With a number of years of experience in providing legal services for many takeover transactions involving a wide range of multinational and domestic financial entities and businesses, M&P Bernitsas are in a unique position to comment on and analyse the takeover market in Greece and to look at the impact of the recently implemented European Takeover Directive and the repercussions of the American sub-prime crisis on Takeovers in the country.
The firm also has experienced particular success in the growing project finance market, having been involved in almost all the recent high profile transactions to have taken place, and can offer an insight into the process and legalities of the market.
“We have been recently involved in the Maliakos-Kleidi motorway project finance transaction, where we acted as Greek law counsel to the lenders with Lovells LLP acting as English law counsel to the lenders and the Elefsina-Korinthos-Patra motorway project finance transaction, where we acted as Greek law counsels to the sponsors with Linklaters LLP acting as English law counsels to the sponsors,” said Managing Partner Panayotis Bernitsas.
As a result of their work in these projects and countless others, in which they liaised and interacted with both domestic and international partners, they can provide a comprehensive critical analysis of the growing project finance market and Greek legislation involving takeover financing in Greece.
The demand for project financing in Greece has increased in recent years as it can provide the necessary funds to allow the financing of a variety of different projects necessary to the development of the infrastructure of the country in a manner that would also enable the Government to better monitor the State’s relevant expenditure. “Τhere is a significant call for project financing in Greece. Concession schemes as well as PPP schemes are used for projects which would otherwise need direct upfront financing by the State. Concession deals (BOT type) concern mostly motorways and operate on the basis of concession agreements ratified by law. PPP deals concern initially schools, prisons and hospitals and operate on the basis of partnership agreements. The financing structure must be firmly based on the concession or the partnership agreement respectively, must ensure a solid security package over all project assets and must also minimise mandatory costs,” said Senior Associate Yannis Kourniotis.
The growth of project financing is not the only change to be experienced in Greece, since last summer the European Takeover Directive has been in place to legislate takeover transactions and as a result there have been a number of changes to the legislation in the country and the financing arrangements that a bidder has to organise have been overhauled. “A bidder should have all necessary means to finance the offer price at completion, which means that all financing arrangements must be in place prior to launching a takeover bid and remain in place until completion. In many cases, this requirement has an impact on pricing,” said Partner Nikos Papachristopoulos.
This has made the selection of the method of raising the finance for a takeover vitally important, an issue that has not been helped by the problems with the American sub-prime market and the ensuing economic repercussions. “It appears that these problems have impacted upon all forms of financing and we do not see why they would not impact upon financing of takeover bids,” said Partner Athansia Tsene.
As a result, an alternative to direct financing that allows the creation of debt without the lender being expected to be a bank could, in the current climate, be a preferred form of financing for a takeover. As a method of financing that “is common for certain types of takeover bids, where delisting of the target company is sought upon completion of the acquisition or where mezzanine debt is considered necessary and mezzanine lenders are not expected to be banks,” according to Ms Tsene, securitisation is one such alternative.
But as with any form of takeover financing there are a number of considerations that must be taken into account before and during any transaction. “Any financing structure intending to finance a takeover bid needs to link advances under the facility to the actual payments for the acquisition of shares. In this regard, the rules of the Capital Market Commission and the Athens Exchange must be observed when determining the availability period and the conditions precedent to each drawdown. At the same time, the implementation of a securitisation structure may be a more complex exercise, as it requires coordination of the parties involved, including one or more banks operating in Greece and, therefore, qualifying to securitise claims under loans under Greek law on securitisation of receivables, with a view to ensuring finalisation of the documentation in a manner acceptable to all parties and meeting the requirements of Greek law on securitisation,” Ms Tsene continued.
There is still a heavy involvement of private equity firms in Greece however M&P Bernitsas believe that the current financial climate has made the financing of a takeover via private equity a more costly exercise. “Due to the volatility of and uncertainty in money markets, it is expected that it would be more expensive for private equities to finance a takeover. Usually, they commit a relatively low percentage of their own available cash and seek to obtain bank financing against security over the assets of the target,” said Mr Papachristopoulos.
While the current financial climate may make private equity more expensive it doesn’t mean that the takeover of Greek companies by foreign investors is about to stop. One of the largest areas of change following the European Takeover Directive has been in the regulation of cross border transactions which have, in theory, been made easier.
However, as with the enactment of any sweeping European-wide legislation there have been some problems integrating it into each country’s existing legal structure and Greece has been no exception. “It is easier, although we have faced certain problems with the way that the Greek legislator has implemented this Directive in Greece,” Mr Papachristopoulos continued.
The problems with the implementation of the Directive in Greece could be because of the legislator’s interpretation of how to regulate the most important part of a cross-border takeover. The primary concern is “to ensure that the underlying financing arrangements are such that the requisite funds will be available at completion, notwithstanding the occurrence of events or circumstances which would otherwise entitle the financiers to cancel their commitments. In other words, certainty of funds between signing the transaction documents, launching and completing a takeover bid is of a paramount importance,” Mr Papachristopoulos said. If the legislator is unsure how stringent to be in order to ensure that this issue is addressed, a number of problems could arise.
The complications following the implementation of the European Takeover Directive will need to be resolved because the involvement of foreign investors and financial intuitions in takeover transactions involving Greek companies is only going to increase. The country has a number of attributes, “fairly healthy balance sheets, high margins and well positioned to expand in the neighboring emerging markets of the Balkans,” continued Mr Papachristopoulos, which make it an attractive proposition for international banks and investors. As a result there has been a shift in the attitudes of Greek companies to foreign investment and ownership, a shift that is backed by the government. “The trend is that numerous Greek companies would like to have strong international investors to also take advantage of the synergies and the local investment community and the Government favour this type of co-operations,” said Mr Papachristopoulos.
However, the involvement of international entities in takeovers in Greece brings with it a number of additional considerations and issues for firms like M&P Bernitsas to consider for their clients. The problems or issues that must be dealt with are determined by what role an international bank will be taking in the transaction. “If they act as lenders, a structure must be implemented to ensure that the borrower will have sufficient funds to repay its acquisition debt and to shorten the time period that will be required to complete the takeover to minimise their exposure to adverse market conditions. If they act as financial advisers of the bidder, the offer document and any other document relating to the takeover must be true and accurate. If they act as financial advisers of the target, the target must be assisted in forming a view as to whether the offer is fair and reasonable both for the shareholders and the target itself,” concluded Mr Papachristopoulos.
The origin of the financing or entities involved in takeover transactions is not the only factor that must be considered, the form of financing is, and always has been, the most important consideration.
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