There are different ways to acquire a majority stake in a joint stock company, and each of them has its particularities, pros and cons. However, notwithstanding the specific acquisition method, each process requires the undergoing of stringent procedures by the acquirer, which can often be lengthy and complicated, involving dealing with various minority shareholder issues and rigid supervision by regulators.
Depending on the transaction structure, a majority stake in a Serbian joint stock company may be acquired directly or indirectly, solely or by acting in concert, with the specific form likely to affect the overall duration and complexity of the acquisition process.
In this article, we will explore the acquisition of a majority stake via takeover as compared to block trading.
Pursuant to Serbia’s Takeover Law, a takeover bid must be launched by a person who has acquired, directly or indirectly, solely or by acting in concert, voting shares that, together with the shares already acquired, represent more than 25% of the overall number of the target company’s voting shares. In addition to a mandatory takeover bid, the Takeover Law permits launching of a voluntary takeover bid, which, unlike a mandatory takeover bid, may be conditional upon acquisition of a minimum number or minimum percentage of voting shares in the target company. Following the initial acquisition of a shareholding in the target company, additional takeover bids may be required for its further increase, depending on the previous acquisition methods and/or the amount of shares acquired thereby. In the course of the process, bidders are bound by the rules on the minimum (rather than maximum) takeover price. While the obligation to launch a takeover bid in case of a direct acquisition of shares in the Serbian target arises out of the mere signing of the underlying share purchase agreement, indirect acquisitions of shares in the Serbian target company, made through the acquisition of shares of its parent, require that the launching of a takeover bid be linked to the moment of registration of the share transfer on the parent level.
An alternative to a straightforward takeover bid is block trading, especially when a direct agreement on the acquisition of a specific portion of shares may be reached with the relevant shareholder prior to initiation of the process. Block trading may thus delay launching of a mandatory takeover bid until the moment the acquirer has already become the majority shareholder of the target company (or a holder of more than 25% of the voting shares therein). Namely, while the rules applicable to block trading (i.e., Belex Rules on Operations) prescribe the minimum amount of shares that must be subject thereto or the minimum value of the relevant block-trading transaction, they do not prescribe the maximum amount of shares to be acquired thereunder. Therefore, this allows the interested acquirer to first acquire the majority stake in the target company without the participation of competitors, and then to launch a takeover bid for the remainder of shares.
However, block trading rules do impose certain trade restrictions which may, from time to time, prevent the transaction from being completed under these rules. One of the most important impediments to a block-trading transaction relates to the limitation of the discretionary power of the parties to negotiate the price under which they wish to trade shares. Namely, block-trading rules prescribe the highest permissible price deviations for the shares being traded thereunder from the reference values identified in the rules. Therefore, if shares are to be traded via block trading, parties are not free to agree in the underlying share purchase agreement on their price outside of the applicable rules and, very often, are prevented from agreeing on so-called price adjustment mechanisms, as these could result in violations of the share price rules applicable to block trading. This especially occurs in transactions involving acquisitions of shares in a group of companies on a closing date that is different than the signing date.
Accordingly, before proceeding with negotiations for an acquisition of a majority stake in a joint stock company, it is advisable to analyze all aspects of the potential transaction and structure it to best fit one’s specific needs.