I OVERVIEW OF M&A ACTIVITY

The Portuguese economy continued to show some positive signs in the past year, in particular, with the GDP growing 1.4 per cent in 20162 (the GDP started to grow in 2014, at a growth rate of 0.9 per cent, and continued to grow in 2015, at a growth rate of 1.5, in contrast with the 1.4 per cent decrease in 2013 and the 3.3 per cent decrease in 2012), exceeding both the government and the EU’s estimates. The first quarter of 2017 registered a GDP growth in volume of 2.8 per cent, compared with the same period of 2016.3 In both cases, GDP growth was mainly due to the increase in net external demand and internal demand.

In addition, 2016 was also the first year after the conclusion of the financial assistance programme with the European Commission, the International Monetary Fund and the European Central Bank, initiated in 2014 further to Portugal’s bailout in 2011 and the execution of a memorandum of understanding with those entities in May 2011, which has also contributed to restore confidence in the Portuguese economy.

All these signs of growth have been reflected positively in Portuguese M&A activity during the past year, both in terms of number and volume of deals, with more than 300 M&A deals, 123 of which totalled more than €12 billion.4 Furthermore, during the first quarter of 2017, the Portuguese M&A market recorded 95 transactions, which, when compared to the same period in 2016, represent a 32 per cent increase in the number of transactions and a 315 per cent increase in terms of aggregate value.5 The following events have been key factors for this dynamic in the Portuguese M&A market in the past couple of years:

  • a Several privatisations, foreseen under the Portuguese financial assistance programme, were carried out or completed during the past two years, such as the sale of EGF (a company engaged in the treatment and management of wastewater and solid urban waste, which was sold to SUMA, a joint venture between Mota-Engil and ACS, companies active in the Portuguese and Spanish construction sector, respectively), the privatisation of CP Carga (a railway freight transport operator) through the sale of 95 per cent of the company’s share capital to MSC Rail (a subsidiary of the Swiss MSC Mediterranean Shipping Company) and the sale of TAP (the leading Portuguese airline company, of which 66 per cent was acquired by a consortium headed by David Neeleman (owner of, inter alia, the Brazilian airline Azul) and Humberto Pedrosa (owner of the Portuguese transportation group Barraqueiro), which was partially reverted upon the new government taking office in November 2015).
  • b Portuguese banks and other entities in the financial sector have focused on selling non-core assets and businesses.
  • c In August 2014, Espírito Santo Group, a conglomerate that comprised, inter alia, one of the biggest banks in Portugal, Banco Espírito Santo (BES), collapsed, forcing a profound reorganisation in the group, including the transfer of part of BES’ businesses to a new bank (Novo Banco), and leading to the divestment of several businesses.
  • d The collapse of the Espírito Santo Group resulted in significant losses in several relevant Portuguese companies and, in particular, had an impact on Portugal Telecom, the biggest Portuguese telecommunications player, affecting its merger with Brazilian Oi (a deal that was aimed at creating one of the 20 biggest telecom companies in the world with more than 100 million clients) and leading to the acquisition of its Portuguese business by Altice, which was completed in June 2015.
  • e Currently Novo Banco itself is in the process of being acquired by Lone Star, completion of this deal being expected to occur by November 2017.
  • f International investment and private equity funds have been particularly active in the Portuguese market, presenting bids in most of the relevant deals in the tourism, real estate, insurance and banking sectors.
  • g Chinese and Angolan investors also played a significant role in M&A activity, acquiring companies in several business sectors.
  • h 2014 was a turning point for the real estate sector, with relevant deals in all segments, and this trend was reinforced in 2015, which was the best year ever in Portugal in this sector, and in which deals involving the offices, hotels and shopping centres segments exceeded by 154 per cent those registered in 2014, with a global volume of €2.1 billion.6 2016 consolidated this growth with some very relevant deals: for instance, the sale by Office Park Expo of the Lisbon Justice Campus for €223 million to an international fund.7
  • i The private equity funds Revitalizar, created in 2013 by the government and managed by Portuguese private equity firms, invested more than €207 million in the past three years in approximately 100 Portuguese small and medium-sized companies.8
  • j The wind sector has been particularly active, with the transfer of some of the biggest wind asset portfolios, including the sale of Iberwind to the Chinese group Cheung Kong for €1 billion, the sale of Finerge to First State for €900 million and the sale of a stake in EDF Energies Nouvelles’ wind business in Portugal to Lancashire County Pension Fund.
  • k Significant deals also took place in the banking and insurance sector. In particular, Barclays sold its retail and insurance businesses to Bankinter for approximately €160 million, Santander acquired Banif for €150 million and Apollo acquired Açoreana for €130 million. More recently, the Chinese conglomerate Fosun became the largest shareholder of Millennium BCP, the largest Portuguese private bank, and Caixabank successfully completed its takeover on Banco BPI, raising its stake from 45 to 84.5 per cent, for €645 million. In December 2016, Real Vida Seguros (pertaining to the Portuguese Patris group) acquired both a controlling stake in Banif Pensões from Oitante and 100 per cent of Finibanco Vida from Montepio Geral.

II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

The Portuguese legal framework governing M&A comprises, in particular, the following laws:

  • a the Civil Code, enacted by Decree-Law No. 47344, of 25 November, as amended, which contains the general rules governing sales, purchases and contracts;
  • b the Commercial Companies Code, enacted by Decree-Law No. 262/86, of 2 September, as amended (PCCC), which includes the general framework governing Portuguese companies (the most common are sociedades anónimas, which may be listed or non-listed companies, and sociedades por quotas, both of which are limited liability companies) and also the legal regime governing share capital increases and decreases, mergers and demergers, transfers of shares in sociedades por quotas and financial assistance;
  • c the Securities Code, enacted by Decree-Law No. 486/99, of 13 November, as amended, which is applicable to listed companies9 but also contains the general regime regarding some matters, such as the transfer of shares in sociedades anónimas;
  • d the Competition Code, enacted by Law No. 19/2012, of 8 May;
  • e the Labour Code, enacted by Law No. 7/2009, of 12 February, as amended, which contains, in particular, the labour rules applicable to a transfer of an undertaking and some information obligations in cases of a modification in an employer’s shareholding structure; and
  • f the private equity legal regime, enacted by Law No. 18/2015, of 4 March, which revoked the previous regime, enacted in 2007.

In addition, regulated sectors such as the banking and financing and the insurance sectors are governed by specific laws and regulations, some of which are issued by the respective regulatory entities.10

Moreover, privatisations are specifically governed by laws enacted by the government containing the applicable regime for each privatisation.

III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT

i Financial sector – structural reforms

The memorandum of understanding established as the main goals for the financial sector, inter alia, the preservation of its stability, an increase of liquidity and a balanced deleverage of the banking sector, the reinforcement of banking regulation and supervision, the restructuring of Caixa Geral de Depósitos, the state-owned bank, and the reinforcement of the legal framework governing the restructuring and winding-up of credit entities and of the deposit guarantee fund, as well as the legal framework applicable to the insolvency of natural and legal persons.

In line with these goals, profound changes have been implemented in the legal framework governing the financial sector, and most of said goals, even if to a variable extent, have been accomplished.

Decree-Law No. 298/92, of 31 December, which governs credit institutions and financial entities (RGICSF), has been the object of an in-depth reform in the past few years, and enacted by several laws and decree-laws, in particular:

  • a Decree-Law No. 114-A/2014, of 1 August, and Decree-Law No. 114-B/2014, of 4 August, which have partially transposed Directive 2014/59/EU, of 15 May 2014, on the recovery and resolution of credit institutions.
  • b Decree-Law No. 157/2014, of 24 October, which transposed Directive 2013/36/EU, of 26 June 2013. This legal act has amended, inter alia, the rules on corporate governance, with new rules regarding the requisites that need to be met by holders of management and supervision offices; the rules on remuneration policies; and the sanctions system, with new mechanisms aimed at the streamlining and efficiency of this system.
  • c Law No. 16/2015, of 24 February, which partially transposes Directives 2011/61/EU, of 8 June 2011, and 2013/14/EU, of 21 May 2013 and adds, inter alia, that the Bank of Portugal may refuse an authorisation for a credit institution if it is not demonstrated that the proposed members of the corporate bodies meet the requisites set forth in the RGICSF.
  • d Law No. 23-A/2015, of 26 March, which transposes Directives 2014/49/EU, of 16 April 2014, and 2014/59/EU, of 15 May 2014. Inter alia, this law:

• increased the powers of the Bank of Portugal regarding recovery measures;

• amended the rules applicable to deposit guarantee schemes;

• increased the number of possible resolution measures that may be determined by the Bank of Portugal, allowing, in particular, the segregation of assets to an asset management vehicle;

• allowed the Bank of Portugal to determine internal recapitalisation measures (bail in);

• established specific rules regarding financial support between companies pertaining to the same group; and

• imposed an evaluation of the assets and liabilities of the entities subject to resolution measures before the same are implemented.

  • e Decree-Law No. 20/2016, of 20 April, which sets forth that the shareholders’ general meetings of credit institutions whose articles of association establish voting caps must take place every five years to resolve on the maintenance or revocation of said voting caps (otherwise, said voting caps will be considered forfeited).
  • f Law No. 16/2017, of 3 May, which requires banks to disclose the identification of the shareholders with qualified shareholdings within the banks, as well as the beneficial owner of those same shareholdings.
ii Corporate laws

In February 2015, the legal regime governing the issuance of preferred shares and bonds contained in the PCCC was amended by Decree-Law No. 26/2015, of 6 February.

The main goal of these amendments is to decrease Portuguese companies’ dependence on banking financing and to stimulate the use of alternative financing structures, giving companies more freedom to issue hybrid capitalisation instruments.

Regarding preferred shares, which are construed by the PCCC as shares that do not entitle their holders to voting rights, but which grant them priority in receiving dividends, the main modifications brought by this Decree-Law are the following.

Nature of the priority dividend

The nature of the priority dividend was a controversial matter among Portuguese scholars, and this Decree-Law has clarified that, as a general rule, holders of preferred shares are entitled to participate in the company’s profits in the proportion of their shareholdings in the company’s share capital, but with the right to receive the amount corresponding to their priority dividends before profits are distributed to all shareholders. However, the new regime clarifies that it is possible to establish in the articles of association that the priority dividend has either an additional nature, in which case it is deducted from the distributable profits, which are subsequently distributed between all shareholders according to the percentages held by them in the company’s share capital; or an exclusive nature, in which case the holders of the preferred shares only receive the priority dividend (this second alternative is reserved for shares exclusively subscribed by qualified investors and that are not traded in a regulated market).

Minimum amount of the priority dividend

Before this new regime, the priority dividend had to correspond to at least 5 per cent of the nominal value of the respective shares. Currently, this threshold is 1 per cent of the preferred shares’ nominal value.

Lack of payment of the priority dividend

Before this new regime, priority dividends that were not fully paid in a given tax year had necessarily to be paid within the three subsequent tax years, provided that there were available profits. With the current regime, the articles of association may establish a longer period in which the priority dividends have to be paid, with no maximum number of years.

New exceptional regime

In addition to the third category of priority dividend referred to above, Decree-Law No. 26/2015 has introduced other important modifications in what concerns preferred shares exclusively subscribed by qualified investors and that are not traded in a regulated market, consisting of, inter alia, the possibility of the articles of association freely establishing the regime for the payment of the priority dividend that is not fully paid in a given tax year, as well as the loss of the priority dividend regarding the years where no profits are generated; allowing the conversion of the preferred shares into ordinary shares in the terms set forth in the issue conditions based on the deterioration of the company’s financial situation; and establishing a period of more than two (but up to five) tax years after which, if the priority dividend is not fully paid, the preferred shares temporarily entitle their holders to vote.

In a nutshell, this new regime establishes a more flexible regime for preferred shares (especially if the same are subscribed by qualified investors), aiming at attracting investors to finance Portuguese companies through non-traditional instruments.

Regarding the issuance of bonds, this Decree-Law has also introduced relevant modifications, which may be summarised as follows.

Financial autonomy ratio

Prior to this new regime, companies could only issue bonds in an amount below the double of their equity. Currently, companies that intend to issue bonds have to meet a financial autonomy ratio of at least 35 per cent after the issue of the bonds, which is calculated according to the formula indicated in this legal act and based on the company’s most recent balance sheet. There are, however, some exceptions to this legal requisite, which mainly correspond to the ones set forth in the previous regime, with the two following new exceptions: issues of bonds with a nominal unitary value equal to or higher than €100,000, or whose subscription is made in minimum lots with a value equal to or higher than €100,000; and issues fully subscribed by qualified investors, provided that the same are not subsequently placed, directly or indirectly, with non-qualified investors.

Common representative of the bondholders

The regime applicable to the common representative of the bondholders was substantially modified, in particular, as regards the following aspects:

  • a eligibility: financial intermediaries and the entities authorised to render representation services to investors in EU Member States may also be appointed as common representatives of bondholders;
  • b independence: this Decree-Law establishes new circumstances that prevent the appointment of a certain entity as common representative of bondholders – for instance, the direct or indirect ownership of 2 per cent or more of the issuing company’s share capital, or the existence of a control or group relationship with the issuing company (regardless of the location of the registered office or the corporate nature of the common representative); and
  • c responsibility: the limitation of the common representative’s liability is now expressly permitted, except in cases of wilful misconduct or gross negligence, and may not be inferior to the annual remuneration to which the common representative is entitled increased tenfold.

On 4 May 2017, Law 15/2017, of 3 May, establishing the end of bearer securities, entered into force.

The main goal of this Law is to prevent corruption, money laundering and tax fraud, and to increase transparency in the capital markets. To meet these goals, the Law prohibits, from the date of its entry into force, the issue of new bearer securities, and sets forth an obligation to convert the existing ones into nominative securities until 4 November 2017.

iii Private equity

The private equity legal regime has also been the object of a relevant reform recently, with the regime enacted by Law No. 18/2015, of 4 March (which partially transposes Directives No. 2011/61/EU, of 8 June 2011, on Alternative Investment Funds Managers, and No. 2013/14/EU, of 21 May 2013), replacing the regime enacted in 2007.

The most relevant modifications introduced by this Law (which also regulates, for the first time, investment in social entrepreneurships and in specialised alternative investments) are, inter alia, the following.

One of the main modifications of this new regime is the creation of two different regimes applicable to private equity companies, depending on the value of the portfolios under their management, with a stricter regulatory regime applicable to entities that manage private equity funds whose portfolios’ value is higher than €100 million, when said portfolios include assets acquired with the use of leverage, or €500 million, when said portfolios do not include such assets and in relation to which there are no reimbursement rights that may be exercised within a period of five years as of the date of the initial investment. Private equity companies that do not fall under these thresholds may also be governed by this stricter regime, provided that they opt in.

The stricter regime applicable to private equity companies referred to in the preceding paragraph entails, in particular:

  • a an authorisation from the CMVM prior to their incorporation (as opposed to a prior registration with the CMVM applicable for other private equity companies);
  • b that all reasonable measures shall be taken and adequate procedures shall be implemented to identify, prevent, manage and monitor conflicts of interest that may be harmful to the interests of the private equity funds under their management and their investors; and
  • c the obligation to functionally and hierarchically separate the functions of risk management from the operating units, including the portfolio management.

Private equity companies falling under the lighter regime set forth in this Law, but that manage portfolios whose net value exceeds €250 million, must incorporate an additional amount of equity that shall be equal to 0.02 per cent of the amount by which the portfolio’s net value exceeds €250 million.

The management regulations of private equity funds may establish the division of funds into several independent sub funds represented by one or more categories of investment units.

In line with this regime, the CMVM has also issued a new regulation governing these matters (Regulation No. 3/2015).

IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS11

i M&A transactions headed by strategic foreign investors

As referred to above, the past few years were very active years for the Portuguese M&A market, to a large extent due to the role of foreign investors – especially Chinese, US, Spanish, German and Angolan investors – who have been playing a key role in the revitalisation of the Portuguese economy.

This phenomenon is related not only to the pressure of Portuguese companies and the state to divest, which has created excellent opportunities for investors, but also to the fact that Portugal is regarded as a strategic hub between Europe and countries such as Angola, Brazil, Mozambique and other former Portuguese colonies.

Chinese investment has played a particularly relevant role in this (beginning with the acquisition, in 2011, by China Three Gorges Corporation from the state of a 21.35 per cent shareholding in EDP, the biggest electricity producer, distributor and trader in Portugal, for €2.7 billion, followed by the acquisition in 2012, by State Grid Corporation of China, of a 25 per cent shareholding in REN, the largest Portuguese energy grid company, for approximately €387 million). At the beginning of 2014, Fosun International acquired from the state 80 per cent of Caixa Seguros, the largest Portuguese insurance group, including the companies Fidelidade and Multicare, for €1 billion, and in October 2014, Fidelidade acquired 96 per cent of Espírito Santo Saúde, one of the biggest health groups in Portugal, after this company’s successful initial public offering at the beginning of 2014 for more than €455 million.

The following are some of the most relevant recent deals featuring Chinese investors:

  • a in September 2015, Haitong International Securities Group acquired BESI (the investment banking unit of the Espírito Santo Group and the largest Portuguese investment bank, and now called Haitong Bank Portugal) from Novo Banco for approximately €380 million; in May 2017 Haitong China made a €60 million share capital increase in Haitong Bank Portugal;
  • b in August 2016, Hainan Airlines acquired 23.7 per cent of Azul, the Brazilian airline company that is part of the consortium that won the privatisation of TAP, for €450 million; by July 2016, Hainan Airlines had already paid €30 million for bonds convertible in TAP’s share capital;
  • c in July 2016, AMC Theatres, a company pertaining to AMC Entertainment Holdings group, agreed on the acquisition of Odeon–UCI Cinemas Group (the leading European cinema operator, which owns, inter alia, the cinemas in three shopping centres in Portugal), a deal valued at more than €1 billion;
  • d in November 2016, Fosun acquired 16.7 per cent in Millennium BCP in a share capital increase reserved to it and increased that stake to 24 per cent in a new share capital increase that took place in February 2017, for a global investment of €549 million; and
  • e in May 2017, Luz Saúde announced the acquisition of 90.41 per cent of the British Hospital group from Capital Criativo.

European investors have been more active in recent years, one example of which is the acquisition by Bridgepoint of SAPEC Agro Business (engaged in the crop production products and crop nutrition, with sales in over 70 countries), completed in January 2017, for €456 million, or the takeover launched by Caixabank on Banco BPI, which was successfully completed and entailed an investment of €645 million. In addition, Ardian acquired Ascendi for €600 million.

Angolan investors have been very active in the Portuguese market. Key players include names such as Isabel dos Santos, daughter of the Angolan president and Africa’s richest woman, who already owns shareholdings in, for instance, GALP (the largest Portuguese oil and gas company), NOS (one of the leading companies in the telecommunications sector, resulting from a merger between Optimus and ZON) and BIC (an Angolan private bank based in Portugal); and António Mosquito, who owns controlling shareholdings in Controlinveste (one of the largest Portuguese media groups) and Soares da Costa (in the construction sector). In June 2015, Isabel dos Santos acquired 65 per cent of Efacec Power Solutions (the core company of Efacec Group, the largest Portuguese electric group) from Mello Family and Têxtil Manuel Gonçalves for approximately €200 million.

American funds have also been very active in the Portuguese market, and have participated in most of the bids for relevant transactions in the past few years. In particular, in March 2015 Lone Star acquired Garvecat (owner of the Vilamoura resort in the Algarve) from Caixa Catalunya, for €200 million, and in November 2015 sold three shopping centres to Deutsche Bank for approximately €200 million. More recently, Lone Star has completed several other deals in the real estate sector (see below) and is about to acquire a controlling stake in Novo Banco. In January 2016, North Bridge acquired a minority stake in Outsystems, a Portuguese company engaged in the production and development of software, which holds subsidiaries in Brazil, Dubai, the Netherlands and the US, for €50 million. In March 2016, the Carlyle Group acquired 50 per cent of Logoplaste (an industrial group engaged in the manufacturing of rigid plastic packaging) for €570 million.

ii M&A transactions headed by national investors in key destinations

Angola has been one of the fundamental investment destinations for Portuguese companies, although not necessarily from an M&A perspective.

In fact, several Portuguese companies, from the most diverse business segments, have found in Angola the opportunity to diversify their risk and expand their activities during the Portuguese crisis. However, this trend is seeing a turnaround due to the current crisis in Angola.

V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

The overcoming of the financial crisis and the restructurings made in compliance with the obligations undertaken in the memorandum of understanding have strongly influenced Portuguese M&A activity in the past year.

In addition to the transactions listed in the preceding section, the following are some of the other most important M&A deals that have taken place during this period.

i M&A transactions related to financial and insurance institutions

In the context of the requirements both at a local and at an EU level regarding ring-fencing and the separation of banks’ deposit-taking functions from more risky businesses, several banking groups have been selling non-core businesses. For example, in May 2015, Millennium BCP sold its asset management company, Millenium Gestão de Ativos, to Grupo Corretaje e
Información Monetária y de Divisas for €15.75 million; and in June 2015, Cofidis Participations (a French financial group) acquired Banif Mais (the specialised credit unit of Banif, a Portuguese bank) for €410 million.

In addition, some relevant deals were led by Spanish investors.

In December 2015, the Bank of Portugal applied a resolution measure to Banif, the seventh-largest Portuguese banking group, which entailed the acquisition of Banif by Santander Totta for €150 million, and the transfer of part of its assets and liabilities to Oitante, an asset management vehicle, which was made responsible for selling them. In this context, Oitante has already sold, inter alia, the insurance company Açoreana to Apollo Global Management (which already owned Tranquilidade) for €130 million, and Banif Pensões to Real Vida Seguros for an undisclosed sum, both in 2016, as well as, in April 2017, Banif’s real estate assets and non-performing loans business to Altamira, an asset management company, for €150 million.

In April 2016, Bankinter (a Spanish bank) acquired the retail and insurance business of Barclays Portugal for approximately €160 million.

In February 2017 Caixabank successfully completed its takeover of Banco BPI, raising its stake from 45 to 84.5 per cent, for €645 million.

ii M&A related to the collapse of Espírito Santo Group

Further to the fall of Espírito Santo Group and to the insolvency or pre-insolvency of some of the holdings of the Group, several deals took place as a way to divest non-core assets. In particular, the following transactions were carried out in this context: in January 2015, the Thai company Minor International acquired from Espírito Santo Group six hotels pertaining to the Tivoli hotel chain, four of which are in Portugal and two in Brazil, for €168.2 million; and the collapse of Espírito Santo Group also affected the announced merger between the telecommunications company Portugal Telecom and the Brazilian company Oi, mainly due to an investment of around €897 million made by Portugal Telecom in commercial paper issued by Rioforte. As a result, in June 2015, Altice completed the acquisition of Portugal Telecom’s Portuguese business in a deal worth €7.4 billion. In 2016, the Bank of Portugal started negotiations regarding the sale of Novo Banco, a bank that resulted from the transfer of part of Banco Espírito Santo’s businesses after its collapse in August 2014. At the beginning of 2017, Lone Star was selected from several candidates to acquire 75 per cent of Novo Banco, while Portugal’s bank resolution fund will retain the remaining 25 per cent. The sale of Novo Banco to Lone Star is now is in the process of being completed.

iii Wind sector

The wind sector has been particularly active, with the transfer of some of the biggest wind asset portfolios, including the sale of Iberwind to the Chinese group Cheung Kong for €1 billion, the sale of Finerge to First State for €900 million and the sale of a stake in EDF Energies Nouvelles’ wind business in Portugal to Lancashire County Pension Fund.

iv Gas sector

In the past year, the gas sector has also been one of the sectors seeing more activity. In October 2016, Marubeni and Toho Gas acquired from Galp Gás a 22.5 per cent stake in its natural gas distribution business for €138 million. In March 2017, Artá completed the acquisition of Gascan from the Portuguese private equity Explorer for €70 million. In April 2017 REN announced the acquisition of EDP Gás from EDP for €532 million.

v Real estate sector

Real estate sector has contributed very significantly to the activity levels in Portuguese M&A.

Several real estate deals took place, in all segments, with some of the highest levels of activity ever. For instance, Blackstone sold to the Castel Group 100 per cent of the share capital of the property company holding the EDIFÍCIO NÓS office tower located in Lisbon, and Lone Star sold to Merlin SOCIMI 100 per cent of the share capital of the property companies holding the properties corresponding to an office tower currently leased to Galp Energia pertaining to the Torres de Lisboa office park, and a property including a shopping centre (Dolce Vita Monumental) and an office tower (Edifício Monumental), in both cases for undisclosed sums. In addition, Office Park Expo sold the Lisbon Justice Campus (Campus de Justiça) to an international fund for €223 million.

vi Motorway sector

Several deals were completed in the past year in the motorway sector. Specifically, in September 2016, Sonae Capital, Egis and Eiffage sold Norscut (the concessionaire of the A24 motorway) to Meridiam Infrastructure Europe (Sonae Capital’s 36 per cent stake was sold for €42 million); in June 2016 Ferrovial, through its subsidiary Cintra, sold a 51 per cent stake in Norte Litoral (the concessionaire of a motorway in Oporto) and a 49 per cent stake in Via do Infante (the concessionaire of a motorway in the Algarve) to DIF Infrastructure for a global amount of €159 million; and in August 2016, Ardian Infrastructure acquired Ascendi (a company held by Mota Engil and Novo Banco and concessionaire of several motorway concessionaires in the north and Lisbon regions) for €600 million (to which may accrue €53 million through a price adjustment mechanism).

VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

As a result of the financial crisis, and of the considerable decline of leveraged loan transactions and longer-term financings by bank syndicates, Portuguese companies have resorted to alternative sources of financing to support both their M&A investments and their current businesses. In particular, the issuance of corporate bonds (including high-yield bonds), as well as factoring and financial leases, have become more and more common.

The bank restructurings in Portugal have also opened a window of opportunity for an influx of alternative financing to traditional banking, notably through hedge funds, private equity and capital venture operations.

In particular, private equity funds, both local players and some of the major international private equity funds, have been quite active in Portugal, seeking to turn the recession into an advantage for specific investment transactions.

Additionally, a shift from Portuguese-style (short-form) documentation to LMA-based documentation governed by Portuguese law is a new trend noted in the banking sector, triggered by the risk aversion of Portuguese banks.

Currently, and in line with the revitalisation of the Portuguese market, banks are more willing to finance companies, both local and foreign investors (even though most foreign players obtain financing abroad). This contrasts with the situation seen until recently, where companies felt the need to go to foreign markets to obtain financing.

VII EMPLOYMENT LAW

No significant developments that had an impact on M&A activity occurred in the past 12 months.

VIII TAX LAW

No significant developments that had an impact on M&A activity occurred in the past 12 months.

It should be noted, however, that the conditions for the qualification of the relevant shareholding under the participation exemption regime were changed as of January 2016 as follows: the minimum percentage of participation was increased from 5 to 10 per cent, but, in turn, the minimum holding period required was decreased from 24 to 12 months prior to the distribution of dividends or the disposal of the relevant participation.

IX COMPETITION LAW

Even though no relevant modifications to the merger control legal framework were registered in the last year (the Portuguese merger control framework was further aligned with the EU merger control framework with the entry into force of the new Competition Act in 2012, which has remained unaltered since), the simplified filing form and pre-notification contacts have been increasingly used, enabling a swifter assessment and earlier decisions regarding uncomplicated matters.

To increase transparency, at the end of each year, the Portuguese Competition Authority (PCA) publishes its strategic priorities regarding competition policy for the following year on its website. According to a statement issued by the PCA, its main priorities for 2017 are the following:12

  • a reinforcing its ex officio capabilities to conduct investigations;
  • b increasing swiftness and effectiveness of investigations, including with regard to merger control;
  • c increasing the fight against cartels; and
  • d strengthening the legal and economic grounds of its decisions by consolidating its internal checks and balances mechanism.

In line with this set of priorities, the PCA continues to actively pursue its goal of protecting and promoting competition in the Portuguese economy. It is becoming more dynamic, and has invested in its technical capacity, having reorganised its antitrust division.

With regard to merger control, the PCA is expected to continue to promote the use of the simplified filing form, as well as pre-notification contacts, to deliver swifter decisions and enhance transparency in the market. Moreover, it seems that the PCA’s merger control decisions are increasingly subject to judicial review. In 2015, the Portuguese Competition, Regulation and Supervision Court rejected, on one hand, the appeal by Media, Zon Optimus and Portugal Telecom related to the PCA’s decision to initiate an in-depth investigation of this concentration and, on the other, another claim by these undertakings alleging that the concentration had been tacitly approved.13

Again in 2015, the Portuguese Competition, Regulation and Supervision Court confirmed the PCA’s decision in Arena Atlântida/Pavilhão Atlântico*Atlântico.14

More recently, the PCA’s clearance decision, which followed an in-depth investigation, of the SUMA/EGF concentration (a merger between two relevant companies operative at different levels of the Portuguese waste management market), was totally endorsed by the Portuguese Competition, Regulation and Supervision Court, as all the appeals introduced by several of the Portuguese municipalities and main competitors against the PCA’s approval were entirely dismissed by the referred court.

X OUTLOOK

Portuguese M&A activity is expected to continue at a good pace in upcoming months.

The continuing improvement of the Portuguese economy, the ring-fencing process and the restructuring of local players, increasing access to financing and the sustained interest of foreign investors, including major international investment funds, in Portugal, point to the maintenance of the levels of activity in the M&A sector in Portugal.

Some interesting transactions have already been announced for the short term. For instance, Altice has agreed with Prisa on the acquisition of Media Capital, one of the leading media groups in Portugal. Other relevant deals are expected to be completed in the second half of 2017, including the sale of Novo Banco to Lone Star, the acquisition of a stake in Montepio Geral by Santa Casa da Misericórdia and the takeover launched by EDP on its subsidiary EDP Renováveis.

1 Francisco Brito e Abreu is a partner and Joana Torres Ereio is a senior associate at Uría Menéndez – Proença de Carvalho.

2 Information available on the Portuguese Statistics Institute website: www.ine.pt/xportal/xmain?xpid=
INE&xpgid=ine_destaques&DESTAQUESdest_boui=274727141&DESTAQUESmodo=2.

3 Information available on the Portuguese Statistics Institute website: www.ine.pt/xportal/xmain?xpid=
INE&xpgid=ine_destaques&DESTAQUESdest_boui=281095034&DESTAQUESmodo=2.

4 According to the 2016 annual report released by Transactional Track Record and Intralinks in January 2017: www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/Mercado-Iberico-Anual-2016/1705.

5 According to the first quarter 2017 report released by Transactional Track Record in March 2017: www.ttrecord.com/en/publications/market-reports/monthly-report-iberian-peninsula/Iberian-Market-First-Quarter-2017/1723.

6 Information available at www.cbre.pt/pt_pt/news_events/Publications/Publica%C3%A7%C3%B5es%20-
%20Content/Publica%C3%A7%C3%B5es%20-%20Title/Portugal%20-%20An%C3%A1lise%20do%20Mercado%20Imobili%C3%A1rio%20%20-%202%C2%BA%20Semestre%202015.pdf.

7 Information available at expresso.sapo.pt/sociedade/2016-03-21-Campus-da-Justica-vendido-por-223-
milhoes.

8 Information available at www.jornaleconomico.sapo.pt/noticias/fundos-revitalizar-apoiaram-100-pme-
207-milhoes-120300.

9 Listed companies are overseen by the Portuguese Securities Market Commission (CMVM).

10 In particular, Decree-Law No. 298/92, of 31 December, as amended, governs credit institutions and financial entities, which are supervised by the Bank of Portugal, and Decree-Law No. 94-B/98, of 17 April, as amended, governs the activity of insurance companies, which are supervised by the Portuguese Insurance and Pension Funds Authority (ASF).

11 All amounts indicated for the transactions indicated below result from publicly available sources.

12 Available at www.concorrencia.pt/vPT/A_AdC/Instrumentos_de_gestao/Prioridades/Documents/AdC_Prioridades_2017.pdf.

13 Press release available at www.concorrencia.pt/vPT/Noticias_Eventos/Comunicados/Paginas/Comunicado_AdC_201502.aspx?lst=1&Cat=2015.

14 Court decision available at www.concorrencia.pt/vPT/Praticas_Proibidas/Decisoes_Judiciais/contraordenacionais/Documents/AAE_1_13_TCRS1jul2015.pdf.