from the seller since the pandemic and in particular an interim accounting situation of the target company at the due diligence stage.
Standstills are not in great demand in the Monaco M&A market. Exclusivity is more usual, as Monaco companies are most commonly controlled by a small number of shareholders, often within the same family, with whom the finally selected bidder usually negotiates a limited exclusivity period for the last steps of the deal. Confidentiality clauses remain the most usual ones due to the very small size of the Principality and its limited number of residents.
It is permissible for tender offer terms and conditions to be documented in a definitive agreement. Indeed, most Monaco companies are owned by a very limited number of shareholders holding the majority of the shares, so potential buyers wishing to gain control over a target entity generally contact the majority shareholders and agree the terms of a share purchase agreement.
As in the neighbouring jurisdictions, the duration of the process in Monaco depends on various factors such as the knowledge of the target company's business by a potential acquirer, the scope of the due diligences required, or the need to obtain financing. It is also subject to the duration of the Government approval process, in the event of a transaction involving foreign investors. Based on the above, the process for acquiring/selling a business in Monaco generally takes two to 12 months.
Act No 1.485 of 9 April 2020 on administrative time limits authorised the suspension for a period of two months (extendable), starting 18 March 2020, of all "time limits, in progress on that date, imposed on constituents, by legal or regulatory provisions, for filing an application or a statement, for formalising an act or for carrying out any other formality, registration, notification or publication".
In this context, delays may have been slightly longer in some cases for acquisition or sale.
There is no mandatory offer threshold under Monaco law.
Cash is more commonly used as consideration in Monaco, since most sellers do not have a strategic goal when selling and rather wish to retrieve some liquidity.
In a deal environment with high valuation uncertainty, the parties have resorted to earn-out or price supplement where usually only a fixed price was offered.
There are no restrictions imposed by regulators regarding the use of offer conditions by a bidder. As Monaco companies are all private, such conditions are usually negotiated directly between the bidder and the target company's shareholders, before being integrated into the share/asset purchase agreement concluded between the parties.
The most common conditions relate to Government business approval (where the bidder is a foreign company or a natural person), the approval of other regulators such as the ACPR and the CCAF for M&A deals involving a bank and/or an asset management company (or other Government bodies in case the target is regulated), to obtain financing, should the merger/acquisition be financed by a banking loan or the French Competition Authority should the merger/acquisition consist of a "concentration" with worldwide turnover and turnover generated in France exceeding the thresholds provided for by French law.
Conditions also apply to the approval of the operation by the shareholders' assembly as well as the board of directors, where applicable.
Any person or entity wishing to take control of a Monaco private company must own more than 50% of the voting rights, it being specified that this threshold only provides the majority during the shareholders' ordinary general assembly, ie, over the matters relating mainly to the approval of the annual accounts as well as the appointment/replacement of members of the board of directors.
A wider control, including the power of decision making over key issues, eg, approving a M&A deal or the sale of assets, increasing the share capital, amending the bylaws or transferring the company's headquarters, usually requires the acquirer to take over at least 75% of the voting rights (depending on the provisions of the bylaws of the target). This enables the acquirer to take decisions pertaining to the shareholders' extraordinary general assembly.
A share/asset purchase agreement in Monaco may be conditional upon obtaining financing, according to the agreements between the parties.
The most commonly used deal security measures in Monaco are non-solicitation, non-compete and confidentiality clauses.
A bidder who does not seek 100% ownership of a target entity may seek representation in the board or the management of the target company.
Shareholders can vote by proxy in Monaco.
Squeeze-out mechanisms and short-form mergers, etc, do not exist under Monaco law.
Irrevocable commitments do not apply in Monaco.
Monaco-based companies are all private, so bids generally remain confidential unless voluntarily disclosed to the press or to a third party.
The requirement of disclosure in relation to the issuance of shares in a business combination does not apply in Monaco.
Although there is no obligation for bidders to produce a document for making a bid public, it is worth noting that the financial statements exchanged between parties to a transaction as part of the prior negotiation process need to be prepared in accordance with the International Financial Reporting Standards (IFRS).
Full disclosure of transaction documents does not apply in Monaco.
Directors have a permanent duty to act in accordance with the corporate interests of the target company, which implies that they must ensure that the interests of the company are being protected as part of the contemplated deal, along with those of the shareholders and all other stakeholders (mainly employees and creditors). Consequently, directors are supposed to keep in mind that the price offered by the bidder is not the only criterion to take into account when analysing the content of a bid; the bidder’s long-term strategic intentions towards the target company and its stakeholders are also a key element.
There is no obligation under Monaco law to establish special or ad hoc committees to analyse business combinations. It is not common either for boards of directors to establish such committees in practice, in the event of a conflict of interest. This kind of issue is addressed by mandatory law provisions submitting, as the case may be, the completion of a deal such as a merger or a buyout, to the prior approval of the shareholder, should one of the directors have direct or indirect interests in the bidding company.
Although Monaco law or case law do not expressly provide for a rule like the business judgement rule, Monaco jurisdictions are not likely to intervene in the board of directors' judgement, as long as it is characterised that as part of a deal, the directors have acted reasonably and with a standard of conduct consistent with ensuring the pursuit of the corporate interest.
Companies' directors involved in a business combination usually receive outside advice from lawyers and financial/strategic advisers, as well as certified accountants, which is particularly necessary in Monaco to help directors to go through the Government authorisation process when performing a deal involving foreign investors and/or directors.
There are no legal provisions in Monaco tackling expressly the issue of conflicts of interest of shareholders or advisers, unless they are considered as de facto directors (dirigeants de fait). In practice, however, it is highly recommended for shareholders and advisers to disclose a conflict of interest related to a contemplated deal, if only for maintaining a degree of trust between the parties.
On the other hand, since Monaco law contains provisions whereby when a director has a conflict due to a direct or indirect interest in the other company, he or she should disclose it to the shareholders prior to the conclusion of the deal and obtain the prior approval of the shareholders' general assembly. Any deal concluded without complying with this procedure is null and void.
Monaco law does not make a difference between a hostile and a friendly takeover. In any event, hostile offers are uncommon, since all companies are private, mostly small or medium-sized and managed by their majority shareholders.
Even though Monaco law does not expressly define defensive measures, in practice, when facing a hostile bid, the management or the board of directors of the target entity acts to attempt to protect its position in the company by implementing certain measures likely to impede the hostile bidder in taking control.
These measures generally require the prior approval of the shareholder and may consist of the increase of share capital, the purchase of the target company's shareholders' own shares or seeking an alternative bidder.
See 9.2 Directors' Use of Defensive Measures.
If directors obtain the prior approval of the shareholder to implement defensive measures when facing a hostile private bid, they have a permanent duty to act consistently with the corporate interest of the company, understood under Monaco law as the interest of the legal entity, pursuing its objectives in the common interest of stakeholders and with a view to ensure the prosperity and continuity of the business.
Even where they are also majority shareholders, directors cannot "just say no", as they are bound by a general duty to act in the best interest of the company by considering all factors that may be impacted by the offer. For example, an unjustified refusal of a deal offer where the target company is in dire straits and is likely to benefit from a takeover offer, could later make the directors liable towards the target entity’s creditors for the insolvency.
Since there is no stock exchange in Monaco, all M&A transactions are private and do not usually go to litigation in the event of a dispute. These are generally settled amicably and mainly relate to guarantees granted by the parties.
If it does occur, litigation is most commonly brought in the post-closing phase of a deal.
To the best of the authors' knowledge, the trend has not changed in early 2020. Broken-deal issues do not usually go to litigation and are settled amicably.
Shareholder activism is not an important issue in Monaco, where most companies are small or medium-sized companies and are generally controlled by a few people and/or family owned, with minority shareholders being for the most part passive.
Exceptionally, minority shareholders holding a blocking power for certain important decisions, eg, a merger/takeover/sale of their company’s assets, may use it to obtain better financial conditions in the prospective transaction or a higher dividend before they leave their company.
There is no significant example of activists seeking to encourage companies to enter into M&A transactions, spin-offs or major divestiture in Monaco.
See 11.1 Shareholder Activism.