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Deal Expanded: Extreme Digital/eMAG Merger

Deal Expanded: Extreme Digital/eMAG Merger

Hungary
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Allen & Overy Counsel Balazs Sahin-Toth Talks About the Deal of the Year in Hungary

CEELM: What was Allen & Overy’s role in the Extreme Digital/eMAG merger?

Balazs: Alongside DLA, we acted for the Naspers Group and their Romanian subsidiary, eMAG, in setting up a joint venture with Extreme Digital. The Budapest office of Dentons acted for Extreme Digital in that deal. After completion, Extreme Digital held 48% of the joint venture company, with eMAG’s Hungarian affiliate holding the remaining 52%. Our main role was to negotiate and draft the shareholders’ agreement, and we also commented on the new articles of association, capital increase, and board-related documentation. The capital increase consisted of new money plus in-kind contribution, including the transfer of purchase price receivables arising from a business transfer agreement, licence fees and a trademark transfer agreement. Through a series of transactions, the parties contributed their assets to Extreme Digital and merged their businesses.

As I said, we were holding the pen on the shareholders’ agreement. This was a relatively complex document that set out a roadmap of which party did what to set up the agreed structure of the joint venture. We also drafted corporate governance clauses, how the business must be conducted, and which information must be provided to shareholders and directors. There are pre-emptive rights on the allotment and issue of new shares, restrictions of transfers of shares, rights of first refusal, tag along, drag along rights, put options and call options, exit support clauses, protection of shareholders, etc. So the full arsenal that you would expect to see in an international joint venture.

CEELM: How did Allen & Overy get the mandate in the first place – why did eMAG choose the firm to assist it in this matter?

Balazs: Our Amsterdam office was instrumental in securing this mandate. Prosus/Naspers is listed in Amsterdam and the relationship is based in Amsterdam. Justin Steer, who is an Allen & Overy partner in Amsterdam, was key to the client relationship and also led the negotiations over the shareholders’ agreement. The shareholders’ agreement is governed by English law, while the parties agreed that the rest of the documentation would be governed by Hungarian law.

Before this deal, we had acted for Naspers on another M&A mandate in Hungary and a number of transactions globally. In our previous deal, we acted for Naspers on the sale of a Hungarian company and our work included drafting and negotiating a share sale and purchase agreement, loan novation, termination of intragroup agreements, corporate documentation, sale of intellectual property rights, mobile applications, etc. Interestingly, on that previous deal, we also worked with Dentons, which acted for the purchaser.

CEELM: What was the significance of the deal, in your opinion?

Balazs: It helped cement the market position of Extreme Digital as a prime digital retail platform. In the past few years, this business has been on the rise and recently received a boost during the Covid-19 crisis as people have been turning to digital retail shopping more than ever before. Completion occurred in the fourth quarter of 2019, which shows that the timing was right.

CEELM: It appears the majority shareholder of Extreme Digital is Steinhoff International, from South Africa, and the majority owner of eMAG is South Africa’s Naspers Group. Did the fact that the owners were both South African affect the logistics of negotiating and structuring this deal in any way?

Balazs: I don’t think so. Steinhoff is at the center of an international scandal and is insolvent. In South Africa the name Steinhoff is very damaged. Given the developments around Steinhoff at the time, their both being South African played no real role. We received instructions mainly from David Fiene of Naspers who is a very professional lawyer and very easy to deal with.

By the way, we generally see much interest from South African investors and financiers as well. For example, we are acting for Scitec, one of the leading manufacturers of sports supplements, its parent company Ascendis and their lenders on various finance matters. The majority of lenders are from South Africa.

CEELM: Finally, congratulations on winning the Deal of the Year Award in Hungary – the most competitive ballot in all CEE countries this year.

Balazs: Thank you and thanks to our client Naspers and our clients in general for their continued trust in us, DLA for the efficient division of work, and Dentons for their cooperation on the eMAG deal. Allen & Overy has had another great year with several good deals under our belt, including this transaction. We are grateful to CEE Legal Matters for awarding Allen & Overy the 2019 CEE Deal of the Year Award for Hungary.

Our business presentation on “Trends in M&A” earlier this year was again a success. It was delivered by our managing partner, Zoltan Lengyel, who shared with our clients and M&A specialists our guidance on recent market trends in M&A documentation based on hundreds of deals which Allen & Overy have been involved in globally in the past year.

We are hopeful for the future too. We lawyers are lucky so far because Covid-19 has not made our jobs redundant. Just the opposite – it has probably brought us more work than we have had to sacrifice. This crisis reminds us of our duty to contribute to the community.

On that note, I trust that the Supreme Court will soon pass a judgment upholding the approximately HUF 100 million in damages awarded for school segregation to 60 Roma students in Gyongyospata, in Northeast Hungary – a landmark case that we are conducting on a pro bono basis, along with lawyers Peter Gardos and Eleonora Hernadi, for the Chance for Children Foundation. This litigation has received much unwanted political attention and the Prime Minister announced that the state would not pay, despite the final and binding judgment requiring payment. We are convinced that the Roma children deserve access to justice and moral damages for their suffering due to segregation and loss of chances to succeed in life due to the poorer level of education that they have received.

This Article was originally published in Issue 7.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.