Owing to the rising number of restructurings of companies and the post-privatisation rationalization, the Czech Republic experiences increasing number of acquisitions and mergers.
According to the Commercial Code a merger is one of the ways whereby a company may be wound-up without liquidation. The Commercial Code allows even legal entities with different legal forms to merge. A merger is legally effective as soon as the merger is registered in the Commercial Registry. As of the date of the registration, the winding-up company(-ies) cease(s) to exist. An agreement on merger must be concluded before the merger can be legally effective. The agreement on merger must be approved by relevant bodies of all entities involved. The directors of all participating companies have to prepare a merger report, which should explain to shareholders/members/partners economic and legal reasons for the merger. Also the share exchange ratio and the amount of additional payment must be substantiated. All shareholders/members/partners of participating companies have right to familiarise themselves with the agreement on merger, the report of Boards of Directors and Supervisory Boards, expert's opinions and audited financial statements (for the previous three years) of the merging companies at least one month before the general meeting by which the merger is to be approved. However, in some cases shareholders/members/partners may agree not to prepare some of the abovementioned reports/documents. Also creditors must be notified in respect of their rights at least one month before the general meeting by which the merger should be approved.
Another way of acquiring a business is by a sale of an enterprise. The sale of an enterprise means that the seller assigns to the buyer the enterprise while the enterprise consists of things, other rights and other property values (assets) serving the operation of the enterprise. The buyer also assumes all obligations of the enterprise, including any undisclosed liabilities. The sale of enterprise requires similar procedure like a merger/de-merger of a company.
Public offerings
According to the Commercial Code, the public offers may be of two kinds: (1) the optional public offering and (2) the compulsory public offering. The rules regulating the optional public offering are less stringent than those regulating the compulsory one. For example the bidder can define the less or the highest amount of shares s/he is going to accept.
According to the Commercial Code, the public offers may be of two kinds: (1) the optional public offering and (2) the compulsory public offering. The rules regulating the optional public offering are less stringent than those regulating the compulsory one. For example the bidder can define the less or the highest amount of shares s/he is going to accept.
Companies are allowed to make public offerings to acquire shares of a target company from its shareholders. The offering must be valid for at least four weeks from its announcement, however the validity period must not exceed 10 weeks. The Czech National Bank as supervising entity can approve an even shorter period. No discrimination of the shareholders is allowed, i.e. they must be treated equally. The directors of the target company must be informed immediately by the bidder, once it decides to make the offering. The outcome of the offering should be then made public. The public offering is made public by the same way as an annual general meeting is summoned and should be announced in at least one nationwide distributed daily paper. Once the compulsory offering is made public, the bidder cannot make any changes unless these are in favour of potential acceptors.
Competitive offerings are allowed. If the target company’s shares are registered the Czech National Bank must be involved in the process.
When a shareholder reaches or exceeds the share on the voting rights attached to the shares of the company with its seat in the Czech Republic, of which shares are traded in the Czech capital market or on the capital market of another EU member state at the rate of 3%, if the registered capital is higher than CZK 100,000,000; and 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%,or 75% or if the shareholder decreases his share beyond these limits s/he has to announce this fact to the company and to the Czech National Bank.
If an acquirer acquires a controlling interest, s/he is required to make a public offering for all outstanding shares within 60 days of the date from the date of acquisition or exceeding of the relevant percentage. The price in the compulsory public offering on publicly traded shares must adequately reflect the value of the shares. Weighted average of prices quoted on public markets for the preceding six months should be taken into account. The price must be supported by an expert opinion.
Business combinations are subject to the approval by the Anti-monopoly Office if:
(a) the annual domestic net sales in the Czech Republic for the preceding financial year of all the merging companies together was at least CZK 1.5 billion (1500 mil.), with at least two of the merging companies having had annual net sales in the Czech Republic of not less than CZK 250 million each; or if
(b) the annual worldwide net sales of at least one of the merging companies in the preceding financial year were greater than CZK 1.5 billion (1500 mil.) and the domestic net sales in the Czech Republic of one or more of the merging companies reached CZK 1.5 billion.
In some cases, e.g. banking and insurance sectors, corporate transactions are also subject to prior approval by the relevant regulatory body.
