1 Deal structure

1.1 How are private and public M&A transactions typically structured in your jurisdiction?

A share deal involves the direct acquisition of all of the target's shares by the buyer (based on a share purchase agreement), as a result of which the target becomes a wholly owned subsidiary of the buyer.

An asset deal involves the transfer of all operating assets (which may be accompanied with transfer of liabilities) of the target based on an asset purchase agreement to the buyer or the buyer's affiliated company. Therefore, the target itself is not purchased and remains on the seller's side.

In both types of transactions, the purchase agreement sets out the relevant representation and warranties, as well as the indemnities clause. However, in a share deal, it covers not only the target, but also the assets held by the target.

A private M&A deal may be structured as:

  • a two-party transaction, combined with negotiation exclusivity; or
  • a limited or open auction process.

Additionally, an M&A transaction can be structured as a corporate merger or division. These are more time-consuming processes, due to domestic and European corporate requirements and registration formalities.

Public M&A transactions are usually structured as share deals. Moreover, additional rules apply to public M&A deals, such as:

  • insider trading rules;
  • the relevant listing rules; and
  • ad hoc publication requirements.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

The main characteristics of an asset deal are as follows:

  • The buyer can usually select the individual assets and/or liabilities that are to be transferred upon purchase (ie, it can ‘cherry pick'), which eliminates unknown risks and liabilities or the threat of insolvency [of the target]. However, certain risks are still associated and transferred within a certain asset (eg, environmental risks with the acquisition of land or employee risks if the transferred assets constitute the ‘workplace' and involve a ‘transfer of undertakings' within the meaning of Polish labour law).
  • The buyer of a business or an organised part of a business is jointly and severally liable with the seller for certain liabilities, including tax liabilities relating to an acquired business activity that arose prior to the purchase, up to the amount of the purchase price.
  • Asset deals are often more complex and time consuming to conclude.
  • Asset transfers may involve specific formalities (eg, certain contracts, permits, concessions, certificates and similar rights may not be automatically transferred with an asset deal). In such cases, the transfer of the assets (ie, the assignment or assumption) will generally be subject to the consent of the other contracting party or authority. However, certain change-of-control clauses may also require the consent of the contracting party in the event of a share sale.
  • Asset deals result in very different tax treatment for both the buyer and seller.

The main characteristics of a share deal are as follows:

  • All assets and liabilities of the target remain in the target;
  • The buyer takes over the entire target, including any existing assets and liabilities;
  • The buyer benefits from the continuation of all contracts, permits and licences, except for those that provide otherwise (eg, change of control clauses).

An auction sale increases the level of competition between the buyers and may lead to an increased purchase price and conditions that are more favourable for the seller. It may also allow for better control over specific timelines and procedural rules across the entire M&A process.

The seller or buyer (with the seller's consent) can obtain a certificate from the tax authorities confirming the seller's outstanding tax liabilities. In this case, the buyer will not be responsible for any liabilities not included on the certificate (which is valid for 30 days).

1.3 What factors commonly influence the choice of sale process/transaction structure?

The most important factors in deciding whether to opt for an asset deal or a share deal include:

  • the tax impact of the transaction on the seller, the buyer and the target (which is usually the most significant factor in determining the transaction structure);
  • the commercial and financial situation of the target (eg, solvency, profitability);
  • the sector in which the target operates, including any specific regulatory requirements;
  • whether any assets or liabilities need to be carved out of the acquisition;
  • the structure of the business and assets (eg, certain contracts, permits, concessions, certificates and similar rights may not be automatically transferred in an asset deal). If such elements exist and the transfer depends on the consent of a third party or authority (or if the given assignment or change of control clause triggers the termination of a given contract), a share deal may be preferred;
  • the level of risk and flexibility;
  • the strategy in relation to the target's employees;
  • the financing of the transaction;
  • the method of determining the purchase price;
  • the current shareholding structure in the target's capital; and
  • the approach to confidentiality, announcements and publicity.

A private M&A transaction will usually be a private deal negotiated between buyer and seller, which is a relatively fast process and allows for greater flexibility to amend the terms in a competitive situation.

Auction processes tend to arise in larger deals and/or where demand for the target is high, and the seller and its advisers can generate competitive tension via an auction process.

2 Initial steps

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

The most common documents entered into during the initial stage are:

  • a non-disclosure agreement;
  • a letter of intent (which may contain confidentiality undertakings and exclusivity provisions); and/or
  • non-binding heads of terms that summarise the key commercial terms of the deal or a short agreement (ie, a memorandum of understanding).

In the case of an auction process, the seller usually issues a procedural letter to the potential bidders structuring the auction and inviting them to submit a conditional offer letter by a certain date. Based on this offer, the seller may preselect the bidder in the due diligence phase.

2.2 Are break fees permitted in your jurisdiction (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

Break fees are generally permitted under Polish law.

Break fees are usually negotiated by the parties at the beginning of the transaction and are usually included in the initial documents (eg, the non-disclosure agreement, letter of intent and/or heads of terms) in the form of contractual penalties payable to the non-defaulting party as a result of a breach of the relevant provision. The target is not usually the addressee or recipient of the break fee. The break fee amount is usually linked to the potential cost, risk and value of the potential damage (including covering the costs of the advisers and due diligence). It may also play a role in incentivising a relevant party to comply with certain obligations, such as the confidentiality obligation or the exclusivity period.

2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?

Acquisitions are usually financed through a combination of both equity and debt, including:

  • shareholder financing (eg, shareholder loans, corporate bonds and other forms of subordinated debt);
  • mezzanine debt interposed between equity and senior debt; and
  • financing institutions' financing or refinancing in the form of senior secured debt.

2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?

The principal parties will comprise:

  • the seller;
  • the buyer;
  • the management of the target; and
  • outgoing or incoming lenders.

The advisers involved in the initial preparatory stage of an M&A transaction are the financial, technical, legal and tax advisers. Additional experts can be appointed depending on specific issues relating to the transaction (eg, environmental experts).

2.5 Can the target in a private M&A transaction pay adviser costs or is this limited by rules against financial assistance or similar?

Generally, the target does not pay the costs of advisers, except where they are appointed to act for the benefit of the target (eg, if the target is a party to the given document, it bears the costs of its own advisers). Under Polish tax law, the target should not cover the costs of advisers for and on behalf of its shareholders (unless the target is also a beneficiary of such advice).

3 Due diligence

3.1 Are there any jurisdiction-specific points relating to the following aspects of the target that a buyer should consider when conducting due diligence on the target? (a) Commercial/corporate, (b) Financial, (c) Litigation, (d) Tax, (e) Employment, (f) Intellectual property and IT, (g) Data protection, (h) Cybersecurity and (i) Real estate.

(a) Commercial/corporate

In general, there are no specific commercial/corporate aspects to consider for targets, unless they conduct activities that are subject to sector-specific requirements and licensing, which must then be considered. Key issues in this regard include verification of:

  • the valid existence of the target;
  • the validity of the shares; and
  • the proper chain of title.

Most of the key commercial information is available from Poland's National Court Register, which should be supplemented with source documents.

Irrespective of the sector, two additional potential requirements must be considered:

  • If the target holds a large area of agricultural land, a permit from the relevant authority may be required or, in case of a share transfer – including the acquisition of newly issued shares – the statutory pre-emption right of the agricultural agency may apply. This pre-emption right also applies to public M&A transactions involving a joint stock company offering shares through a public offer in case of a first listing.
  • If the target has certain types of property and the buyer is controlled by an entity from outside the European Economic Area, ministerial consent may be required.

(b) Financial

In general, there are no specific financial-related aspects, unless the target conducts sector-specific regulated activities and/or third-party financing is in place.

(c) Litigation

In general, there are no specific litigation aspects to consider for targets.

In the case of an asset deal, its impact on the position of litigants should be considered.

In addition, if a dispute is transferred to the buyer (through a share or asset deal), the value of the dispute (including all associated costs) should be considered in the purchase price and/or other mechanism and securities – including whether the seller has sufficient sources to cover the costs of the proceedings if the case is lost.

(d) Tax

Tax due diligence is crucial and is usually conducted by a qualified tax adviser.

Tax due diligence should cover key aspects such as:

  • determining tax base for income tax purposes;
  • identification of tax deductibility of costs and its limitations (e.g. group financing);
  • entitlement to exemptions, benefits and/or preferences;
  • correctness of VAT and/or excise duty settlements and applicability of a correct rates or exemptions;
  • transfer pricing issues and documentation;
  • meeting compliance requirements, including timely submission of tax returns and payment of tax liabilities;
  • the absence of any tax arrears;
  • depending on the location of the parties, whether any tax agreements, advance pricing or currency agreements exist; and
  • whether the parties and the target are to be registered as active value added tax payers.

It should also be verified whether any intra-group transactions were concluded at arm's length and comply with transfer pricing documentation.

(e) Employment

If the target has employees, consideration should be given to whether:

  • the employees are members of any employee associations and/or unions;
  • any sector-specific regulations apply; and
  • the transferred assets constitute a ‘transfer of undertakings' within the meaning of Polish labour law.

(f) Intellectual property

Issues relating to intellectual property may be more important in certain sectors, depending on the nature of the target's nature of business and the structure of the assets. A review of relevant IP registers should be conducted (eg, trademark, design rights, patents); and it should be determined whether the target holds all required IP rights (and/or whether such IP rights can be transferred within the asset deal).

(g) Data protection

Compliance with data protection rules has become increasingly important. This includes both Polish and European regulations, including the General Data Protection Regulation (2016/679).

(h) Cybersecurity and IT

The scope of due diligence in this regard is sector-driven – for example, with regard to financial institutions, insurers, and so on.

(i) Real estate

In terms of title to property, the Land and Mortgage Register and the Land and Building Register should be verified to confirm title to, and any encumbrances on, property, as well as the nature of the property.

Depending on the nature of the property – for example, whether it is agricultural land, forest, land with waters, an archaeological area or undeveloped land – additional requirements may apply to the transaction, including statutory pre-emption rights of public entities and agencies. Some of these will be relevant only to asset deals, and others to asset deals and share deals.

Additionally, it is common to consult the relevant authorities to verify whether there are any historical restitution claims.

If necessary, further investigations can be conducted to verify local zoning conditions (including whether any master plan is in place, as well as its terms and conditions) and environmental conditions.

3.2 What public searches are commonly conducted as part of due diligence in your jurisdiction?

Public searches of the following are typically carried out:

3.3 Is pre-sale vendor legal due diligence common in your jurisdiction? If so, do the relevant forms typically give reliance and with what liability cap?

Fully fledged pre-sale vendor legal due diligence is not common in Poland.

4 Regulatory framework

4.1 What kinds of (sector-specific and non-sector specific) regulatory approvals must be obtained before a transaction can close in your jurisdiction?

Under Polish law, the most significant approval which must be obtained before a transaction can close is ‘consent for concentration', if required under the Act on Competition and Consumer Protection, from the president of the Office of Competition and Consumer Protection (UOKiK).

Certain sector-specific approvals are also required for takeovers involving, for example, banks, payment institutions, insurance companies and investment fund management entities, which are subject to a procedure that requires notification to the Polish Financial Supervisory Authority (KNF) of the intent to acquire significant shareholdings.

Additionally, in the case of a share deal involving a company that holds real estate (or an asset deal that includes real estate), the transaction must be approved by the Ministry of the Interior and Administration if the purchaser is based outside the European Economic Area. However, in practice, certain solutions can be implemented to avoid this requirement.

Apart from regulatory approvals, certain restrictions must also be considered in the transaction preparation process. For example, as outlined in question 3.1(i), the National Agricultural Support Centre (agency) will have a pre-emption right in deals that involve a sizeable area of agricultural real estate (or a company that holds such real estate).

4.2 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have?

The primary regulators are the UOKiK and the KNF.

The UOKiK is responsible for merger clearances. Recently, due to the COVID-19 pandemic, the UOKiK was also entrusted with a new mandate regarding foreign investment control in respect of Polish companies that are crucial to public order, safety or health.

The KNF must be notified by both the seller and the buyer of intended transactions involving controlling or other significant interests in targets in the financial services sector – notably banks, national payment institutions, insurers and investment fund management companies. The KNF is also the regulatory body with primary responsibility for the supervision of public takeover bids.

With regard to financial sector acquisitions, the KNF is entitled to object to a transaction within a statutory timeframe – usually 60 business days from receipt of the complete notification together with the requisite information and documents. A purchase which is made before receiving a statement of no objection from the KNF (or, in the absence of such a statement, before the lapse of the timeframe for making an objection) results in the loss of the buyer's voting rights and may also result in the forced disposal of shares; breach may further result in the imposition of fines or revocation of the target's permits to conduct activity.

Infringement on public bids rules may result in administrative fines being levied by the KNF. In addition, criminal penalties can be imposed by the courts in case of non-compliance. The KNF also has the power (in certain cases) to grant exemptions from rules that would otherwise apply to a public takeover bid.

4.3 What transfer taxes apply and who typically bears them?

There is no single and typical transfer tax in Poland. The relevant scope will cover:

  • transfer tax on civil law activities (stamp duty) (PCC);
  • income tax (including exit tax and capital gains); and
  • value added tax (VAT).

Generally, PCC is payable at a rate of 1% or 2% of the market value of the transaction, and may apply to both share deals and asset deals. In case of a sale, PCC is always payable by the buyer.

VAT at the standard rate of 23% will further apply. In principle, VAT charged by the seller can be recovered by the buyer as input VAT.

Asset deals: Asset deals are generally subject to VAT or PCC, depending on the status of the parties and the assets. If the seller is an entity running a business, VAT is usually payable unless an exemption applies. Even then, however, in some circumstances, the seller may opt for such a transaction to be subject to VAT.

An asset sale outside the scope of VAT is subject to PCC at a rate of 1% or 2%. In certain circumstances the asset transaction is exempt from PCC – for example, if:

  • the transaction is subject to VAT; or
  • either the buyer or seller is exempt from VAT.

This rule does not apply to real estate deals. The purchase of real estate is subject to PCC at a rate of 2% even if exempt from VAT.

There is no separate PCC land tax in Poland. Some additional rules and exemptions apply to the transfer of a whole business or an organised part thereof.

Share deal: Generally, in case of a share deal, the sale of shares is subject to PCC at a rate of 1%, calculated on the market value of the shares. Based on the recent approach of the tax authorities, the sale of an interest in a partnership is not subject to PCC.

Exit tax: As of 1 January 2019, an exit tax applies in Poland (following implementation of the Anti-Tax Avoidance Directive).

Mandatory disclosure rules: Poland has also adopted certain European regulations regarding mandatory disclosure rules. The Polish provisions include additional hallmarks that may be triggered by a tax arrangement, including VAT transactions.

5 Treatment of seller liability

5.1 What are customary representations and warranties? What are the consequences of breaching them?

The customary representations and warranties include:

  • title;
  • free transferability and non-encumbrance;
  • authority and capacity;
  • real estate;
  • permits and licences;
  • IP rights;
  • key contracts;
  • tax and accounting;
  • financing;
  • inter-company agreements, including loans;
  • employment and pensions;
  • insurance; and
  • litigation.

This list can usually be extended to include other sector or transaction-specific issues. The extent of the representations and warranties will also depend on whether there is title, warranty and indemnity insurance.

If any of the warranties is breached, the buyer will be entitled to:

  • claim restoration to the position that the buyer or the target would have been in had the warranty been true (natural restitution); or
  • claim for damages.

The consequences of breach of the representations and warranties are set out in the agreement and are subject to limitations both in time and in amount. As a general rule, breach of contract may be compensated if it can be proved that:

  • there was a breach;
  • damage resulted; and
  • the damage was caused by the breach.

However, the parties may agree on contractual penalties (lump-sum compensation), which simplifies the recovery process.

The warranties are usually qualified by disclosure of information and/or a disclosure letter.

If certain aspects are not directly regulated by the purchase agreement, the general principles of Polish law will apply, unless and to the permitted extent they can be excluded (eg, in respect of statutory quality warranty [PL: rękojmia]).

5.2 Limitations to liabilities under transaction documents (including for representations, warranties and specific indemnities) which typically apply to M&A transactions in your jurisdiction?

The seller's limitation of liability will be the subject of negotiation, and particular limitations will depend on:

  • the sector in which it is active;
  • the subject of the transaction;
  • the status of the parties; and
  • other commercial conditions.

Generally, the seller's liability is limited in terms of time and amount, including:

  • the minimum threshold of one claim (a de minimis clause);
  • an aggregate threshold for all claims; and
  • a general cap on liability, which may vary depending on the type of claim (basket provisions – the standard division includes title-related claims, tax claims and others). The maximum liability cap may even amount to 100% of the purchase price (eg, in respect of the fundamental guarantees such as title); and tax claims can be uncapped.

Sometimes, certain aspects of the parties' liability will be covered by side letters executed alongside the relevant purchase agreement.

The scope of the seller's liability will also depend on the insurance recoveries (eg, if there is relevant representations and warranties insurance in place, the seller's liability can be excluded or limited to €1).

Additionally, the seller's liability will be excluded where the buyer was aware of the given fact or circumstance – for example, based on a disclosure letter or information that was fairly disclosed during the due diligence process.

However, under Polish law, the parties generally cannot exclude liability caused by fraud or wilful misconduct.

5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

Warranty and indemnity insurance has become more common in M&A transactions – in particular, in private equity and corporate real estate deals. Insurers are more willing to cover certain risks which were uninsurable a few years ago.

5.4 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

The approach to the seller's capacity to cover certain risks will depend on issues such as:

  • the deal structure;
  • the subject of the transaction;
  • the parties' positions;
  • the type of the risk; and
  • the length of exposure to it.

The key instruments include:

  • insurance;
  • a withheld (retained) amount (ie, part of the price to be released after a certain period of time);
  • a parent company guarantee or suretyship, if there is a stable capital group behind the seller; and
  • in other cases, an escrow account, deposit or bank guarantee, unless this could be secured against another cash flow (and offset).

5.5 Do sellers in your jurisdiction often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?

Non-compete and non-solicitation covenants will vary depending on:

  • the relevant sector;
  • the structure of the transaction; and
  • the parties' positions.

The exact terms and conditions of such covenants will depend on factors such as:

  • the position of the seller and its scope of business;
  • whether an employment relationship is involved; and
  • the specificities of the acquired business.

The covenants will usually be limited in time and geographic scope.

5.6 Where there is a gap between signing and closing, is it common to have conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Bring-down of warranties clauses are common when there is a gap between signing and closing. The seller's warranties and representation will be repeated on the closing date, and the buyer will be entitled to terminate or refuse to close the transaction and claim damages if the representations and warranties are breached. Other provisions, such as obligations to operate in the ordinary course of business and to refrain from major changes, are also common.

MAC clauses are quite common in private M&A deals.

6 Deal process in a public M&A transaction

6.1 What is the typical timetable for an offer? What are the key milestones in this timetable?

Depending on the nature of the transaction (eg, if competition clearance is required), the timeframe for takeover bids may vary between 8 and 20 weeks. The internal preparatory stage is not included in this estimation. The key milestones in this process are as follows:

  • Disclosure of the bid:
    • This begins with notification of the financial supervision authority (ie, the Financial Supervisory Authority (KNF)) and the stock exchange on which the stocks that are subject to the bid are listed, at least 14 business days prior to the start of the acceptance period.
    • The KNF reviews the contents of the bid and may (no later than three business days before start of the acceptance period) raise queries or request changes; the bid will be suspended until changes have been made/responses provided.
    • After notification to the KNF and the stock exchange (within 24 hours), the offer is delivered to the press agency for immediate publication and then to at least one nationwide daily newspaper. The bidder cannot withdraw the announced bid (except in case of a counter-bid for the same shares in a bid for all shares in the target – but only if the counter-bid is for the same or a higher price than the original bid).
    • Higher and counter-bids may be filed at any time.
    • No later than two business days before the start of the acceptance period, the management board of the target must present its opinion regarding the bid, including the price offered and its impact on the business, employees and so on. A formal opinion is filed with the KNF and published through the press agency and delivered to the trade unions (no later than two business days before the start of the acceptance period).
  • Acceptance period:
    • This starts no earlier than one business day after publication of the bid in a nationwide newspaper; and no earlier than 14 business days and no later than 37 business days after notification of the KNF and the stock exchange.
    • As a rule, the acceptance period may last from 14 to 70 days (in the case of a bid for all shares, 30 to 70 days), but may be extended or shortened in certain situations.
  • Completion of stock transfer:
    • The transfer may be completed partially during the acceptance period, but in most cases there is a specific date for completion of all transfers.
    • Completion cannot occur any later than three business days after the acceptance period.
  • Notification of the results of the bid:
    • This must take place within four business days of completion.
    • Notification must be delivered to the KNF and the stock exchange.
  • Post bid actions:
    • These might include the launch of a squeeze-out or sell-out if the bidder acquires at least 95% of the voting shares in the target.

6.2 Can a buyer build up a stake in the target before and/or during the transaction process? What disclosure obligations apply in this regard?

As a general rule, it is possible to build up a stake before a public bid is launched. From the moment a public bid is notified to the KNF and the stock exchange until its completion, the stock in the target may be purchased only within the scope of that bid and on the terms specified therein. Moreover, stake building is limited by the provisions on mandatory public bids where reaching certain thresholds triggers mandatory bids for further stock.

The relevant rules on the disclosure of shareholdings (reaching certain thresholds or acquisitions of certain stock packages) and transparency apply before, during and after a public takeover bid. Therefore, anyone seeking to build up its stake before a public bid must take these into account.

Apart from disclosures, there are also specific considerations that the prospective bidder must take into account when building up a stake. For example, concentration clearance is valid only for two years upon receipt by the bidder. Therefore, if it is applied for in advance, this will significantly reduce the time available for stake building prior to the public bid. Moreover, stake building may influence the minimum price on which the public bid may be effected.

6.3 Are there provisions for the squeeze-out of any remaining minority shareholders (and the ability for minority shareholders to ‘sell out')? What kind of minority shareholders rights are typical in your jurisdiction?

Squeeze-out: If a shareholder (together with parties with which the shareholder is acting in concert or is affiliated) holds 95% or more of the voting rights in a public company (as a result of a takeover bid or otherwise), it may force all remaining shareholders to sell it their shares at a price established (as a rule) in accordance with the rules on establishing a minimum price in a public bid.

The squeeze-out may start within three months of reaching the 95% threshold; in the case of a takeover bid, this means within three months of closing of the takeover bid.

Shares that are subject to squeeze-out are automatically acquired by the bidder on closing of the squeeze-out, which occurs 14 business days after launch of the squeeze-out, without any action being needed by the holders of such shares.

Sell-out: If a shareholder (together with parties with which the shareholder is acting in concert or is affiliated) holds 95% or more of the voting rights in a public company (as a result of a takeover bid or otherwise), each shareholder of that company has the right to demand that the majority shareholder purchase the shares held by the minority shareholder at a price determined in accordance with the rules on establishing a minimum price in the public bid offer.

The sell-out request may be filed within three months of reaching the 95% threshold; in the case of a takeover bid, this means within three months of closing of the takeover bid.

6.4 How does a bidder demonstrate that it has committed financing for the transaction?

When the bid is announced, the bidder must already have committed funding for all tendered shares of a value of at least 100% of the stock that is subject to the bid. This committed funding must be documented by a certificate issued by the bank or other financial institution that has granted the funding or acted as an intermediary in the grant of the funding.

In most cases involving a public company, the seller does not assist in the buyer's financing.

6.5 What threshold/level of acceptances is required to delist a company?

The delisting of a Polish public company must be approved by:

  • the KNF, if the statutory conditions are met; and
  • the company's general shareholders' meeting, by 90% of the votes present and by shareholders representing at least 50% of the company's share capital.

The vote to delist must be initiated by the shareholder(s) through a motion to the management board to convene a general shareholders' meeting for this purpose.

The shareholder(s) that wish to propose a vote on the resolution to delist must first launch a public bid allowing all shareholders to sell their shares at a price established in accordance with the rules on establishing the minimum price in a mandatory public bid offer. If such conditions are not met, the KNF will not permit the delisting, even if the company no longer has a relevant free float.

6.6 Is ‘bumpitrage' a common feature in public takeovers in your jurisdiction?

‘Bumpitrage' does occur on the Polish public M&A market, but is not very common. Measures to manage such strategies may be implemented during the public takeover procedure.

6.7 Is there any minimum level of consideration that a buyer must pay on a takeover bid (eg, by reference to shares acquired in the market or to a volume-weighted average over a period of time)?

The bidder determines the price and the type of consideration to be offered to target shareholders, subject to the following key restrictions:

  • The offered price may be paid in cash, certain securities (eg, Polish treasury securities, mortgage bonds, depositary receipts or stock in another company) or a combination of both.
  • The price in a takeover bid may not be lower than the minimum price to be determined in accordance with statutory law.
  • In certain situations, the KNF may accept a lower price than that determined pursuant to the statutory law requirements relating to the stock exchange rate at the request of the bidder, supported by a third-party valuation evidencing that the fair price of the company's shares is substantially below the minimum price required by law.
  • The same price in the takeover bid must be paid to all holders of the same class of shares that responded to the bid. However, the bidder may agree a lower price with one or more shareholders that hold at least 5% of the shares which are subject to the bid. Different prices may be paid for different voting classes of shares in the target. However, in most cases, one price is offered for all shares in the target, regardless of their voting rights. Since 2016, there has only been one takeover bid in which a different price was offered for preferred shares in a target (out of a total of 12 takeover bids during this period in which targets issued preferred shares).
  • Any acquisition of securities subject to the takeover bid at a price in excess of the offered price in the six months following the end of the takeover bid period will trigger an obligation to pay the difference to holders of securities that tendered their securities in the takeover bid.

6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?

The takeover laws stipulate the specific conditions for a public bid to be withdrawn and these do not include MAC conditions. Therefore, in such circumstances, only general civil law measures may be implemented (eg, a rebus sic stantibus clause).

6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in your jurisdiction?

Shareholder irrevocable undertakings are generally permissible, but may lead to a finding that they are ‘acting in concert'. It is therefore crucial to properly structure and design such undertakings, to avoid disrupting the bid process.

Persons acting in concert are persons that, pursuant to an agreement or understanding (whether formal or informal), cooperate in order to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company.

7 Hostile bids

7.1 Are hostile bids permitted in your jurisdiction in public M&A transactions? If so, how are they typically implemented?

Hostile takeovers are permitted on the Polish public M&A market. However, friendly takeovers are the norm, given that:

  • most listed Polish companies are controlled by a particular investor or group of related investors, which also usually nominates the members of the management board and/or supervisory board; and
  • the free float of listed public companies is often unsubstantial.

Nevertheless, hostile takeovers do happen from time to time (eg, the well-known hostile takeover of jewellery company Kruk SA by Vistula & Wólczanka SA in 2008).

The new law on investment control aims to prevent hostile takeovers of public companies and other companies in industries that may be considered strategic to the Polish economy, public security or public health.

7.2 Must hostile bids be publicised?

Yes, the same rules apply to friendly and hostile public bids. The same is true of the disclosure requirements mentioned in question 6.2 – these also apply to hostile takeovers. The only differences concern:

  • the statement of the management board of the target, which will present the hostile public bid in a negative light; and
  • the fact that the hostile takeover may trigger defensive measures from the target.

7.3 What defences are available to a target board against a hostile bid?

In the case of an attempted hostile bid, the target has a wide range of defence measures at its disposal.

The most popular is the so-called ‘poison pill', which involves making a distressed company unattractive to a new investor. To this end, the management board may:

  • sell the company's most important assets (so-called ‘crown jewels');
  • issue high severance payments to management (so-called ‘golden parachutes'); or
  • incur high liabilities.

Another common strategy is the ‘white knight', which consists of finding an investor that will have the full support of the target and that will come up with a competitive counter-offer to the hostile bid. In countering the potential aggressor, the white knight will cooperate with the current management board in order to maintain the liquidity of the company's operations and its strategy.

Other defensive measures may include:

  • the issue of new shares under a simplified process based on powers conferred on the management board; and
  • an offer for the takeover of a hostile bidder – the ‘Pac-Man defence', which was used in the case of the Kruk SA takeover (see question 7.1).

Apart from reactive measures in response to a hostile takeover bid, companies may also implement preventive measures to reduce the risk of an attempted hostile takeover. Common preventive measures include special statutory provisions – so-called ‘shark repellents' – which are intended to discourage a potential bidder from a takeover attempt or to make the process more protracted and/or time-consuming.

The statute of a public company may include provisions that prohibit the management board from using any defensive measures (except for actions aimed at securing a competitive counter-bid) against a hostile takeover bid. The statute may also disable certain protective measures in the case of a bid for all shares in the company.

8 Trends and predictions

8.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

The Polish M&A market has been affected by the COVID-19 pandemic, although the impact has varied between sectors. For instance, on the real estate market, a greater number of smaller, lower-value M&A transactions were completed and the level of equity increased. On the other hand, the energy sector and infrastructure sectors do not seem to have been negatively affected.

Surprisingly, public M&A transactions in 2020 were also less affected by the COVID-19 pandemic, as more offers were announced in that period compared to 2019 (19 versus 16). In a record-breaking deal, e-commerce platform Allegro raised about PLN 9.2 billion in Warsaw's largest-ever listing after selling more shares than planned thanks to strong demand for technology-related stocks in Europe.

Other recent notable deals include:

  • the public listing of Pepco Group (PLN 3.2 billion; Q1 2021);
  • the sale by UK insurer Aviva Plc of all its shares in Aviva Polska to German insurer Allianz for approximately €2.5 billion (Q1 2021);
  • the acquisition by Warsaw Stock Exchange-listed Echo Investment, a developer of residential, office and shopping centre projects, of a majority stake in Archicom, a public housing developer operating mainly in the Lower Silesian region, for about €99.8 million (Q1 2021); and
  • significant investment activity by Cellnex Telecom, a leading Spanish wireless telecommunications and broadcasting operator.

As a general trend, it seems that the market is recovering. Both the private equity market and the public M&A market have been extremely busy, with funds having significant amounts to be invested. It is expected that future initial public offerings will continue to feature companies from the technological, logistics and medical industries.

8.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms? In particular, are you anticipating greater levels of foreign direct investment scrutiny?

Various legislative processes are ongoing, including:

  • new legislation on real estate investment trusts (REITs) – as yet, REITs remain unregulated under Polish law.

Recently the following acts were adopted:

  • the so-called ‘Lex TVN', a controversial Polish media law which will revise the Polish Broadcasting Act – among other things, it will prohibit companies from outside the European Economic Area from holding a stake of more than 49% in Polish radio and television stations; and
  • a package of regulations known as the ‘Polish Deal', which will introduce various tax and social security changes affecting M&A transactions, especially those of a cross-border nature. The Polish Deal will also introduce new regulations on residential investments and large-scale infrastructure investments (eg, the Solidarity Transport Hub mega-airport – work on this has already begun and the government claims it will create 500,000 new jobs in total).

More generally, over time, legislative, tax, accounting and regulatory changes will inevitably impact M&A markets in ways that cannot be anticipated at the time of writing.

9 Tips and traps

9.1 What are your top tips for smooth closing of M&A transactions and what potential sticking points would you highlight?

The following tips should help to achieve the smooth closing of M&A transactions:

  • All necessary advisers should be appointed as soon as possible, in particular tax and legal counsel.
  • All parties and advisers should properly understand:
    • the target and its business;
    • the structure of the transaction;
    • any sector-specific requirements; and
    • the economics of the deal.
  • The tax requirements and regulatory environment in which the target operates may significantly impact the structure and timing of the transaction – not least the need to obtain any certificates, third-party and other consents which may be required. In particular, the timing of the issue of any tax certificates and/or other approvals by public authorities should be carefully considered, and these should be initiated properly and well in advance.
  • It is becoming increasingly common to obtain title, representation and warranty and indemnity insurance for the deal. Thus, involving the insurer and its advisers at the earliest possible stage may accelerate the process.
  • Although transactions can increasingly be executed using electronic means of communication, certain transactions still require a notarial deed (eg, the transfer of real estate) or notarised signatures (eg, share transfers), which cannot be implemented electronically in Poland. Therefore, physical presence and/or proper authorisation should be considered in advance, also taking into account any potential COVID-19 travel restrictions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.