Effective at January 30, 2014, Federal Law 423-FZ dated December 28, 2013 ends regulations requiring the subsequent notification of Russian competition authorities of corporate transactions of minor value as well as some intra-group transactions. The amendments to the merger control regulation would have a positive affect the entire Russian M&A market.
The Russian government continues to move towards the liberalisation of the regulatory framework of mergers and acquisitions. Recent changes to the merger control regulations are aimed to ease sub-middle market deals. Consequently, after January 30, 2014, the majority of transactions which had previously been notified to the national competition authority (FAS) will no longer have to.
Current Regulation (before January 30, 2014)
Basically, the Russian merger control regulation recognises two kinds of control – prior approval and subsequent notification.
A corporate transaction requires prior approval if the combined total book value of assets of the undertakings concerned exceeds seven billion rubles (150 000 000 euros) or their total revenue for the preceding financial year exceeds ten billion rubles (214 000 000 euros) and the book value of assets of the target is more than 250 000 000 rubles (5 400 000 euros).
In general, subsequent notification is required for a corporate transaction where the combined total book value of assets of the undertakings concerned or their total revenue for the preceding financial year exceeds 400 000 000 rubles (8 500 000 euros). In case of equity acquisition, the combined total book value of assets of the undertakings concerned or their total revenue for the preceding financial year must exceed 400 000 000 rubles and the book value of assets of the target is more than 60 000 000 rubles (1 300 000 euros).
Also, certain corporate transactions which would otherwise require prior approval, made between the members of the same group could qualify for subsequent notification.
Post January 30, 2014
Effective January 30, 2014, Federal Law 423-FZ of December 28, 2013 abolishes regulations requiring subsequent notification of FAS of corporate transactions of smaller value. Likewise, corporate transactions triggering a prior approval threshold but carried out between subsidiaries, e.g. a parent undertaking and a subsidiary, are no longer within the merger control rules. Hence, this method of governmental merger control will only be reserved for some intragroup corporate transactions.
Appearing as a minor regulatory fix, the amendments to the merger control regulation would result in hundreds of thousands of euros of legal fees for tedious filing work saved resulting in a more efficient spend in more meaningful areas. This is because a typical filing for merger clearance of a small or even an intragroup transaction is substantially no different than for a large M&A deal and could be some 500-1000 page bundle of legal and financial documents.
These changes will not only affect small and mid-market where the presence of governmental antitrust protection has been questionable. Considering that in many cases large corporate transactions are preceded by internal restructuring, overcoming additional regulatory constraints could be burdensome, especially in terms of timing. Therefore, the new regulations will have positive effect on larger deals as well.
Executive Summary: Goltsblat BLP has published a Case Study Guide to M&A Transactions in Russia that covers the full M&A process in Russia, from the initial negotiations and heads of terms, right the way through to completion and post-completion matters. Some of the highlights include:
- Preparation for sale, negotiating the initial terms and forming the deal teams.
- Properly scoping the due diligence process; carrying this out effectively; critically analysing the results and acting on them.
- Structuring the deal and dealing with complex multi-jurisdictional transactions.
- Negotiating the principle transaction documents, understanding the points for compromise and the areas of risk.
- Successfully navigating the deal execution and deal completion processes; avoiding last minute surprises.
- Post-completion integration and crisis-management, should the unexpected arise.
Goltsblat’s Case Study Guide to M&A Transactions in Russia sets out a Case Study of a typical acquisition and joint venture of a Russian business. It is aimed at both lawyers and non-lawyers and also at both experienced M&A practitioners and those with little or no experience. In order to cover such a wide readership we have therefore set out the background information and basic concepts of an M&A deal at each stage of our guide and then added to this practical tips and guidance, points to watch out for and ideas on some of the different negotiating positions that can be taken. Wherever relevant we have included Russia-specific practical guidance. The guide therefore also represents a series of case studies of some of our collective knowledge and experience, based on years of tough negotiating sessions, late night completion meetings and lots of colourful memories along the way!
In many ways, now is the ideal time to produce a guide of this nature. At the height of the economic boom, many deals relating to Russia were carried out under foreign governing laws and using offshore corporate structures, all too often with insufficient understanding of how the rights and obligations of the parties might be applied or enforced in practice, in the event of a dispute. One result of the prevailing financial crisis has been to expose the problems and weaknesses inherent in such transaction structures in cases where insufficient attention was paid to their relationship with Russian laws and the practicalities of enforcement here on the ground in Russia. Although this Case Study guide cannot possibly give all the answers in the space available, it aims to address some of those issues in a practical way.
Click here for the Foreword and Table of Contents.
- A key step in planning for an IPO is choosing the location in which to establish the holding company to list on a foreign exchange. Offshore holding companies are often used for Russian IPOs to increase investor comfort, avoid an extra layer of tax or tax compliance costs, avoid stamp duties in certain jurisdictions and take advantage of foreign legal regimes that are more attractive.
- Common locations in which to establish the new holding company include:
— the United Kingdom, which may offer benefits for FTSE eligible London IPOs but may have drawbacks from a taxation and regulatory perspective;
— low tax jurisdictions such as Cyprus or Luxembourg, which have a good network of double tax treaties; and
— “zero tax” offshore jurisdictions such as the British Virgin Islands (BVI), the Cayman Islands, Guernsey and Jersey.
The article explores the finer points of selecting offshore jurisdictions in further detail.
- The main downsides are the time and cost involved in complying with the laws and regulations of another jurisdiction, though generally these downsides are more than offset by the benefits that the new structure will bring.
Click here to see the full article.
Executive Summary: From time to time all businesses experience unforeseen legal issues and disputes which may quickly escalate into a crisis if not dealt with properly and in good time. This article suggests eight points to consider when developing a strategy to deal with a potential crisis, and may be particularly useful for foreign investors in Russian joint ventures and other corporate transactions.
Click here to see the full article
Editors’ Note: This paper was co-authored by Goltsblat BLP (the Russian practice of Berwin Leighton Paisner) partners Andrey Goltsblat, Alexander Smirnov, Anton Sitnikov, Anton Rogoza, Maksim Popov, Oleg Khokhlov and Elena Trusova. Mr. Smirnov is Head of Commercial Practice, Mr. Sitnikov is Head of Corporate M&A, Mr. Rogoza is an expert in Corporate M&A, Mr. Popov is an expert in Real Estate and Construction, Mr. Khokhlov is an expert in Banking and Finance Practice, and Ms. Trusova is an expert in IP and Dispute Resolution.
On 27 April 2012, a significant law was passed amending the Civil Code of the Russian Federation. The changes to the Russian Civil Code proposes to introduce new institutions and rules of the civil legislation and to amend, supplement and otherwise update many existing laws. The attached memorandum summarizes some of the most important updates.
- Basic changes in civil law fundamentals and general provisions on obligations and contracts
- Key changes in corporate governance
- The key new provisions regulating corporate transactions and the tools used therein
- Key novelties in title and other rights in rem to real estate, including land
- Financial transaction regulation: how it is developing
- Better protection of intellectual results and means of identification
To see the full report, The Civil Code: New Risks and New Opportunities, please click here.