I OVERVIEW OF M&A ACTIVITY

The Portuguese economy continued to show some positive signs in the past year, in particular with GDP growing 2.7 per cent in 20172 (GDP started to grow in 2014, at a rate of 0.9 per cent, and continued to grow in 2015 and in 2016, at a rate of 1.5 and 1.4 per cent, respectively, in contrast with the 1.4 per cent decrease in 2013 and the 3.3 per cent decrease in 2012).The first quarter of 2018 registered GDP volume growth of 2.1 per cent compared with the first quarter of 2017.3

In addition, 2017 was the second year after the conclusion of the financial assistance programme with the European Commission, the International Monetary Fund and the European Central Bank, which was initiated in 2014 further to Portugal's bailout in 2011 and the execution of a memorandum of understanding with those entities in May 2011, and this has also contributed to restoring 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: there were more than 320 M&A deals, and the 127 transactions with disclosed value totalled approximately €11.4 billion (13.58 per cent higher than the value registered in 2016).4 The following events have been key factors for this dynamic in the Portuguese M&A market during the past couple of years:

  1. Several privatisations, foreseen under the Portuguese financial assistance programme, were carried out, 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, 66 per cent of which 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).
  2. Portuguese banks and other entities in the financial and insurance sectors have focused on selling non-core assets and businesses.
  3. 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 and to the sale of Novo Banco itself.
  4. 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.
  5. 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.
  6. Chinese and Angolan investors have also played a significant role in M&A activity, acquiring companies in several business sectors.
  7. 2014 was a turning point for the real estate sector, with relevant deals in all segments, and this trend has been reinforced year on year.
  8. The private equity fund Revitalizar, created in 2013 by the government and managed by Portuguese private equity firms, invested more than €207 million between 2014 and 2017 in approximately 100 Portuguese small and medium-sized companies.5

    II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

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

    1. the Civil Code, enacted by Decree-Law No. 47344, of 25 November, as amended, which contains the general rules governing sales, purchases and contracts;
    2. 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;
    3. the Securities Code, enacted by Decree-Law No. 486/99, of 13 November, as amended, which is applicable to listed companies6 but also contains the general regime regarding some matters, such as the transfer of shares in sociedades anónimas;
    4. the Competition Code, enacted by Law No. 19/2012, of 8 May;
    5. the Labour Code, enacted by Law No. 7/2009, of 12 February, as amended; and
    6. the private equity legal regime, enacted by Law No. 18/2015, of 4 March.

    In addition, regulated sectors such as banking, financing and insurance are governed by specific laws and regulations, some of which are issued by the respective regulatory entities.7

    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

    A memorandum of understanding established as the main goals for the financial sector, inter alia:

    1. the preservation of its stability;
    2. an increase of liquidity and a balanced deleverage of the banking sector;
    3. the reinforcement of banking regulation and supervision;
    4. the restructuring of Caixa Geral de Depósitos, the state-owned bank; and
    5. 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, has been the object of an in-depth reform in the past few years, and enacted by several laws and decree-laws, in particular:

    1. 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, the 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.
    2. Decree-Law No. 20/2016, of 20 April, which sets forth that 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).
    3. 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 was 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.

      In 2017, there were two relevant amendments to the PCCC.

      Bearer securities

      Aiming at preventing corruption, money laundering and tax fraud, and increasing transparency in the capital markets, Law No. 15/2017, of 3 May, prohibits the issue of bearer securities, creating a transitional six-month period (until 4 November 2017) to convert existing bearer securities into registered securities. This Law came into force on 4 May 2017.

      As a consequence, all securities issued by Portuguese entities, including shares, must be registered securities, meaning that issuers must be able to identify their holders at any time.

      Pursuant to this Law, bearer securities that were not converted into registered securities within the aforementioned six-month period cannot be validly transferred, and their holders' right to participate in distribution of results is suspended until such conversion is completed.

      Conversion of shareholder loans into share capital

      Pursuant to Decree-Law No. 79/2017, of 30 June, the shareholders of limited liability companies by quotas that gather the necessary votes to approve the amendment of a company's articles of association may approve a share capital increase by conversion of shareholders' loans granted by them to the company by means of a simple communication to the company's directors.

      After receiving said communication, the directors must inform the remaining shareholders, who have 10 days to oppose the share capital increase, which only becomes effective if none of the latter opposes the conversion.

      iii Private equity

      The private equity legal regime has also been the object of reform in the past few years, with the regime enacted by Law No. 18/2015, of 4 March (which partially transposes Directive No. 2011/61/EU, of 8 June 2011, on Alternative Investment Funds Managers, and Directive No. 2013/14/EU, of 21 May 2013) replacing the regime enacted in 2007, and which also regulates, for the first time, investment in social entrepreneurships and in specialised alternative investments.

      One of the main modifications is the creation of two different regimes applicable to private equity companies depending on the value of the portfolios under their management: a stricter regulatory regime is applicable to entities that manage private equity funds whose portfolio value is higher than €100 million when such portfolio includes assets acquired with the use of leverage, or €500 million when such portfolio does 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 entails, in particular:

      1. an authorisation from the CMVM prior to their incorporation (as opposed to a prior registration with the CMVM as applicable for other private equity companies);
      2. 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
      3. 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 TRANSACTIONS 8

      i M&A transactions headed by strategic foreign investors

      Activity in the Portuguese M&A market in past years has been to a large extent due to the role of foreign investors – especially Chinese, US, Spanish, German and Angolan investors – who have played 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:

      1. 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;
      2. 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;
      3. 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;
      4. in May 2017, Luz Saúde announced the acquisition of 90.41 per cent of the British Hospital group from Capital Criativo;
      5. in June 2017, a subsidiary of China Three Gorges Group (ACE Portugal Sàrl) acquired 49 per cent of EDPR PT – Parques Eólicos, a 422MW wind farm, for €248 million;
      6. in November 2017, China Tianying acquired the insurance companies Groupama Seguros de Vida and Groupama Seguros for an undisclosed amount.
      7. in June 2017, EDP sold 49 per cent of EDPR PT – Parques Eólicos to a subsidiary of China Three Gorges Group for €242 million.

      h in May 2018, China Three Gorges launched a takeover offer over EDP and EDP Renováveis.

      European investors have been more active in recent years. Examples include the acquisition of SAPEC Agro Business (engaged in crop production products and crop nutrition, with sales in over 70 countries) by Bridgepoint, completed in January 2017, for €456 million; the takeover launched by Caixabank on Banco BPI, which was successfully completed and entailed an investment of €645 million; and the acquisition of Ascendi by Ardian for €600 million. In line with this trend, of the 116 inbound acquisitions completed in the past year, 86 were carried out by European investors, with Spain and the United Kingdom sitting in first and second place, respectively.9

      Angolan investors have been very active in the Portuguese market. Key players include Isabel dos Santos, daughter of the Angola's former president and Africa's richest woman, who already owns shareholdings in, inter alia, 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 EuroBic (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 acquired 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 United States, 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

      In 2017, outbound acquisitions were mainly carried out in European companies, with Spain, France and the United Kingdom leading the rankings.10

      V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

      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 in the past few years.

      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 and insurance groups have been selling non-core businesses. The increasingly strict regulatory requirements in both the banking and insurance sectors have also led to strategic divestments by several players.

      The following are examples of deals in these sectors:

      1. in April 2016, Bankinter (a Spanish bank) acquired the retail and insurance business of Barclays Portugal for approximately €160 million;
      2. 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;
      3. in February 2017, the Chinese conglomerate Fosun completed the acquisition of a 24 per cent stake in Millennium BCP for a global investment of €549 million (see above);
      4. again in February 2017, Caixabank successfully completed its takeover of Banco BPI, raising its stake from 45 to 84.5 per cent, for €645 million;
      5. in August 2017, Novo Banco entered into an agreement to sell 90 per cent of its Cape Verdean subsidiary (Banco Internacional de Cabo Verde) to IIBG Holdings BSC, a transaction that was approved by the Cape Verdean antitrust authorities in May 2018;
      6. in October 2017, Lone Star completed the acquisition of 75 per cent of Novo Banco for a global investment of €1 billion.
      7. in March 2018, Novo Banco sold the business of its Venezuelan subsidiary to BANCAMIGA, Banco Universal for an undisclosed amount; and
      8. again in March 2018, Deutsche Bank agreed to sell the retail, private and commercial clients business of its Portuguese branch to the Spanish bank Abanca, a deal that is expected to be completed by June 2019.

      Finally, Santa Casa da Misericórdia de Lisboa, a non-profit organisation operating under the control of the government that operates lotteries, lotto games and sporting bets, is considering acquiring a stake of up to 2 per cent in the Portuguese bank Montepio Geral.

      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 addition, 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. In October 2017, the sale of Novo Banco to Lone Star was completed for a global investment of €1 billion. Portugal's bank resolution fund retained the remaining 25 per cent of Novo Banco.

      iii Energy sector

      The energy sector has also been particularly active in the past few years.

      As far as renewable energy is concerned, the past couple of years saw some of the biggest wind asset portfolios being sold, including the sale of Iberwind to 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, all in 2015. In May 2018, New Finerge, the company that acquired the Finerge wind farm business in 2015, announced the acquisition of five companies engaged in the wind sector. This deal is now pending antitrust approval.

      Several deals also took place in the gas sector. 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 Portuguese private equity Explorer for €70 million. In October 2017, REN completed the acquisition of EDP Gás from EDP for €532 million.

      iv Real estate and construction sectors

      The real estate sector contributes very significantly to the activity levels in Portuguese M&A, and 2017 confirmed this trend: real estate was the most active sector in number of deals, with some of the highest levels of activity ever seen.

      Since 2017, the sale of shopping centres has been particularly prevalent, with a global €1 billion investment expected in 2018. For instance:

      1. Dolce Vita Tejo (the second-biggest shopping centre in Portugal) was sold by Baupost and Eurofund to AXA Investment Managers for €230 million;
      2. Sintra Retail Park, Fórum Sintra and Fórum Montijo, valued at €400 million, were sold by Blackstone to Auchan;
      3. a controlling stake in the entity holding MaiaShopping and GuimarãesShopping was acquired by Ocidental Seguros (pertaining to Ageas insurance group) from Sonae Sierra; and
      4. Fórum Coimbra and Fórum Viseu were sold by Locaviseu to Greenbay and Resilient for a global amount of €220 million.11

      Moreover, several logistic platforms were sold, such as:

      1. EIPA II in Azambuja, totalling 54,640 square metres, was acquired by Deutsche Asset Management from ECS Capital;
      2. four of DIA's logistic platforms in Spain and Portugal were acquired by Blackstone for €90 million; and
      3. Logicor (one of the largest European logistic platforms) was sold by Blackstone to China Investment Corporation for a global amount of €12.250 billion.

      Related to the dynamism seen in the real estate sector, the construction sector has also been quite active, with the sale of several construction companies such as Grupo Elevo (sold in September 2017 by Vallis Construction Sector for €90 million), Opway (sold in December 2017 by the company's management team for an undisclosed amount) and Ramos Catarino (sold in May 2018 by the Catarino family for an undisclosed amount), all of which were acquired by Nacala Holdings.

      In addition, Teixeira Duarte, one of the biggest Portuguese construction companies, has a divestment plan in motion to sell assets valued at €500 million, including Lagoas Park, a business park near Lisbon, its 7.5 per cent stake in Lusoponte (both of these are expected to be completed in 2018) and its 9 per cent stake in Auto-Estradas do Baixo Tejo.

      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.

      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 Loan Market Association-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

      In 2017, further to some high-profile transactions that were the subject of extensive media coverage, the government's attention was drawn to the employment rules governing transfers of undertakings, which resulted in a series of substantial amendments, recently approved by Law No. 14/2018, of 19 March, which amended the Portuguese Labour Code and substantially changed the employment-related rules governing transfers of undertakings or parts of undertakings. The most striking aspects of this new legislation are as follows:

      The term of the transferor's joint and several liability with the transferee for the credits of employees resulting from the execution, breach or termination of their employment agreements has been extended from one to two years following the transfer.

      The Portuguese labour authorities – the Ministry of Labour and the Labour Inspectorate – now have an active role regarding information and consultation duties within transfers of undertakings. Particularly relevant is the new obligation of the transferor to inform the Labour Inspectorate of the content of the contract executed with the transferee and, where a transfer of an economic unit takes place, to provide details of all the elements forming part of such unit (however, in companies with fewer than 50 employees, this information needs only to be provided upon the express request of the Labour Inspectorate).

      The role of trade unions is enhanced; they are now considered employees' representatives under the new framework, regardless of whether a union delegate has been appointed for the company or not.

      If no representative structures for employees are already in place, employees can now nominate an ad hoc representative committee. This committee will represent them in the consultation phase (if applicable).

      There is also a reinforcement of the information duties for the transferor and transferee, along with extended deadlines (which, in some cases, may entail a two-month procedure prior to a transfer). According to the new rules, the parties to the transaction must inform employees and their representatives of the content of the contract agreed between them (without prejudice to the right to omit specific information where that data could potentially harm or seriously affect the company's operation). What the content that should be disclosed is, however, unclear, and may give rise to different interpretations.

      There is now an express acknowledgement of employees' right to oppose the transfer of their employment agreements whenever the transfer can cause them serious damage. This opposition right was the most substantial change to the regime. As per the new wording of the law, a transfer may cause serious damage to an employee where there is an evident lack of solvency or a precarious financial situation of the transferee, or even when, in the employees' view, the transferee's human resources policies do not warrant their trust. Considering that the grounds under which employees may oppose the transfer of their agreements are based on undetermined concepts, it will be up to the labour courts to determine how easy or difficult bringing an allegation of serious damage will be.

      By opposing the transfer of their employment agreements to the buyer (which has to be expressed, in writing, before the transfer takes place), employees may choose between maintaining their employment relationship with the transferor; or terminating the employment agreement with cause, in which case they are entitled to compensation identical to that provided for in the event of collective redundancies.

      These rules concerning a transfer of an undertaking entered into force on 20 March 2018 and apply to all such transfers occurring as of that date.

      It should be stressed that these labour rules do not apply to share purchase deals. In fact, this regime merely concerns the transfer by any means (spin-off, merger, assignment, etc.) of an undertaking, an establishment, or part of an undertaking or an establishment constituting an autonomous unit.

      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 past 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 were the following:

      1. reinforcing its ex officio capabilities to conduct investigations;
      2. increasing the swiftness and effectiveness of investigations, including with regard to merger control;
      3. increasing the fight against cartels; and
      4. strengthening the legal and economic grounds of its decisions by consolidating its internal checks and balances mechanism.12

      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 of the SUMA/EGF concentration (a merger between two relevant companies operating at different levels of the Portuguese waste management market), which followed an in-depth investigation, was fully 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 Court.

      X OUTLOOK

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

      The following point to the maintenance of the levels of activity in the sector in Portugal:

      1. the continuing improvement of the Portuguese economy;
      2. the ring-fencing process and the restructuring of local players;
      3. increasing access to financing; and
      4. the sustained interest of foreign investors, including major international investment funds, in Portugal.

      Some interesting transactions are currently ongoing, such as the public takeover launched by China Three Gorges over EDP and EDP Renováveis. In addition the acquisition of Media Capital by Altice, one of the leading media groups in Portugal, is pending antitrust approval, which shall be issued at any moment.

      In addition, important deals are in the pipeline, including the sale of Partex Oil and Gas by Fundação Gulbenkian (after negotiations with CEFC China Energy ceased in April 2018 in a deal valued at €500 million), and several real estate transactions such as the sale of Lagoas Park and a stake in Lusoponte by Teixeira Duarte, and the sale of real estate portfolios by insurance companies and financial institutions.


      Footnotes

      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: https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=281044664&DESTAQUESmodo=2.

      3 Information available on the Portuguese Statistics Institute website: https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=314609333&DESTAQUESmodo=2.

      4 According to the 2017 annual report released by Transactional Track Record and Intralinks in December 2017: https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/Mercado-Iberico-4T-2017/1778/.

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

      7 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).

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

      9 According to the 2017 4Q report released by Transactional Track Record and Intralinks in December 2017: https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/Mercado-Iberico-4T-2017/1778/.

      10 According to the 2017 4Q report released by Transactional Track Record and Intralinks in December 2017: https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/Mercado-Iberico-4T-2017/1778/.