Mergers & Acquisitions Comparative Guide -

1 Deal structure

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

Malta is a small jurisdiction: it has a population of 500,000 and a correspondingly small local business community. The island's relevance, however, extends far beyond its shores and several international businesses have a presence in Malta as an international financial centre. Malta's principal attraction remains its small size, enabling businesses to establish themselves with ease, and giving them access to decision makers and to the European Union's internal market through the exercise of the treaty freedoms of establishment and cross-border provision of services. In this context, most M&A transactions in Malta tend to involve a cross-border element. The principal industries in Malta include real estate, pharmaceuticals, financial services, technology, telecommunications and gaming.

Private M&A transactions make up the lion's share of M&A activity in Malta, in terms of both value and volume, particularly since there are fewer than 70 listed companies on the Malta Stock Exchange, with only 25 of them having equity listings. Most private deals tend to take the form of equity acquisitions through a Malta-registered special purpose vehicle (SPV) which effectively acts as the holding company for that investment. Alternatively, an SPV is established for the purpose of acquiring some or all of the target's assets.

Public M&A transactions, on the other hand, are regulated by Chapter 11 of the Malta Stock Exchange Listing Rules, which effectively transposes the provisions of the EU Takeover Directive (2004/25/EC), empowering the listing authority (a function performed by the Malta Financial Services Authority) to supervise the mechanics of any public offer made to the holders of securities in a publicly listed and traded company. These rules have a significant bearing on the structuring and mechanics of each individual transaction involving a Malta-listed public company.

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

As is typically the case in several other jurisdictions, the approach taken towards structuring the deal is likely to be affected by strategic, organisational and tax considerations. If the strategy is to buy a participation or controlling equity interest in a Malta-based target by a non-Malta-based purchaser, the establishment of a Maltese SPV for the purpose of holding that equity stake may very well have advantages in terms of simplifying the administration of Malta tax affecting that investment. This, however, will be subject to the tax analysis based on the circumstances in each case.

On the other hand, the cherry picking of specific assets acquired from the target could have advantages in other circumstances – either because the purchaser's interest is focused solely on one or more assets or, possibly, to avoid any risks or legacy issues that the purchaser may wish to avoid.

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

As indicated in question 1.2, the choice of the sales process and transaction structure will typically be affected by strategic, organisational and tax considerations. The safeguarding of employee interests could also have a significant bearing on the process and structure.

2 Initial steps

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

In the initial stages of a private M&A transaction, the parties will typically enter into a letter of intent or memorandum of understanding, setting out the head of the terms and initial rules of engagement between the parties at the preliminary stages of the transaction. These documents tend to have some basic binding provisions, including exclusivity and confidentiality obligations, and will set out the timelines and high-level mechanics of the proposed transaction. Where the target is a regulated entity, the letter of intent or memorandum of understanding will typically contemplate the formal notification of the proposed transaction to the relevant regulatory authorities for their consideration and approval, serving to address the obvious condition that the transaction cannot be completed without the required regulatory approvals.

In the context of M&A transactions involving any publicly listed company, the letter of intent or memorandum of understanding will typically be the juncture at which any relevant public announcements may be made by the respective parties or by the target.

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?

Yes, break fees are permitted in Malta if they result unequivocally from the transaction documents agreed upon between the parties. Under Maltese law, the break fee will effectively be classified as a penalty in terms of Articles 1118 and following of the Civil Code. The provision for such penalties under Maltese law is intended to represent compensation for the damage which a party sustains through non-performance of the principal obligation.

When formulating break fees, careful attention should be devoted to the drafting of the language and mechanics that trigger the obligation to pay a penalty, as it is likely to have a material bearing on its application and enforcement. The mechanism should address the risk of abatement of the penalty by a court, by either:

providing that the parties waive their right to any abatement; or
stipulating that it will become payable for mere delay in the performance of a specific obligation, which delay may be objectively ascertained.

That said, it is possible that the Maltese courts may scrutinise and possibly challenge the quantum of the penalty agreed upon between the parties, in the context of the value of the transaction in question and possibly also in light of the materiality of the breach in question.

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

While there are no official statistics available in Malta in relation to the financing of M&A transactions, debt financing tends to be the more widely used method for financing transactions in Malta. This is highlighted by the number of listed debt instruments (approximately 50 as at February 2021) versus the number of listed equity instruments (approximately 25 as at February 2021) on the Malta Stock Exchange.

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

The preparatory stages of an M&A transaction will typically involve legal advisers, tax advisers and accounting advisers to cover the due diligence of the target; as well as any other specialist advisers that may be required depending on the nature of the target's business.

Public offers will require the preparation of an offer document, which is handled by the legal advisers; and the appointment of a broker to act as manager, registrar and paying agent in connection with the acceptance process that is triggered off by the offer.

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?

The payment of adviser costs by the target would, in our view, be caught by the Maltese law rules on financial assistance, which prohibit a Malta-registered company from providing any financial assistance for the purpose of an acquisition or subscription made or to be made for any shares in the company or its parent company.

However, in respect of private companies, it is possible to adopt a ‘whitewash' subject to specific formalities, including directors' and shareholders' approval. These formalities are typically managed by Maltese legal counsel at the early stages of the transaction once the financing arrangements are clearly defined.

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

The Maltese Registry of Companies is housed within the infrastructure of the Malta Business Registry (MBR), which operates a very comprehensive online database of all Malta-registered companies and all official documents files by such companies over the years. The uploading of documents onto the MBR's online systems can sometimes be delayed by several weeks, making it more difficult to get a comprehensive understanding of the target's corporate standing in the absence of the appropriate declarations from the target's directors or company secretary.

(b) Financial

All Malta-registered companies must file audited annual accounts (International Financial Reporting Standards or General Accounting Principles for Small and Medium-Sized Enterprises for smaller businesses) with the MBR, providing a prospective buyer with high-level, preliminary information about the target's historical financial performance.

(c) Litigation

Searches undertaken in the public indexing system maintained by the Registrar of Courts in Malta for any pending suits or causes of action against or involving the target do not necessarily identify all such suits or causes of action within an acceptable degree of certainty. Consequently, the appropriate representations and warranties should be sought from the target and from the vendor by way of assurance.

(d) Tax

The Maltese tax authorities do not accede to requests for any tax clearances, declarations or ‘clean bill of health' in the context of due diligence exercises. A prospective purchaser will therefore need to ensure that all tax, value added tax and social security filings are duly disclosed and carefully reviewed in the course of the due diligence exercise, to ensure that no legacy issues arise post-acquisition. The Commissioner for Revenue has up to eight years within which to pursue any claims for tax (and penalties) and collect income tax, calculated from the year in which the tax was due.

It is also important for prospective buyers of Maltese companies to obtain Malta tax advice relating to the tax treatment of the proposed transaction, whether structured as a share purchase or an asset purchase, to ensure that any tax implications are duly accounted for in the purchaser's offer price. At a later stage, it will also be important for the purchaser to ensure that all appropriate tax clearances, clarifications and paperwork are obtained and in place well in advance of the transaction closing, as such documents may take several weeks to obtain from the local tax authority.

(e) Employment

Malta's employment law framework transposes all EU directives and regulations, including the Transfers of Undertakings Directive (2001/23/EC), which have been implemented through the Employment and Industrial Relations Act and the Transfer of Business (Protection of Employment) Regulations. In the context of a transfer of assets, it is important to assess the applicability of these rules to ensure that any issues are properly managed and the appropriate procedures are duly complied with.

(f) Intellectual property and IT

There are no jurisdiction-specific points to report.

(g) Data protection

Malta has transposed and implemented the provisions of the General Data Protection Regulation. Data protection best practice is expected to be in line with the practices adopted in continental Europe.

(h) Cybersecurity

There are no jurisdiction-specific points to report.

(i) Real estate

Searches for real estate assets and any security rights thereon are undertaken in the public indexing system maintained by the Public Registry in Malta. Public deeds requiring registration at law – such as deeds of purchase and sale of immovable property, causes of preference among creditors, hypothecs, privileges and other registrations – are enrolled in the Public Registry and are searchable on the basis of the target's name and registration number. While public registry searches are generally accurate and comprehensive, it is not unusual that certain deeds may not be identified in the search due to changes in the target's name or, less frequently, errors in the search process. For this reason, it is advisable that searches are undertaken in respect of any past name/s that the target may have borne, and that the appropriate warranties and assurances are sought from the target and from the vendor. Public Registry searches take three weeks to be conducted, but a ‘fast-track' option of one week is also available, at an additional cost.

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

As part of the due diligence undertaken in respect of Malta-based targets or targets that have a branch or assets based in Malta, searches are conducted with the MBR, the Public Registry, the Land Registry and the Court Registry. Regulatory searches are also undertaken in respect of licensed companies, depending on the nature of the licence held. Searches with regulators – such as the Malta Financial Services Authority, the Malta Communications Authority, Transport Malta and the Malta Gaming Authority – are also regularly undertaken. Specific disclosures from any such authorities in respect of any specific regulatory issues will require explicit written permission from the licensed/authorised target.

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?

While pre-sale vendor legal due diligence does take place in certain transactions, it is infrequent in Malta. Our experience is that such an approach is typically adopted by private-equity or venture-capital backed targets, or in the context of a competitive bidding process initiated by the vendor for the spin-off of a particular asset or business unit. Such pre-sale vendor legal due diligence will generally constitute a representation on the part of the vendor, subject to any specific caveats and exclusions to which the vendor due diligence report may be subject. Liability caps may vary significantly from one case to the next.

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?

Merger control: Merger control regulation falls within the remit of the Malta Competition and Consumer Affairs Authority (MCCAA). Any transactions involving the merger of two or more undertakings that were previously independent of each other, or the acquisition by one or more undertakings or by one or more persons already controlling at least one undertaking, of direct or indirect control of the whole or parts of one or more undertakings, must be notified to the MCCAA if both the following tests are satisfied:

The aggregate turnover in Malta of the undertakings concerned exceeded €2,329,373,40 in the financial year prior to the transaction; and
Each of the undertakings concerned had a turnover in Malta equivalent to at least 10% of the combined aggregate turnover (in Malta) of the undertakings concerned.

Foreign direct investment likely to affect security or public order: Where a foreign direct investment (FDI) into a Maltese company representing 10% or more of the direct or indirect economic ownership and/or voting rights or control by any other means is to be made by a foreign investor based outside the European Union, such investment may be subject to notification to and screening by the National Foreign Direct Investment (NDFI) Screening Office in terms of the National Foreign Direct Investment Screening Office Act (Chap 620 of the Laws of Malta), which serves to implement the provisions of EU Regulation 2019/452. The regulation relates particularly to FDIs which are likely to affect security or public order, and which establish or maintain lasting and direct links between investors from third countries, including state entities and undertakings carrying out an economic activity in a member state. It has become fully applicable from 11 October 2020.

Notification forms must be submitted to the NFDI Screening Office when the following conditions subsist cumulatively:

The ultimate beneficial owner, whether existing or new, is:
- a ‘foreign investor' (ie, a natural person of a third country or an undertaking of a third country intending to make or having made an FDI); and
- an individual who has a direct or indirect economic ownership and/or voting rights of 10% or more, or control by other means in the Maltese investment;
The activity is likely to affect security or public order in terms of its potential effects on:
- critical infrastructure, whether physical or virtual – including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
- critical technologies and dual use items (defined as items, including software and technology, which can be used for both civil and military purposes, and including all goods which can be used for both non-explosive uses and assisting in any way in the manufacture of nuclear weapons or other nuclear explosive devices) – including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies;
- the supply of critical inputs, including energy or raw materials, as well as food security;
- access to sensitive information ("confidential information, including commercially-sensitive information"), including personal data, or the ability to control such information; and
- the freedom and pluralism of the media; and
There is a direct, tangible and long-lasting nature within the territory of Malta.

The notification form must be completed and submitted to the NFDI Screening Office before the relevant transaction and any of the following investments are caught:

a new company incorporation;
greenfield investment (new investment in Malta);
the transfer of shares or any other change/s in the memorandum and articles of association of a Maltese registered company resulting in a change in the ultimate beneficial owners thereof;
the issue of new shares by a Maltese registered company, where the activity of such company is one provided for in a schedule to the act;
a change in business activity where the final activity is one provided for in a schedule to the act; and
an acquisition of assets or rights by a foreign investor other than the incorporation of a new company.

Clearance or feedback from the NFDI Screening Office is generally very quick in circumstances where there is no actual or perceived threat to Malta's security or public order, being granted within 48 hours of submission of the notification.

Sector-specific approvals: Any transaction involving the acquisition of shares in or material assets from any target that is regulated by the Malta Financial Services Authority, the Malta Communications Authority (MCA), the Authority for Transport in Malta and/or the Malta Gaming Authority is also likely to require prior written authorisation from the relevant authority, which can take anything between two and 12 weeks to obtain, depending on the regulator involved and the complexity of the ownership structure of the proposed purchaser.

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

The national competition authority – the Office for Competition, an entity within the Malta Competition and Consumer Affairs Authority – is charged with enforcing competition law in Malta, including the control of certain qualifying concentrations, also known as mergers and acquisitions.

Pursuant to the Control of Concentrations Regulations, 2002 (SL 379/08), certain mergers and acquisitions require mandatory notification to the Office for Competition and can be implemented only once they have been authorised by the office. In this respect, the Office for Competition has the power to clear or prohibit a merger depending on whether it is satisfied that the acquisition will not have the effect of substantially lessening competition in a given market.

A concentration must be notified by the person or undertaking acquiring control in the case of an acquisition, or by the parties to the merger or joint venture, before its implementation and within 15 working days of the conclusion of the agreement, announcement of a public bid or acquisition of a controlling interest, as applicable. Although the regulations require that a concentration be notified to the Office for Competition before it is implemented, the office may, upon a reasoned request before notification or after the transaction, grant a derogation from this rule and allow the concentration to be implemented.

The Office for Competition has the power to:

rule on whether a transaction falls within the scope of the regulations;
approve any concentrations that do not raise serious doubts as to their lawfulness (possibly subject to conditions and obligations);
dissolve any transactions prematurely implemented; and
revoke any clearance decisions based on incorrect information or any breach of obligation on the part of the notifying parties.

4.3 What transfer taxes apply and who typically bears them?

Share transfers: Duty on documents and transfers (DDT) is payable at the rate of 2% of the market value or the price of the shares, whichever is the higher. Exemptions from DDT apply if the company has more than 90% of its business activities outside Malta. In the case of a company holding immovable property situated in Malta, whether directly or indirectly, this exemption will not apply and the applicable rate of DDT will be 5%. This duty is typically borne by the purchaser.

The seller, on the other hand, is liable to pay tax on any gain made from the disposal of the shares, which is charged at the rate of 35% on the gain (if any) from the sale of the shares. As a requirement for the registration of the share transfer, the vendor must pay a provisional tax calculated at the rate of 7% of the higher of:

the market value of the shares; or
the consideration paid for the shares.

The seller will be required to make subsequent adjustments in its income tax return during the year of assessment in question deducting the provisional tax paid from the capital gains tax due.

Transfers of assets or transfer of a going concern: The Malta tax treatment relating to the transfer of assets or the transfer of a going concern will require specific tax analysis based on the specific facts of each particular transaction to ensure that all aspects of income tax, DDT and VAT are duly considered and properly managed.

5 Treatment of seller liability

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

The default warranties owed by the seller to the buyer in any sale transaction governed by Maltese law are in respect of the quiet possession of the thing sold and of any latent defect therein. While these warranties apply by default in terms of Maltese law, they may be diminished or excluded altogether by agreement between the parties, but cannot exclude the warranty relating to the seller's own actions.

Customary standard representations and warranties, on the other hand, will cover the true and accurate disclosure of all material information by the seller to the buyer in the course of the transaction dealings, and the capacity and the solvency of the seller and the target. The nature and extent of the warranties provided will very much depend on the material findings in the legal, tax and financial due diligence, as well as on the structuring of the transaction. In the context of public M&A transactions, such representations may be significantly more complicated, raising issues revolving largely around the appropriate parties that should make the representations and warranties to the buyer.

In very general terms, any material and unremedied breach of the representations and warranties made to the seller in the context of a transaction could, at worst, result in the rescission of all or part of the transaction by reason of the absence of consent, which is one of the conditions essential to the validity of contracts in terms of Maltese law. Remedies for breach of warranty could also include:

the return of all or part of the price paid by the buyer, and any fruits derived therefrom;
judicial costs; and
damages, including the lawful expenses of the contract and any other expense legitimately incurred in connection with the sale.

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?

Most M&A transactions involving Maltese companies have a cross-border dimension, which generally results in the key transaction documents being governed by English law as the parties' preferred choice of law. We have also dealt with Greek, Cypriot and New York law in M&A deals over the past 12 months. As a result, the applicably liability mechanisms and limitations will be governed by the proper law chosen by the parties.

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

Malta has a very small volume of purely local M&A transactions and they are transacted within a very small business community, which creates a heightened sense of familiarity. In the context of such transactions, warranty and indemnity insurance is not an avenue pursued by the parties to a purely local transaction.

In the context of cross-border M&A transactions involving Maltese targets or components within a wider group of companies, the warranty and indemnity insurance will typically be sourced and secured outside of Malta.

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 typical approach is to have a company within the seller's group act as guarantor for the timely and proper performance of the seller's obligations.

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

In the context of the size of the Maltese market, sellers do undertake restrictive covenants in sale and purchase agreements, which will typically range between one and three years. The enforceability of the restrictive covenant will largely depend on the reasonableness gauged by the Maltese courts from the specific restrictive mechanisms drafted into the covenant.

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?

Yes, detailed provisions governing MAC clauses and related bring-down of warranties are regular features in the M&A transactions that we deal with.

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?

The Listing Rules issued by the Listing Authority within the Malta Financial Services Authority provide for two types of takeover bids:

voluntary takeover bids; and
mandatory takeover bids.

As regards mandatory bids, the acquisition of a controlling interest in a Maltese listed company will trigger the company's obligation to announce the acquisition within seven days from the launch of the bid, and an offer document must be issued by the acquirer within 21 days of the date of the announcement. The offer document must contain all the relevant information that is necessary to allow the holders of the shares in the company to be able to make an informed decision on the bid, and must first be submitted to the Listing Authority before it is made available to the public. Once the bid is launched and the offer is considered by the remaining shareholders of the company, the shareholders can reject the offer outright or accept the offer and, accordingly, proceed with selling their shares to the acquirer at the (equitable) price stipulated in the offer document.

In the case of voluntary bids, the offer document, drawn up in accordance with the requirements laid down in the Listing Rules, shall be issued by the offeror within 21 days of the date on which the offeror would have announced its decision to launch a bid. Thereafter, the shareholders may accept the offer and, accordingly, proceed with selling their shares to acquirer at the stipulated price. The timeframe within which the bid may be accepted may be between three and 10 weeks.

The Listing Rules also require the production of an independent experts' report in respect of the consideration offered in the context of the specific offer. The report must also provide clear confirmation that the offeror has sufficient resources to fund the bid.

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?

Yes, a buyer can build up a stake before the transaction process. Insofar as disclosure obligations are concerned, in the case of any acquisition or disposal by any single shareholder of shares to which voting rights are attached, the issuer and the Listing Authority must be notified of the proportion of voting rights of the issuer held by such shareholder as a result of the acquisition or disposal where that proportion reaches, exceeds or falls below the threshold of 5%, 10%, 15% 20%, 25%, 30%, 50%, 75% or 90%

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?

An offeror may invoke its squeeze-out rights in situations where:

it holds securities that represent 90% of the capital carrying voting rights and 90% of the voting rights in the company; or
following the acceptance of a bid, it has acquired or has firmly contracted to acquire not less than 90% of securities in the company.

The offeror has the right to require all holders of the remaining securities (ie, the remainder 10%) to sell those securities at a fair cash price. The offeror's right to invoke this squeeze-out option must be exercised within three months of the end of the time period allowed for acceptance of the bid. Sell-out rights may be exercised in the same situations described above in squeeze-out rights – that is, when the offeror holds (also in cases where this threshold is acquired following a bid) not less than 90% of securities in the company. The right to sell out is exercised by the holders of the remaining securities, which may require the offeror to buy out their securities at a fair cash price. The right to invoke a sell-out option must be exercised within three months of the end of time period allowed for the acceptance of the bid.

Typical minority shareholder rights include:

the right to receive notice of general meetings;
the right to request the court to order the holding of a general meeting;
the right to request the court to appoint a director, if the number of directors falls below the statutory minimum;
the right to request the court to appoint an auditor;
the requirement for qualified majorities in specific instance;
the right to requisition a general meeting of the company (subject to a minimum of 10% of the voting share capital); and
the possibility of filing a claim based on unfair prejudice if the affairs of the company have been or are being or are likely to be conducted in a manner that is likely to be oppressive, unfairly discriminatory against or unfairly prejudicial to a member or members, or in a manner that is contrary to the interests of the members as a whole.

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

A bid may be announced only after the offeror ensures that it can satisfy any cash component of the consideration in full, and after taking all reasonable measures to secure the implementation of any other type of consideration. The bidder may offer securities, cash or a combination of both, provided that a cash consideration is offered as an alternative in all cases.

In addition to providing confirmation that the element of cash offered as consideration will be paid to shareholders within 30 days of closing of the acceptance period, the bidder is legally obliged to produce an independent experts' report in respect of the consideration offered, which must also include confirmation that the offeror has sufficient resources to fund the bid.

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

The Listing Rules provide that at least 25% of the shareholding of a Malta-listed company must be held in public hands, although the Listing Authority may permit a lower threshold as and where justified. The issuer must inform the Listing Authority in writing without delay if it becomes aware that this threshold is breached.

In circumstances where the 25% threshold is breached, the company may submit a formal request to the Listing Authority for discontinuation of listing of a security on the prescribed form (Appendix 1.2 to the Listing Rules), essentially notifying it of the company requesting to be voluntarily delisted.

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

Given the limited number of public takeovers undertaken in Malta, bumpitrage is not a strategy that features in local public takeovers.

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 purchase price for securities that are the object of a mandatory bid must be equitable. The equitable price to be paid for securities is the highest price determined by the following criteria, calculated from the date of the announcement of the bid:

The price offered for the security should not be below the weighted average price of the security or the security transactions made on a regulated market during the previous six months;
The price offered for the security should not be below the highest price paid for the security by the offeror during the previous six months;
The price offered for the security should not be below the weighted average price paid for the security by the offeror during the previous six months; and
The price of the security should not be lower than 10% below the weighted average price of the security within the previous 10 trading days.

If, after the bid has been announced and before the offer closes for acceptance, the offeror purchases securities that are priced higher than the offer price, the offeror shall increase its offer so that it is not less than the highest price paid for the securities acquired.

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

It is common practice that takeover bids are made subject to various conditions of a commercial nature, including, most notably, there being no MAC in the business, financial and/or trading position of the target since a specified date – usually that of the last published audited financial statements. In terms of the offer document setting out the terms of the bid, if such condition is not satisfied, the offeror can withdraw the bid.

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

Yes, such undertakings are commonly resorted to and the nature and terms of such undertakings are to be expressly declared in the offer document published by the offeror.

7 Hostile bids

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

Although hostile bids are duly provided for within the Maltese legal and regulatory framework, such bids are certainly not common features of local M&A activity.

7.2 Must hostile bids be publicised?

An announcement to make a bid must, in all circumstances, be communicated to the target's board and will typically be announced to the board at the same time as the public announcement is made. In the case of a hostile bid, any pre-bid conditions – including the requirement that a bid be announced only after the offeror ensures that it can fulfil in full any cash consideration, if such is offered (and after taking all reasonable measures to secure the implementation of any other type of consideration) – will have been tackled without the target's board having even been consulted and a public announcement will, in most circumstances, be made at the same time as the announcement to the board. An announcement of a bid by the offeror triggers a period of 21 calendar days during which the offeror must prepare an offer document, to be made available both to the Listing Authority and to the public.

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

The Listing Rules, which transcribe the provisions of the Takeover Directive (2004/25/EC), do not rule out the board of directors of the target taking action which may result in an offer being frustrated if:

the action is approved by an ordinary resolution of the target;
the action was taken or permitted under a contractual obligation entered into before the target became aware that the offer was imminent; or
the action is taken or permitted for reasons unrelated to the offer with the approval of the Listing Authority.

Defensive tactics may take different forms, including the board:

entering into a material transaction which is not part of the target's normal course of business; or
effecting a transaction which may materially affect the financial position of the target.

In all cases, however, directors of a target should adopt defensive tactics with caution and with careful consideration of the potentially adverse implications resulting from such tactics. Indeed, all decisions concerning the control and ownership of a company in the context of a public takeover should be left largely within the remit of the shareholders.

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 M&A activity that we experienced throughout the COVID-19 pandemic was significant, with a number of investors identifying attractive buying opportunities of specific distressed businesses or assets, and a large portion of targets in the technology space being acquired by foreign (mostly US-based) companies. We expect this trend to continue throughout 2021 and the first couple of months have already indicated that the appetite for further acquisitions has not subsided.

The significant deals that took place in Malta in 2020 include:

the acquisition of Vodafone Malta by Monaco Telecom;
the acquisition of Kaizen (operator of the Stoiximan online sports betting portal) by OPAP, the Greek national lottery operator; and
the acquisition of Ricston Limited, a Maltese software business, by EPAM System Inc.

We have also seen several key hospitality properties acquired by Malta-based hotel operators as strategic assets to complement their existing offering.

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?

The enactment of the National Foreign Direct Investment Screening Office Act (Chap 620 of the Laws of Malta) in December 2020, implementing the provisions of EU Regulation 2019/452, will certainly affect certain transactions which may be perceived to affect Malta's security or public order, as analysed in question 4.1. While the scrutiny is certainly expected to increase as a result of this statutory enactment, we do not expect many foreign direct investment transactions to be caught by the legal prohibitions.

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?

From our experience, it is valuable to have all Malta-based advisers working on the transaction work closely together, sharing their findings and concerns from the outset, as this creates a more collaborative environment, with all parties being on the same page regarding any material issues. The smoothest deals that we have worked on invariably involved regular update meetings (usually led by the purchaser's lead advisers) where all key issues were shared and discussed with the client, enabling better decision making and more streamlined coordination of effort.

The principal sticking points that we experience invariably relate to clearances, approvals and rulings from government departments or regulatory authorities, although admittedly there can be significant differences in turnaround times from one department or authority to another. Another sticking point tends to be the significant delays experienced in having the final share transfer forms duly registered and uploaded into the Malta Business Registry's (MBR) public database, providing the parties with visibility of the completion of the transaction in the public domain. In order to manage these sticking points effectively, it is advisable to get a head start in identifying any issues that may require any clearances, approvals and rulings in connection with completion of the transaction, and to pre-clear the transaction documents with the MBR well in advance of the transaction closing.

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.

Malta: Mergers & Acquisitions Comparative Guide