After the initial shock in the first quarter of 2020 – caused by the COVID-19 pandemic – when most transactions were temporarily suspended, there has been a gradual recovery in confidence in the economy, followed by a rapid increase in the number of transactions. Compared to 12 months ago, the M&A market in Slovenia is currently very active and the investors’ sentiment seems to be quite optimistic, despite the possible long-term effects of the pandemic both at the local and global level.
Some uncertainty still surrounds swiftly enacted legislation to mitigate the effects of the COVID-19 pandemic and its unclear application – eg, shorter notice periods for termination of business leases, reimbursement of rents during the lockdown, and state support in the field of employment tied to restriction on profit distribution and sale of own shares. This, along with the introduction of foreign direct investment screening (see 2.3 Restrictions on Foreign Investments), has to some extent affected the pace of deal activity in the Slovenian market.
Furthermore, over the past 12 months, the parties have had to adjust to the uncertainties stemming from the COVID-19 pandemic, making it very common to include appropriate limitation language in M&A transaction documents.
In 2020, the key trend in the Slovenian market continued to be private M&A transactions – in particular, exits by domestic entrepreneurs from their companies established at around the time of Slovenia's independence (the late 1990s and early 2000s), as well as cross-border joint ventures in various industries.
The most prominent deals in 2020 included the sale by the Slovenian Sovereign Holding of Abanka Bank to Apollo and a consequent merger with Nova KBM Bank, the sale of 100% stake in Trimo by the Polish private equity fund Innova Capital to the Irish concern Kingspan, and the sale of the (indirect) investment in BIA Separations to Sartorius.
From the legal point of view, a notable hot topic are the limitations on upstreaming and debt push-down that have been heavily scrutinised in Slovenia lately and are subject to an increasingly stringent (and developing) case law, as well as the foreign direct investment screening introduced in 2020; for more information, see 2.3 Restrictions on Foreign Investments.
In the last 12 months, M&A activity in Slovenia has been spread across various industries, including IT, the manufacturing industry, real estate, pharmaceuticals, transportation (eg, railways), telecommunications and media.
The tourism and hospitality sector were among the industries which were hardest hit by the COVID-19 pandemic. Due to several decrees on temporary prohibition of offering and selling goods and services to consumers in Slovenia adopted by the Slovenian government in 2020 and 2021, the companies active in these industries were forced to temporarily stop offering their services to customers and thus many had completely shut down their businesses. This may also have contributed to the lack of M&A activity in these industries.
The method of acquiring a company depends mainly on the size and envisaged structure of the transaction, the type of the target’s industry and related tax implications. Most of the acquisitions of (prominent) companies in Slovenia are share deals (including by way of takeovers and mergers), while asset deals occur less frequently due to the complexity of the requirements under Slovenian law and possible joint and several liability issues not usually connected to asset deals.
In recent years, joint ventures have also become increasingly relevant in the Slovenian market, especially in the development of projects and investments in renewable energy sources.
Slovenia does not have a general regulatory body tasked with supervision of all M&A activities.
However, certain transactions within specific sectors may be subject to the approval/authorisation of the relevant regulators. For instance, the approval of Bank of Slovenia (Banka Slovenije) or the Insurance Supervision Agency (Agencija za zavarovalni nadzor) is required in case of the acquisition of voting rights or rights in own funds of a credit or insurance institution in Slovenia which reaches or exceeds the thresholds laid down by law.
The Securities Market Agency (Agencija za trg vrednostnih papirjev) monitors compliance with the Slovenian Takeovers Act (Zakon o prevzemih, ZPre-1) and sanctions the breaches thereof. In takeover bid procedures under the Takeovers Act, the acquirer must obtain the approval of the Securities Market Agency’s before publishing the takeover bid.
M&A transactions exceeding certain thresholds are also subject to clearance by the Competition Protection Agency (Agencija za varstvo konkurence); see 2.4 Antitrust Regulations.
Prior to 2020, no systemic legislation that would specifically regulate the restrictions on foreign investments existed in Slovenia.
On 31 May 2020, rules regarding the screening of foreign direct investment (FDI) were adopted, which require mandatory notifications to be made by foreign investors. FDI notification obligation arises in cases of acquisitions of 10% of the share capital or voting rights of the target in Slovenia for foreign investments in certain strategic and critical sectors that could affect security or public order.
The FDI rules, which have been swiftly enacted as part of COVID-19-related legislation, are unclear and interpreted broadly by the competent authorities and thus catch a wide range of transactions (including EU investments and, in turn, even Slovenian investments). Due to the lack of legislative clarity, it has become customary for foreign investors to file notifications out of prudence in most cross-border transactions, regardless of the industry and structure of the deal and even if they do not necessarily consider their transaction to fall under the screening regime.
Antitrust rules, which apply also to business combinations in Slovenia, are set out in the Prevention of Restriction of Competition Act (Zakon o preprečevanju omejevanja konkurence, ZPOmK-1).
Pursuant to the Prevention of Restriction of Competition Act, M&A transactions require an approval by the Competition Agency if (cumulatively) the combined Slovenian turnover of the parties to the transaction (including the affiliates) exceeds EUR35 million and the annual turnover of the acquired company (including the affiliates, excluding the seller and its affiliates) on the Slovenian market exceeded EUR1 million in the previous financial year.
Additionally, even if the aforementioned thresholds are not reached, the Competition Agency may still request the transaction to be notified, if the parties to the transaction (including the affiliates) hold a combined market share of over 60% in Slovenia. Parties acquiring such targets with large market shares are regularly advised to make a preliminary notification to the Slovenian Competition Protection Agency (Agencija za varstvo konkurence) for the purposes of legal certainty.
There are certain provisions in Slovenian labour legislation which can have a significant impact on transactions, but are frequently overlooked.
Namely, in accordance with the Worker Participation in Management Act (Zakon o sodelovanju delavcev pri upravljanju, ZSDU), certain transactions may trigger information and consultation obligations of the employer (the target) towards the works council if such representative body is established at the target. In such case, the works council has to be informed of the anticipated transaction and provided with the relevant documentation ahead of transaction (ie, at least 30 days before the decision for the transaction). In case of violation of information/consultation rights of the employees, the works council has the right to stay the decision of the target until the final decision is reached in a special dispute resolution procedure before the competent arbitration body provided for under the ZSDU.
Pursuant to the Slovenian Employment Relationships Act (Zakon o delovnih razmerjih, ZDR-1), in the event of transfer of business (for example by way of an asset deal or due to a merger) the employees are automatically transferred to the acquirer as well. As a consequence, all the rights and obligations from the employment relationships that the employees have on the day of the transfer at the target pass on to the acquirer.
Pursuant to the Takeovers Act, in case of a public takeovers the target’s management and the bidder are obliged to immediately inform the target’s employees (or their representatives) of the takeover intention and provide them with the target management’s opinion on the takeover bid upon its publication. The employees may submit to the management a separate opinion on the effects of the takeover bid on employment in the target company, which the management shall attach to their opinion.
More generally, acquirers are often surprised at the high protection of employees in Slovenia.
Please see 2.3 Restrictions on Foreign Investments.
M&A disputes are not common in Slovenia as it is customary practice that the parties to the transaction enter into the arbitration agreements, according to which any disputes are resolved before private arbitration, which ensures a greater degree of confidentiality than public proceedings before the courts (and a lesser degree of uniformity in case law).
Most of the court decisions related to M&A activities in Slovenia arise from decisions by regulators such as the Competition Protection Agency or the Bank of Slovenia, whereby the parties to the transition appeal against an adverse decision of the regulatory body.
There have been no significant changes to the Takeovers Act in the previous 12 months.
While potential bidders may build a stake in the target prior to launching an offer (and often do so), they need to observe important restrictions prescribed in the Slovenian Takeovers Act (Zakon o prevzemih, ZPre-1). The Takeovers Act applies when the target is either a public joint-stock company or a private joint stock company that has either over 250 shareholders or over EUR4 million of total equity. In these cases (and noting the relatively low total equity threshold), the bidder shall be particularly conscious of (i) applicable disclosure obligations (see 4.2 Material Shareholding Disclosure Threshold) and (ii) mandatory takeover rules.
Pursuant to the Takeovers Act, an individual shareholder or shareholders acting in concert that hold one-third of voting rights in the target shall make a mandatory takeover offer for all outstanding shares in that company that are not owned by the bidder(s) (see 6.2 Mandatory Offer Threshold). Stakebuilding in most of the joint-stock companies is therefore de facto limited to a stake of one-third of voting rights in the target.
Bidders shall also observe competition law restrictions, pursuant to which certain transactions (to the extent they constitute a concentration between undertakings and meet the prescribed thresholds) shall be cleared by the Competition Protection Agency.
Pursuant to the Slovenian Market in Financial Instruments Act (Zakon o trgu finančnih instrumentov, ZTFI-1), shareholders of either a public joint-stock company or a private joint stock company that has either over 250 shareholders or over EUR4 million of total equity shall notify both the Securities Market Agency and the target when they reach each of the thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50% or 75% of voting rights in the target. The obligation to notify applies also when the shareholder disposes of its shareholding to the extent it does not reach the above-mentioned thresholds anymore.
The notification obligation arises both when these thresholds are reached by an individual shareholder, a group of shareholders acting in concert, or holders of certain rights arising from the shares (eg, voting proxies). Additionally, financial instruments related to shares (eg, call options) also count towards the thresholds that trigger the notification obligation.
The notification obligation is strictly enforced by the Securities Market Agency.
Foreign investors (from within and outside the EU) shall also observe the applicable FDI filing obligation (see 2.3 Restrictions on Foreign Investments).
The mandatory takeover or disclosure obligations are compulsory and companies may not depart from them.
In principle, companies may introduce additional disclosure obligations or other hurdles to stakebuilding in their articles of incorporation or by-laws, such as requiring consent from the company or its bodies for any share transfer.
Dealings in derivatives are allowed in Slovenia and regulated in the Market in Financial Instruments Act.
A general disclosure obligation described above (see 4.2 Material Shareholding Disclosure Threshold) applies to most derivatives (eg, transferable securities, options, futures, swaps, forwards). In addition, pursuant to the Takeovers Act, holders of stock call options and buyers of futures contract shall notify the Securities Market Agency of any transaction on the basis of which they acquired a stock call option or receivable for delivery of securities from a futures contract, as well as of any change in the transaction (in four days).
Potential bidders do not have to make known the purpose of their acquisition and their intention regarding control of the company before making a takeover bid.
On the other hand, takeover bids are very formalised and strictly regulated in the Takeovers Act. The offer document (prospectus) in a takeover bid shall, among other, include information on:
Shareholders are therefore required to ensure full transparency at the latest when making the takeover bid.
In Slovenia, the vast majority of the M&A deals are private M&A transactions, particularly with respect to limited liability companies (družbe z omejeno odgovornostjo). Large public transactions have been scarce in the post-privatisation era, as the focus has shifted to the consolidation and reorganisation of the previously acquired businesses.
In private M&A transactions, there are generally no requirements to disclose a deal. If the target, to the extent included in the deal, is a limited liability company, its shareholders may require information from the company on an ad hoc basis in accordance with the general rules on the provision of information included in Article 512 of the Companies Act (Zakon o gospodarskih družbah, ZGD-1). The management is obliged to provide such information to the shareholders in a limited liability company upon request and without undue delay, unless they can reasonably consider that disclosing such information would be harmful to the company.
In case the rules on disclosure of inside information in accordance with the Regulation (EU) No 596/2014 (the “Market Abuse Regulation”) apply to the transaction, disclosure of inside information should be made whenever mandated by the provisions of Article 17 of the Market Abuse Regulation. In accordance with the Market Abuse Regulation, inside information (which generally should be disclosed) is considered information, relating to the issuer of financial instruments or financial instruments themselves, which:
In accordance with the above criteria, first approach or the beginning of negotiations may not yet be sufficient for the information to be considered inside information, which requires disclosure in accordance with the Market Abuse Regulation.
If the transaction is comprised of several steps, an intermediate step-in in a longer transaction process shall be deemed to be inside information if the intermediary step, by itself, satisfies the criteria of inside information as referred to above.
The Market Abuse Regulation requires immediate disclosure of inside information (unless certain limited exceptions apply) and issuers are required to comply with the legal requirements. As stated above, the vast majority of the M&A deals in Slovenia are private, so public disclosures in M&A deals are rare.
Due diligence is usually conducted in Slovenia and comprises of financial, legal and tax due diligence. If the target company is involved in an industry, which may have a larger impact on the environment, special environmental due diligence is also becoming more and more common. Due diligence which results in red flag due diligence reports is the norm in Slovenia.
The scope of due diligence largely depends on how many potential bidders are included in the transaction. If there is only one, the documents are sometimes prepared on the basis of the bidder’s request for documents; otherwise, the company and the sellers prepare the data room with the help of their advisors.
In certain cases, the due diligence process is split into two phases, whereas the target company initially discloses less detailed information to several bidders and the additional detailed/confirmatory due diligence is only available to the preferred bidder(s). In recent years, documents disclosed for the purposes of due diligence are almost exclusively available in virtual data rooms. Therefore, the pandemic had largely not affected due diligence process.
Exclusivity is often requested and granted for a limited amount of time in a single bidder M&A process, generally in smaller M&A transactions.
In private M&A, it is customary for the parties to the transaction to negotiate the terms and conditions agreement (eg, share purchase agreement, asset purchase agreement, merger agreement) and agree on a definitive agreement shortly before signing.
On the other hand, when bidders make a public tender offer (takeover bid), they must follow strict requirements as prescribed by the Takeovers Act and publish an offer document (prospectus) setting forth all terms and conditions of the offer. The shareholders of the target cannot negotiate or influence these terms, but may either accept the offer or reject it (in full). There are no representations and warranties that can be attached to the acceptance of a takeover bid.
Legally, a takeover bid is considered a publicly announced proposal for the conclusion of a contract addressed to all holders of securities. By the acceptance of a takeover bid, a definitive agreement for the sale of these securities is concluded between the acquirer as a buyer and the acceptor as a seller.
The length of the acquisition/sale process depends on several factors: the target’s size, number of bidders included (a multi-step competitive tender process or a simple process including one buyer with an exclusivity for a limited period of time), the experience of the parties involved as well as the structure of the deal, etc. The industry in which the target operates and regulatory restraints may play additional roles in this as well.
Definitive agreements in private transactions, which are the norm in Slovenia, may typically be signed in six months or less, whereas larger competitive tender processes take up to a year to signing. The public process of a takeover offer generally takes approximately three months from announcing the takeover bid.
The length of period between signing and closing further depends on whether regulatory approvals are required, such as obtaining a merger clearance from the national or EU competent authorities or obtaining regulatory approvals for qualified holdings in banks or insurance companies. These can postpone the closing for an additional six to nine months. The new FDI screening regime requires filing shortly after signing (in 15 days) and is now regularly included in a list of conditions precedent to closing.
The governmental measures taken to address the pandemic have not impacted the M&A processes to a large extent. Apart from notarial offices operating slightly limited office hours in spring 2020, no further impediments were created by governmental measures.
Takeovers of public and certain private joint-stock companies are regulated in the Takeovers Act, which prescribes rules for both mandatory and non-mandatory (voluntary) takeovers.
The applicable threshold triggering a mandatory takeover bid of the shares of the target company by an individual shareholder or shareholders acting in concert is one-third of voting rights in that company.
The shareholders under the obligation to submit a mandatory takeover who fail to do so will have their voting rights suspended (arising from any shares held, not just the shares in excess of the mandatory takeover threshold) and may not vote at the general meeting of the company until they submit a successful bid. Compliance with the Takeovers Act is monitored and breaches thereof are sanctioned by the Securities Market Agency.
In Slovenia, cash consideration is by far most common, whereas offering securities as consideration is rare. When securities are offered as a part of the consideration, this generally constitutes a smaller part, up to 20% of the total consideration offered.
In accordance with the Takeovers Act, a mandatory takeover offer can only consist of cash consideration, whereas any offeror who had obtained 5% or more voting rights in the past 12 months prior to the offer can only offer cash consideration or alternative consideration (cash or securities, at the choice of the offerees). Voluntary takeover offers may be in cash, securities, combined or alternative offers.
The Takeovers Act prohibits the use of conditions in takeover offers, except for conditions precedent or resolutory conditions, which are specified in the Takeovers Act. The only acceptable condition precedent under the Takeovers Act is the minimum acceptance condition, whereas the resolutory conditions may only apply to the mandatory regulatory approvals (excluding, under the interpretation of ATVP, merger clearances).
The offeror may determine the minimum acceptance threshold in its voluntary takeover bid.
Notwithstanding the above, in a mandatory takeover bid the offeror shall be required to determine the successful bid threshold, which may not be lower than 50% of all of the voting shares in the target plus one share, unless the offeror's shares already reach 50% of all of the voting shares of the target.
Offers for shares in limited liability companies and joint-stock companies, which are not subject to the Takeovers Act, may be made subject to any threshold of minimum acceptance, but are generally aimed at obtaining the 90% majority or all shares.
The relevant control thresholds under Companies Act are the following:
While it is legally possible to structure the transaction in a way which would make completion of the deal conditional upon the bidder obtaining financing, it is normally expected that the bidder warrants that it has secured financing to complete the deal.
Takeover offers subject to the Takeovers Act cannot be conditional on obtaining financing. When providing a cash consideration offer, the offeror is required to deposit cash required for the payment of all securities in the target company or a bank guarantee for the same amount (provided that the bidder deposits its shares in the target for the duration of the bid with the central clearing corporation).
In private M&A, the bidder may seek any deal security measures without restrictions (to the extent permissible under the generally applicable contract law).
Bidders are significantly more limited when making a public tender offer (takeover bid), as takeover bids may only include the conditions stipulated in the Takeovers Act and do not allow for much freedom to the bidders (see 6.4 Common Conditions for a Takeover Offer).
It has become customary to include in M&A transactions certain mechanisms for managing COVID-19 “pandemic risk” in the interim period, especially appropriate limitation language considering the effects of COVID-19 on the deals as well as providing for longer long-stop dates for closing. In certain other cases, however, parties have agreed that they have fully considered the effects of COVID-19 and shall have no claims towards each other in relation to this.
While not directly related to the effects of the COVID-19 pandemic, some M&A transactions in Slovenia are also subject to FDI screening procedure (see 2.3 Restrictions on Foreign Investments). In some cases, obtaining the FDI approval may also impact the length of interim periods.
If the bidder does not obtain all or 90%+ shares in the company at the outset, it is common for the bidder to insist on obtaining on a specific governance structure, which is reflected in a shareholders agreement. These usually include establishing special advisory boards with consent or veto rights above the contractually determined thresholds.
Such structures are particularly common in start-up financing, where several rounds of financing are envisaged and the investors obtain larger shares based on the performance of the target.
Voting by proxy is acceptable and common in Slovenia. Proxies for voting have to be provided in writing.
If proxy collection in a joint-stock company is addressed to more than 50 shareholders (and therefore constitutes an “organised collection”), the Securities Market Agency shall be notified in advance of the intention, reasons and manner of such proxy collection. In the absence of a notice, a presumption applies that the organised collection is concealing an agreement aimed at gaining or consolidating control over the target company, which may trigger mandatory takeover bid obligations and result in monetary fines and loss of voting rights.
Pursuant to the Companies Act, the general assembly of a joint-stock company may, at the proposal of a shareholder holding shares representing at least 90% of the share capital of the company (main shareholder), adopt a resolution on the transfer of shares of the remaining (minority) shareholders to the main shareholder for the payment of appropriate compensation. This squeeze-out mechanism also applies in takeover and other M&A situations, with certain specifics.
As a general rule, shareholders with at least a 1% shareholding that were squeezed-out from a company may request judicial review of the received consideration. In appraisal proceedings, the court may (and in some cases must) seek an opinion from a special settlement committee consisting of legal, accounting, financial and audit experts. If the court decides that consideration was insufficient, the majority shareholder has to pay the squeezed-out shareholders additional payments up to the amount of an appropriate consideration.
The exception to the general rule applies when the general assembly of the target adopts a resolution on the squeeze-out at the proposal of the acquirer as the main shareholder within three months of the publication of the outcome of a successful takeover bid. In such case, the acquirer must offer to the squeezed-out shareholders a compensation of the kind and in the amount specified in the takeover bid (notwithstanding the rules on appropriate consideration).
Irrevocable commitments to tender or vote by principal shareholders of the target company are rare. In Slovenia, most M&A activity occurs in companies where the shareholder structure is already concentrated and the potential acquirer approaches all or the majority of such core shareholders. It is not uncommon to request or agree exclusivity with such shareholders.
In case of dispersed shareholder structure, particularly where there is a large number of shareholders who are natural persons, a shareholders’ agreement on joint sale may be concluded between the sellers. Such an agreement usually provides for the establishment of a sale commission, which leads the sale process and often agrees on the preferred bidder and the obligation of the shareholders to sell if the minimum price is offered.
In private M&A, it is generally possible to keep the deal under the radar until completion (ie, registration of the deal with the business register).
Disclosure rules for takeover bids (tender offers) are detailed in the Takeovers Act. A bidder who intends to make a takeover bid shall first notify the management of the target, Securities Market Agency and Competition Agency of the intention to make a bid (ie, takeover intention) and publish the takeover intention on that same day. In cases of mandatory takeovers, the takeover intention shall be made within three days of reaching the mandatory offer threshold (one-third of voting rights in the target).
Additionally, the Takeovers Act provides that if it appears on the basis of the situation on the capital market that a certain potential bidder intends to carry out the takeover (eg, if the price of the security on the regulated market has risen significantly and it could be inferred from this that a takeover bid will be made), the Securities Market Agency may request (i) the potential bidder to state within 24 hours whether it intends to make a takeover bid and (ii) the target’s management to state within 24 hours whether it is aware of the takeover intention. The potential bidder and the target’s management must submit such statements to the Securities Market Agency and publish it.
In ten to 30 days after the publication of the takeover intention, the bidder must publish the takeover bid, including the offer document (prospectus).
In the prospectus, the bidder shall disclose various information pertaining to the takeover bid, including:
Note that if the target is a private (non-listed) joint-stock company that is subject to the Takeovers Act because it has either over 250 shareholders or over EUR4 million of total equity, the bidder’s prospectus shall also include an audited report on the appropriateness of the price in the takeover bid (also explaining any reasons for the price if it was not found to be appropriate in the auditors' report).
Additionally, in order for the bidder to obtain an approval by the Securities Market Agency for the takeover offer, it will have to prove that it has not in any way, either directly or indirectly, given or undertaken to pledge or to secure by collateral the shares in the target owned by other shareholders or assets of the target for the payment of the securities of the target. If the mandatory takeover bidder does not obtain the approval by the Securities Market Agency, it is not allowed to make the mandatory takeover offer.
The recent amendment to the Companies Act introduced a requirement that public companies shall obtain a supervisory board’s approval for related party transactions if the value of the transaction, or the value of the transaction together with the value of all transactions performed with the same party in the last 12 months, exceeds 2.5% of the value of assets shown in the balance sheet from the last approved annual report. Conflicted members of the supervisory board may not vote, and a proposal by independent members of the company’s audit committee (or a fairness opinion) are required.
Such related party transactions shall be published (on the company’s website or other information system) and the publication must provide all relevant information necessary to assess whether the transaction is appropriate from the point of view of the company and shareholders who are not related parties (eg, information on the type of the company's relationship with the related party, the identity of the related party and the date and value of the transaction). This disclosure obligation also applies to takeover bids.
There is no obligation for the bidders to produce financial statements in their disclosure documents, but they may do so if they wish (in the prospectus).
In both private and public M&A, the deal documentation (eg, asset and share purchase agreements, merger agreements, articles of association) is in principle publicly available and either published online or easily accessible at the court register or the land registry after completion.
As the parties are generally hesitant to publicly disclose all the information on the deal, they ordinarily opt to enter into separate short-form documents for delivery to the court register that only contain a limited set of relevant information.
The Slovenian Companies Act (Zakon o gospodarskih družbah, ZGD-1) stipulates that the members of both management and supervisory bodies shall, in performing their duties, act for the benefit of the company with the diligence of a conscientious and honest businessperson and protect the company's business secrets.
These duties apply equally to members of boards of directors (upravni odbor) in one-tier joint-stock companies, management board (uprava) and supervisory boards (nadzorni svet) in two-tier joint stock companies, and management in limited liability companies and other companies.
It follows from the case law of the Slovenian courts that management shall act for the benefit of the company rather than (only) for the benefit of the shareholders. While there is no notion of a constituency statute in the Slovenian legislation, companies are not prohibited from considering the interests of stakeholders other than shareholders in determining the purpose of the company in their articles of association or by-laws.
The management’s duties do not change in the context of a business combination. The Takeovers Act stipulates that the management of a target company shall, within ten days of the publication of the takeover bid, publish a reasoned opinion on the bid. The management’s opinion shall include, inter alia:
The management shall also observe their duties to inform the employees (their representatives) related to the takeover intention (see 2.5 Labour Law Regulations).
It is not common for the management to establish special or ad hoc takeover committees in business combinations (but the companies may decide to do so).
The proposal for the approval of the supervisory board or a board of directors in one-tier companies (see 7.2 Type of Disclosure Required) when entering into so-called related party transactions shall be formed by the audit committee and shall include an assessment that the transaction is fair and reasonable from the point of view of the company and non-related shareholders, including minority shareholders. A member of the audit committee who is involved in the transaction or in whom there is a risk of a conflict of interest due to his or her relationship with a related party may not participate in the formulation of the proposal. In such case, the transaction may only be approved if an independent third party issues a report assessing that the transaction is fair and reasonable.
The business judgement rule is not formally enshrined in Slovenian legislation. Nevertheless, courts ordinarily defer to the business judgement rule arising from the GER case law and corporate theory when deciding on cases of management’s liability and discharge of their duties.
There is no developed case law on this topic applicable to takeover situations (see 10.1 Frequency of Litigation), but it is reasonable to assume that Slovenian courts would defer to the business judgement rule also in that context.
It is customary for the management of a Slovenian target to seek independent outside advice in a business combination, especially economic (financial) and legal advice on different aspects of a transaction.
In assessing a takeover bid and issuing a reasoned opinion, the management of the target would generally engage various advisers to ensure that they fulfil their duties pursuant to the Takeovers Act. If the management issued their opinion based on incomplete or inaccurate information, that could be considered by the courts a breach of their duties and could expose the management to liability.
Members of both management and supervisory bodies are under a general obligation to avoid any conflict between their interests or duties and the interests or duties of the company they lead or controls. If a conflict of interest arises, such members shall inform the bodies which they are member of and the supervisory body of a conflict.
In addition, the Companies Act prescribes rules on certain specific situations of conflict of interest (eg, transactions with members of management or their family members) which need to be approved by the supervisory body or general assembly of the company. Special regime applies in transactions with related parties where members of an audit committee and/or supervisory body are conflicted and therefore cannot vote on the approval of the transactions (see 8.2 Special or Ad Hoc Committees).
Case law on the conflicts of interest under the Companies Act is somewhat underdeveloped in Slovenia, which is partly due to the fact that several provisions on this topic were only recently introduced to the law.
While hostile tender offers are permitted (subject to the mandatory takeover rules, see 6.2 Mandatory Offer Threshold), they are not common in Slovenia. This is predominantly a consequence of the underdeveloped public M&A market, where private M&A deals are the norm and takeovers are scarce, and the ownership structure of companies which tends to be concentrated and include dominant shareholders. As shareholders in hostile takeovers generally expect from the bidder to pay a premium to the market price and are less willing to sell, it is oftentimes wiser for the bidder to pursue a friendly takeover, negotiated with the management.
Generally, defensive measures by directors are prohibited in Slovenia.
The Takeovers Act stipulates that, after the target’s management has become familiarised with the takeover intention and until the decision on the outcome of the takeover bid is published, they may not use defensive measures (eg, increase share capital, conclude transactions outside the company's regular operations, acquire own shares or securities or perform other actions that could impede the bid) without a resolution of the general assembly. In addition, decisions of the target’s management or general assembly that were adopted before the announcement of the takeover intention and not yet fully implemented require approval of the general assembly before implementation if they were not taken in the course of regular business and their implementation could impede the bid. Any legal acts contrary to these provisions shall be null and void.
Articles of association of companies also often contain mechanisms limiting transfer of shares or exercise of voting rights (see 9.3 Common Defensive Measures) which can in certain situations serve es effective defensive measures. Pursuant to the Takeovers Act, these mechanisms may be waived by the general assembly of the target by way of amending the articles of association to that end. Such decision by the general assembly may be terminated at any time.
Considering the general prohibition of adopting (ad hoc) defensive measures, directors of the target may typically only rely on the general provisions enshrined in the articles of association that may also be used as defensive measures in the takeover context. Most notably, these provisions include limitations on (i) transfer of shares and (ii) exercise of voting rights.
Pursuant to the Companies Act, the articles of association may limit the transferability of shares by condition the transfer on obtaining the permission of the company (its management or general assembly). In cases of joint-stock companies, the articles of association shall stipulate the justified grounds on which the company may refuse permission for transfer. For private joint-stock companies, these grounds may only pertain to cases when the transfer would jeopardise the achievement of the company's objectives or its economic independence; for public joint–stock companies, the only permissible ground is that as a result of the transfer in question a certain share of voting rights or share in the company's capital of the acquirer would be exceeded. The regulation of limited liability companies is less restrictive and other grounds for refusal of transfer are permissible.
The articles of association of joint-stock companies may also restrict the shareholders’ right to vote by determining that the number of votes held by an individual shareholder in relation to the number of shares may not exceed a certain number or percentage. Additional restrictions on voting rights may be applied in limited liability companies.
As there are no special rules on directors’ duties when enacting defensive measures, general rules are applicable (see 8.1 Principal Directors' Duties and 9.2 Directors' Use of Defensive Measures).
As the management is required to assess a takeover bid and issue a reasoned opinion (with the required diligence), they do not have the ability to “just say no” and prevent a business combination.
It should be noted that it is not required under Slovenian legislation for the management to consent to a (hostile) tender offer. Bidders may turn directly to the shareholders and/or publish a takeover intention without any action or approval by the management. Even if the management opposes the transaction, this will not prevent the business combination from occurring if the tender offer is accepted by a sufficient number of shareholders.
Litigation is very uncommon in connection with M&A deals in Slovenia (see 3.1 Significant Court Decisions or Legal Developments).
If litigation in connection with M&A deals is initiated, this will very likely be either before submitting the takeover bid (claiming that the bidders have exceeded the threshold under the Takeovers Act and shall have their voting rights suspended until they submit a successful bid) or after the closing of the transaction (alleging insufficient disclosure or other obligations by the relevant parties).
“Broken-deal” disputes are not common in Slovenia and there is no significant case law on this matter. We are not aware of any such disputes related to pending transactions in early 2020 due to the COVID-19 pandemic.
Shareholder activism has been a factor in Slovenia but has declined in relevance. Institutional activist shareholders do not have a significant impact on the operations of Slovenian companies, but can in some cases increase the cost of M&A transactions through litigation.
Most notable activists are minority shareholder associations that represent minority (dispersed) shareholders in private and public companies and use the shareholders’ rights to raise corporate governance or other issues (see 11.2 Aims of activists) with the management. These association sometimes also obtain insignificant shareholdings of their own (in some cases even a single share) and pursue their goals directly as shareholders.
As minority shareholder associations are the drivers of activism in Slovenia, activism is typically aimed at extracting value from majority shareholders. This is oftentimes done by information requests or other means of gaining access to the company’s documentation that the activists wish to utilise to pressure the management, either during general course of business or at general assembly meetings, and through threatened or actual litigation aimed at slowing down or impeding M&A and other transactions.
In practice, minority shareholder associations are rarely successful in instating their own slate of directors to replace the incumbent management. As three-quarters of all votes cast is necessary for such replacement, such attempts are usually fruitless.
A further topic of interest for the minority shareholder associations is dividend distribution. Pursuant to the Companies Act, the resolution of the general assembly on the use of profit may be challenged if the general assembly has distributed less than 4% of share capital (bar certain exceptions). As the required shareholding threshold for filing such is rather low (ie, 5% of shares), this is quite a popular course of action for minority shareholders.
Minority shareholders also ordinarily exercise their appraisal rights in squeeze-outs by the majority shareholders (see 11.3 Interference with Completion).
Activists will at times seek to exercise appraisal rights in squeeze-out transactions – ie, where a majority shareholder holding at least 90% in a joint-stock company forces the minority shareholders to sell their shares for an appropriate cash consideration. Shareholders with at least a 1% shareholding that were squeezed-out from a company may request judicial review of the received consideration. In appraisal proceedings, the court may (and in some cases must) seek an opinion from a special settlement committee consisting of legal, accounting, financial and audit experts. If the court decides that consideration was insufficient, the majority shareholder has to pay the squeezed-out shareholders additional payments up to the amount of an appropriate consideration.
Recovering from the Pandemic
One year into the COVID-19 pandemic and its effects on the world, the Slovenian M&A market has more clearly normalised and continues trends of uptick from the conclusion of 2020. Most M&A procedures postponed in the beginning of the second quarter of 2020 have since been largely completed, with a steady flow of new money and transactions taking their place. While estimates for 2021 envisage GDP growth (which is unsurprising when compared to 2020), M&A activity will be driven by sector-specific growth as well as the lingering consequences of the pandemic.
Government Action Fuels the Slovenian M&A Market
Historically, the Slovenian government’s actions have been an important driver for the M&A market, primarily through the (continuing) state ownership and interest in various companies – managed by the Slovenian Sovereign Holding (SSH). In the current pandemic, governmental influence is further directly felt via state subsidies and legislative solutions set to ease the effects of the pandemic, which are effectively keeping several industries afloat. Notably, the current government was sworn in on the eve of the epidemic in Slovenia with most of it legislative measures aimed primarily at fighting the pandemic, with little general strategic action taken.
Having said that, the Slovenian government has made clear its intent to establish a State Tourism Holding (STH), following several acquisitions throughout the past years of key holding companies owning hospitality and tourism assets. In January 2021, the Slovenian Competition Authority gave the green light to the purchase of 20.9% in Terme Olimia (a thermal spa resort company) by the SSH. SSH is further expected to purchase 43% shares in Sava – a holding company, which indirectly owns several of the largest Slovenian hospitality assets – from the York fund in the second or third quarter of the year in an effort to consolidate state ownership in Sava.
The end goal is to consolidate several company assets under three subsidiaries covering alpine, coastal and thermal tourism by merging/transferring assets of several companies. There are still pending regulatory, mainly competition, concerns for the government’s plans and there is talk that SSH would include private investors at earlier stages of the transaction. This consolidation will likely shape the tourism sector in Slovenia for the coming years in an as yet unknown dimension.
One unexpected new regulatory hurdle has been the introduction of foreign direct investment screening, which has in most cases included an additional condition precedent to closing a transaction. Notably, the Slovenian implementation of the EU directive-based FDI screening considers all investments outside of Slovenia as foreign investment, thus requiring a submission of an application in just about every instance.
Government Measures and Insolvency-Related Transactions
The government recently adopted the sixth package of measures, extending previously adopted measures aimed at lowering labour costs and additionally adopting subsidies for fixed costs. The government’s response to the effects of the pandemic has been measured, but critics have claimed that bureaucratisation and too-strict requirements have prevented many companies from obtaining measures necessary for their continued survival.
For instance, while the government has provided for loan extensions and loans to be backed by government warranties (via the Slovenian development bank, SID banka), due to the rigorous documentary requirements and strict conditions, most of the warranty scheme funds have not been used by companies.
This in turn is likely to result in an increase of insolvency proceedings as soon as certain other COVID-19 measures – especially subsidies of fixed costs and labour costs – end. Thus, there is an expectation in the market of an increase in receivables sales and asset sales as precursors to financial consolidation of distressed companies.
Working from Home Spells Growth for the ICT Industry
Initial estimates for the end of 2020 were down for the ICT industry, but the greater acceptance of working from home, coupled with the government’s pledges to further digitise public administration, have caused a surge in the sector. Thus, despite 2020’s reduced revenues for Slovenian ICT companies of between 5% and 15%, at least a 5% annual growth of the industry (if not more) is expected in the following years.
The ICT sector in Slovenia represents only around 5% of the GDP. However, it has traditionally been a high growth industry, with typical M&A mandates involving smaller companies owned by historical founders looking for acquisition, either as part of growth potential or as an exit. A recent example involves the software development company ADACTA HOLDING d.o.o., engaging in a spin-off and sale of its leading regional Microsoft Dynamics, Qlik and Cornerston to BE-terna. Such sales offer prime opportunities for further consolidation and reorganisation.
Notably, Slovenian ICT companies tend to have sprawling market penetration in countries of the former Yugoslavia (Bosnia and Herzegovina, Croatia, Serbia, Montenegro and Kosovo), allowing for even further growth.
A Surge in Healthcare and Pharmaceutical Providers
The Slovenian healthcare system is primarily oriented toward public healthcare providers, yet in the last couple of years there has been a rise of privately owned medical and diagnostic centres, which are popular among the population who are keen to avoid the longer waiting times plaguing public medical centres.
In light of the pandemic, there has been strong growth for private medical centres, driven primarily by government requirements for professionals to test every three days or once a week (depending on the profession and subject to developing epidemiological guidance), as well negative PCR test requirements for travel, etc. Due to the expected continued growth for diagnostic clinics and medical devices sellers, spurred by both the general population’s need for quick testing as well as government contracts for testing, we expect increases in M&A activity aimed at the future growth of companies. For now, we are aware of at least one regional medical diagnostic centre up for sale and predict that many more will follow, with either complete exits of the founder or the inclusion of new investors.
Additionally, the pandemic has caused growth in the Slovenian pharmaceutical sector, with generic pharmaceutical growth estimated at 2–4% annually in the following years. While pharmaceutical producers are not likely targets for M&A, their growth is set to lead positive M&A trends in directly affiliated industries such as pharmaceutical vendors, as well as the previously mentioned healthcare providers.
Deliveries of all Kinds
With the food-services industry being forced to adapt to delivering food rather than serving it, there has been an immense growth of third-party delivery services connected with mobile phone applications. The two competing companies in Slovenia are eHrana and Wolt, with Wolt only entering the market in 2019 and greatly increasing its market share. There are now talks of more such platforms either developing or entering the market, a market that is expected to grow due to the current inaccessibility of traditional brick-and-mortar dining experiences.
Delivery services have also begun expanding into deliveries of gifts, groceries, medical masks, etc. Although the eventual end of the pandemic might curtail the food delivery boom, it has effectively normalised online shopping in Slovenia, allowing for a wide-ranging expansion in online sales, not just via such apps but also more generally.
Directly related to the boom of online shopping is the predicted 5–8% growth in logistics and transport services. While the parcel delivery market is largely split between the state-owned Post of Slovenia and local subsidiaries of global delivery groups, there is a growth potential in same-day deliveries by local courier services for consumer goods.
The Energy Sector
Largely unrelated to the pandemic are the high expectations that continuing advancement of technology is set to provide further growth to the energy sector. This includes projects involving battery storage devices already being employed by certain companies, with an anticipation that this would also extend to consumer use in the following years.
In addition, there is the ever-increasing presence of electric vehicles, which has increased demand for the necessary infrastructure to facilitate e-mobility. To that end, we are seeing e-vehicle vendors investing in charging stations, with other projects in the air to connect energy producers with vendors and consumers. The only impact of the pandemic has been in the lower cost of electricity, allowing many such projects to offer lower costs for consumers for an increase in engagement. This is alongside existing expectations of improving the energy network as a whole by ELES, the state-owner electricity transmission company, and talks of further production facilities, subject to environmental regulatory approval.
While the pandemic has left and is still leaving its mark, most industries have adapted to at least some extent and there is an expectation of growth across all sectors, leading to speculation that most M&A business will follow historical trends – ie, 100% share sales in established companies prime for reorganisation and consolidation, or capital investments in start-ups in emerging industries.
One historical trend that is unlikely to return is the rapid sale of government-held ownership in a variety of non-strategic companies. As per the current strategic documents, the government is likely only to acquire assets in the tourism sector while not disposing of any other assets it holds.
However, we expect that certain companies will likely not recover and the dangling question that remains is how they will fare after government assistance ceases. This is especially true for the food-services sector where high fixed costs – mostly from rent, as well as labour costs – might lead to insolvency. The M&A trend in this case will consist of distressed asset and receivables sales.