Structures and applicable law

Types of transaction

How may publicly listed businesses combine?

The key forms of business combination are:

  • private purchase of shares in the target;
  • public offer for shares in the target (a tender offer), which can take the form of:
    • a voluntary tender offer (where there is an intention to purchase more than 30 per cent of the voting shares in the target);
    • a mandatory tender offer (where, as a result of a transaction, the acquirer, together with its affiliates, will hold 30, 50 or 75 per cent of the voting shares in the target);
    • a competing tender offer (can be made to compete with an existing voluntary or mandatory tender offer in the course of its duration);
    • minority shareholders’ buy-out (where the minority shareholders have the right to sell their shares to the acquirer whose shareholding, together with its affiliates, exceeded 95 per cent as a result of a voluntary or a mandatory tender offer); or
    • minority shareholders’ squeeze-out (where the acquirer of above 95 per cent of voting shares has the right to squeeze out the minority shareholders, subject to the purchase by such acquirer of at least 10 per cent shares in a tender offer);
  • corporate reorganisations in the form of a merger or an accession;
  • acquisition of shares of the target through subscription to shares; and
  • asset deals.

 

Parties to a private deal would normally have enough flexibility to negotiate its terms, including the purchase price. Such business combination can be structured either through a direct acquisition of shares or an indirect acquisition (eg, through the acquisition of an equity interest in a shareholder).

Tender offers may be effected through a direct acquisition of shares only and are heavily regulated. Strict rules apply to the determination of a share purchase price. Voluntary tender offer rules are more flexible than the rules applicable to other forms of tender offers.

Business combinations in the forms of reorganisation or subscription to shares are rarely done in practice. Structuring a business combination through an asset deal is not common either due to regulatory and tax concerns.

Statutes and regulations

What are the main laws and regulations governing business combinations and acquisitions of publicly listed companies?

Business combinations and acquisitions of publicly listed companies are heavily regulated. The main laws include:

  • the Russian Civil Code;
  • Federal Law No. 208-FZ on Joint Stock Companies (the Stock Companies Law);
  • Federal Law No. 39-FZ on the Securities Market (the Securities Market Law);
  • Federal Law No. 160-FZ on Foreign Investments in the Russian Federation (the Foreign Investment Law);
  • Federal Law No. 135-FZ on Protection of Competition (the Competition Law); and
  • Federal Law No. 57-FZ on Foreign Investments in Business Entities of Strategic Importance for National Defence and State Security (the Foreign Strategic Investments Law).

 

The laws are supplemented with regulations of the governmental authorities. The Central Bank of the Russian Federation (the Central Bank) acts as the regulator of the financial and securities market. The Federal Antimonopoly Service (FAS) acts as the regulator overseeing economic concentration.

Industry-specific laws and regulations must also be taken into account.

Cross-border transactions

How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?

Cross-border transactions are structured generally in the same manner as domestic deals and are subject to similar considerations.

In cross-border transactions, parties often choose foreign law as the governing law of the transaction documents. The 2013–2015 reform of the Russian Civil Code made Russian contract law more flexible and introduced concepts similar to representations and indemnities. Still, the choice of English law is very common. It is also common that the key transaction documents are governed by English law, while the supporting documents (eg, documents required to effect the share transfer) are governed by Russian law.

Another issue relevant to a cross-border transaction relates to the Russian laws on arbitration. As part of its 2015–2017 reforms, the government limited the ability of parties to agree on the arbitration forum for the settlement of corporate disputes (which are broadly understood as disputes related to governance or shareholding in a Russian company). For instance, ad hoc arbitral tribunals cannot consider corporate disputes, only permanent institutions accredited by the Russian government may do so, and for a large scope of corporate matters the seat of arbitration must be in Russia. Also, some corporate disputes are non-arbitrable and must be litigated in Russian courts, for example in relation to ‘strategic companies’ (with some minor exceptions).

In cross-border transactions, parties should also pay attention to transaction completion mechanics. For example, it may be prudent to discuss the payment and share transfer mechanics with the parties’ banks and custodians in advance to ensure transfers are not blocked or delayed.

Sector-specific rules

Are companies in specific industries subject to additional regulations and statutes?

Acquisition of companies conducting strategic activities and certain other companies might require a governmental approval.

An acquisition of above 1 per cent and up to 10 per cent in a credit institution requires post-transactional notification of the Central Bank, and direct acquisition of above 10, 25, 50, 75 per cent shares or an acquisition of indirect control over 10 per cent shares in a credit institution requires a prior consent by the Central Bank.

A prior consent by the Central Bank is required for any alienation to foreign investors of shares in an insurance organisation. This requirement applies both to the transactions with secondary shares and to subscriptions by foreign investors.

The Russian law on mass media prohibits any direct ownership in a Russian mass media company by foreign investors, and indirectly foreign investors may own or control not more than 20 per cent; neither may they exercise any other means of control over a mass media company. By foreign investors the law means any foreign states, international organisations, foreign persons, Russian entities with foreign investment, Russian citizens holding citizenship of any other country, and stateless persons. Any transaction in violation of the relevant restrictions is void. Under Federal Law No. 149-FZ on Information, Information Technologies and Protection of Information, acquisition of certain internet-related businesses might require government approval. Currently, affected businesses include audiovisual services (eg, online cinemas).

Foreign investments are also restricted for companies engaged in diamonds mining, aviation and certain other industries.

Transaction agreements

Are transaction agreements typically concluded when publicly listed companies are acquired? What law typically governs the agreements?

It is common to conclude transaction documents when shares in a public company are acquired. Transaction documents depend on the type of a transaction.

In a private acquisition of shares, the parties enter into a sale and purchase agreement (SPA).

In an acquisition of shares from the target through subscription, the key documents are the formal decision on the share issuance and a securities prospectus (for public offers), both in statutory form, as approved by the target’s board or the shareholders. These documents specify among other things the terms and procedures for entering into the SPA between the target and investors. They may envisage that the purchase of shares may be completed without entering into a separate SPA or may envisage execution of multiple documents (eg, a series of bids, a preliminary contract and an SPA).

In an acquisition through a tender offer, the offeror prepares the offer in statutory form. The offer acceptance by a shareholder means the conclusion of the transaction on the terms of the offer. The offer must be supported by an irrevocable bank guarantee as a security for the offeror’s payment obligations arising out of the offer acceptance.

In a corporate reorganisation, the participating entities enter into a merger or accession agreement as approved by their shareholders.

All statutory form documents must be governed by Russian law. Private acquisition agreements, such as SPAs, may be governed by Russian law. Further, Russian rules on conflicts of law allow the use of foreign law as the governing law if the ‘foreign element’ exists (eg, if at least one of the parties is a foreign person). Accordingly, in private transactions with foreign investors, it is still very common to subject transaction documents to foreign law (most often, English; but we also see the use of laws of other jurisdictions that adopted English law principles but are considered more neutral to Russia in the current geopolitical environment, eg, Singapore).

Filings and disclosure

Filings and fees

Which government or stock exchange filings are necessary in connection with a business combination or acquisition of a public company? Are there stamp taxes or other government fees in connection with completing these transactions?

Prior approval from the Federal Antimonopoly Service (FAS) is required if the transaction involves:

  • acquisition of voting shares in excess of 25, 50, or 75 per cent of the total number of voting shares of a stock company;
  • acquisition of rights to determine the business of a Russian company (eg, through an indirect acquisition); or
  • acquisition of fixed assets and intangible assets of a Russian company if the book value of the assets is above 20 per cent of the total book value of the Russian company’s fixed assets and intangible assets.

 

The following must also apply in each case:

  • either:
    • the combined book value of the worldwide assets of the buyer’s corporate group and the target’s corporate group as of the most recent reporting date exceeds 7 billion roubles; or
    • the combined worldwide revenues from the sale of goods and services of the buyer’s corporate group and the target corporate group for the last calendar year exceeds 10 billion roubles (test 1); and
  • the book value of the assets of the Russian target and its group exceeds 400 million roubles (test 2).

 

A corporate reorganisation may also require approval by the FAS if it meets similar monetary thresholds. Different monetary thresholds apply if a transaction involves financial institutions.

Any tender offer must be submitted for review to the Central Bank, which has the authority to suspend the offer in case it is not compliant with the applicable requirements.

Business combinations involving share conversion or share issuance require filing with the Central Bank. If applicable, a resulting change in the surviving company’s share capital needs to be reflected in its charter and filed with the Russian companies’ register. In certain cases, issuance of shares may also require registration of a prospectus by the target.

Further, depending upon the target’s industry, certain other governmental filings might be required.

In Russia, no stamp duty applies to transfer of shares. Certain fees may be payable to registrars and custodians in connection with their processing of share transfers.

Information to be disclosed

What information needs to be made public in a business combination or an acquisition of a public company? Does this depend on what type of structure is used?

The Stock Companies Law and the Securities Market Law require certain information in relation to a business combination or an acquisition of a public company to be made public. Disclosure requirements are further detailed in the Central Bank’s regulations.

Applicable laws and regulations may require public disclosures to be made by the target, parties to a business combination or by a regulatory authority.

The scope of disclosure depends on the form of a business combination. Private deals generally require less disclosure than public deals. In particular, the purchase price and specific terms of acquisition in a private deal would normally remain confidential.

 

Disclosures by the target

Generally, the disclosure requirements are rather extensive. A public company is required to disclose any information that may materially affect the price of the securities, including, for example:

  • information on a person who obtains or ceases to have control over the public company. Generally, for these purposes, a person has control if it directly or indirectly, independently or jointly with others (eg, on the basis of a shareholders’ agreement) exercises more than 50 per cent of votes in the general shareholders’ meeting, or has the right to appoint the chief executive officer or above 50 per cent members of a collegial managing body of a stock company;
  • direct or indirect acquisition or disposal of by a person of voting rights in the company, each time when such person’s voting rights exceed or fall below 5, 10, 20, 25, 30, 50, 75 or 95 per cent;
  • a shareholders’ agreement being entered into in respect of the target and voting arrangements thereunder;
  • receipt of a tender offer; and
  • recommendations of the board of directors concerning a tender offer.

 

A public company must also disclose its reorganisation and issuance of securities.

A public company must make public disclosures timely within statutory deadlines, through an information agency accredited with the Central Bank.

In addition, certain public companies must also notify the Russian central securities depository (the National Settlement Depository (NSD)), of the tender offers as part of their obligation to report any corporate actions that may affect the shareholders’ rights. NSD puts details of these tender offers on its website.

 

Disclosures made by the parties

Parties to a private deal would normally have disclosure obligations towards the target, and, in some cases, towards the Central Bank. Such disclosure obligations generally correspond to or are generally similar to the target’s disclosure obligations described above.

Disclosure requirements applicable to an offeror in a tender offer for listed shares are stricter. In addition to disclosure obligations towards the target and the Central Bank, the offeror must publicly disclose: the fact of submission of a tender offer to the Central Bank; and the contents of the tender offer, including the purchase price.

 

Other disclosures

The Competition Law requires the FAS to publish on its website the information on the submission of an application for a merger control clearance and the FAS’ decision on such application, subject to certain exceptions.

Certain information relevant to a business combination (eg, reorganisation) is also notifiable to the ‘register of actions of legal significance’ and becomes publicly available at https://fedresurs.ru, pursuant to Federal Law No. 129-FZ on State Registration of Legal Entities and Individual Entrepreneurs.

Disclosure of substantial shareholdings

What are the disclosure requirements for owners of large shareholdings in a public company? Are the requirements affected if the company is a party to a business combination?

Shareholders of a public company that is subject to the public disclosure requirements are required to report certain information to the public company and to the Central Bank.

  • A holder of 5 per cent and more of voting shares must report information on its controlling person or the absence of such a person, as well as the change of basis for control.
  • A person must report on the receipt of right and termination of right to dispose, directly or indirectly, of 5 per cent of votes vested in shares of a public company, independently or with other persons, including based on a shareholders’ agreement, and in each case when the number of votes in that person’s disposal becomes more or less than 5, 10, 15, 20, 25, 30, 50, 75 or 95 per cent.
  • An entity that is under the control of a public company must report the acquisition or alienation of voting shares of such public company or securities of a foreign issuer that attest rights to shares of the public company.
  • A shareholder who receives, based on a court ruling, the authority to convene an extraordinary meeting of shareholders.

 

A public company, in its turn, is required to disclose substantial shareholders – holders of 5 per cent and more of voting shares, as well as any persons controlling these holders. A public company must also maintain and disclose the list of its affiliated persons and any changes in the list. Affiliated persons include, among others, holders of more than 20 per cent of voting shares.

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12 May 2020.