I OVERVIEW OF M&A ACTIVITY

The Portuguese economy continued to show some positive signs in the past year, in particular with GDP growing 2.1 per cent in 20182 (GDP started to grow in 2014, at a rate of 0.9 per cent, and continued to grow in 2015, 2016 and 2017, at a rate of 1.5, 1.4 and 2.7 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 2019 registered GDP volume growth of 0.5 per cent compared with the first quarter of 2018.3

In addition, 2018 was the third 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 350 M&A deals, and the 158 transactions with disclosed value totalled approximately €22.583 billion (76.12 per cent higher than the value registered in 2017).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, and even though their interest in Portugal has been originated by the crisis, the truth is that they maintain a very relevant role in the dynamic of the Portuguese economy, 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 with real estate being the most active sector in the Portuguese M&A market, and this trend has been reinforced year on year.
  8. Tourism has been key for the revitalisation of the Portuguese economy and has also been growing every year, reaching 13.7 per cent of the GDP in 2017.5

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 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, and created 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 the 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, 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 the Directive on Alternative Investment Funds Managers,8 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 Portuguese Securities Market Commission (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 TRANSACTIONS9

i M&A transactions headed by strategic foreign investors

Activity in the Portuguese M&A market in the past 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 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. In March 2019, Hainan Airlines sold its interest in TAP to Azul and Global Aviation Ventures, both controlled by David Neeleman;
  2. 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;
  3. 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;
  4. in November 2017, China Tianying acquired the insurance companies Groupama Seguros de Vida and Groupama Seguros for an undisclosed amount.
  5. in June 2017, EDP sold 49 per cent of EDPR PT – Parques Eólicos to a subsidiary of China Three Gorges Group for €242 million.
  6. in May 2018, China Three Gorges launched a takeover offer over EDP and EDP Renováveis, subject, in particular, to the withdrawal of the voting cap in EDP's articles of association by EDP's shareholders' general meeting. Since the withdrawal was not approved, in May 2019 the CMVM put an end to the takeover offer based on non-compliance with the conditions established by China Three Gorges.
  7. in November 2018, the Macao businessman Kevin Ho, through KNJ Investment, acquired a 30 per cent stake in Global Media Group for €15 million;
  8. in July 2018, Bison Capital Financial Holdings completed the acquisition of Banif Banco Investimento from Oitante.

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 July 2018, Blackstone sold Fórum Almada to Merlin Properties for €406.7 million. In line with this trend, of the 160 inbound acquisitions completed in the past year, 136 were carried out by European investors, with Spain and the United Kingdom sitting in first and second place, respectively.10

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). In June 2015, she 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 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. In June 2018, OutSystems raised US$360 million from KKR and Goldman Sachs in exchange for a minority stake. In the third quarter of 2018, Morgan Stanley Infrastructure Partners and Horizon Equity Partners acquired a 75 per cent stake in Towers of Portugal from Altice for €495 million. In December 2018, the Carlyle Group and Explorer Investments acquired Penha Longa Hotel and Golf Resort for €100 million and in February 2019, Oaktree acquired a stake in Belas Clube de Campo, with a global estimated investment of €500 million.

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

In 2018, 60 per cent of the outbound registered deals completed in the past year were carried out in European companies, with Spain clearly leading the rankings (with approximately 40 per cent of the deals), then followed by two non-European countries: Brazil and the United States (with 12 per cent and 8 per cent, respectively, of the outbound deals).11

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, a bank that resulted from the transfer of part of Banco Espírito Santo's businesses after its collapse in August 2014, for a global investment of €1 billion. Portugal's bank resolution fund retained the remaining 25 per cent of Novo Banco;
  7. in March 2018, Novo Banco sold the business of its Venezuelan subsidiary to Bancamiga, Banco Universal for an undisclosed amount;
  8. in May 2018, Santander Totta (a Spanish bank) acquired Banco Popular Portugal for €1; and
  9. in June 2019, Deutsche Bank completed the sale of the retail, private and commercial client business of its Portuguese branch to the Spanish bank Abanca.

ii 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 have seen 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 June 2018, New Finerge, the company that acquired the Finerge wind farm business in 2015, acquired five companies engaged in the wind sector. In May 2019, Finerge announced the acquisition of two wind asset portfolios from Martifer and SPEE, and in June 2019 announced that it will be one of the bidders in the solar energy auctions to be launched by the government as from July 2019. In March 2019, Total Eren acquired from Novaenergia Fund the company Novenergia Holding Company, which owns, in particular, Generg, one of the biggest renewable energy players in Portugal that also has activities in six other European countries.

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 February 2019, Gascan was then sold by Artá to UBS Asset Management for €100 million. In October 2017, REN completed the acquisition of EDP Gás from EDP for €532 million.

In 2018, Aquila Capital acquired the entire share capital of EDP Small Hydro, SA, a company engaged in the operation of hydro power plants, for €164 million.

The sale of Partex Oil and Gas by Fundação Gulbenkian to Thai company PTTEP for €622 million was announced in June 2019 and is expected to be completed by year-end.

iii Real estate and construction sectors

The real estate sector contributes very significantly to the activity levels in Portuguese M&A, and 2018 confirmed this trend: real estate was the most active sector by number of deals, with some of the highest levels of activity ever seen.

Since 2017, the sale of shopping centres has been particularly prevalent. For instance:

  1. in 2017, Fórum Coimbra and Fórum Viseu were sold by Locaviseu to Greenbay and Resilient for a global amount of €220 million;
  2. in January 2018, Dolce Vita Tejo (the second-biggest shopping centre in Portugal) was sold by Baupost and Eurofund to AXA Investment Managers for €230 million;
  3. also in January 2018, Sintra Retail Park, Fórum Sintra and Fórum Montijo, valued at €400 million, were sold by Blackstone to Auchan;
  4. in July 2018, Blackstone sold Fórum Almada to Merlin Properties for €406.7 million; and
  5. in April 2019, Leiria Shopping was sold by Sonae Sierra Fund to DWS Grundbesitz for €128 million.

The hospitality and residential sectors have also thrived, with deals such as the acquisition in December 2018 of the Penha Longa Hotel and Golf Resort by a joint venture formed by the Carlyle Group and Explorer Investments for €100 million, and the acquisition by Oaktree of a stake in Belas Clube de Campo, with a global investment estimated of €500 million.

Moreover, several logistic platforms were sold, such as:

  1. in May 2017, EIPA II in Azambuja, totalling 54,640 square metres, was acquired by Deutsche Asset Management from ECS Capital;
  2. in November 2017, Logicor (one of the largest European logistic platforms) was sold by Blackstone to China Investment Corporation for a global amount of €12.250 billion; and
  3. in January 2018, four of DIA's logistic platforms in Spain and Portugal were acquired by Blackstone for €90 million.

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, put in place a divestment plan, in the context of which it sold Lagoas Park. SA in June 2018, the company that owns a business park near Lisbon, to the private equity fund Kildare for €375 million, and in August 2018, its 7.5 per cent stake in Lusoponte to Vinci and Mota-Engil for €23.3 million.

In January 2019, InterCement Brasil completed the sale of the Portuguese and Cape Verdean business of Cimpor to the Turkish group Oyak for €700 million.

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. In addition, financing through the issuance of bonds is becoming more and more common.

VII EMPLOYMENT LAW

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

However, it should be noted that the Portuguese market and legal community are still adjusting to the substantial amendments, approved by Law No. 14/2018, of 19 March, on the Portuguese Labour Code, which considerably changed the employment-related rules governing transfers of undertakings or parts of undertakings. In this regard, a special mention should be made about the now-express acknowledgement of employees' right to oppose the transfer of their employment agreements upon a transfer of an undertaking or establishment.

In fact, the recent changes to the regime now expressly make it possible for employees who oppose a transfer to stay with their existing employer whenever such a transfer causes them serious damage. However, the amendments do not give a complete definition of what is to be considered serious damage but merely provide some abstract examples, such as 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 the lack of conceptual rigour of these new rules, it will be up to the labour courts to determine how easy or difficult bringing an allegation of serious damage will be.

In the past year, the ultimate consequences of an employee's objection to a transfer have also been called into question, given the unclear wording of the new provisions. In fact, if an employee objects to a transfer and stays with the transferor, the latter could refuse to keep the employee and force him or her to bring a lawsuit to prove the alleged serious damage. If successful, the employee's right to stay with the transferor would be recognised, but it is unclear what would happen if the employee is unsuccessful. Would the employee be deemed to have transferred to the acquirer of the business? Will the illegal enforcement of the opposition right be qualified as a resignation without the right to compensation? The answer to these questions is unclear, and it will be up to the courts to provide additional guidance in this regard.

The opposition right is particularly ill-designed in respect of situations where a transferor ceases to exist (notably, in the case of a merger). The most sensitive solution would be to consider that the right of opposition could only determine that an employee would be entitled to terminate a employment agreement and claim the payment of an indemnity from the transferor (equivalent to the severance compensation paid in the event of redundancy), but until the courts issue rulings with this understanding, the answer will remain unclear.

It is also worth mentioning that the new changes also set forth that an employee who did not oppose the transfer of his or her employment agreement may later on terminate the contract with the acquirer of the business and demand payment of a compensation, if he or she sustains he or she has suffered serious damage as a result of the transfer. However, the deadline for enforcing this right is controversial: for instance, is there a statute of limitations or a deadline to operate the termination? Some scholars maintain that the right to terminate the agreement and claim the payment of severance compensation from the acquirer of the business would only be possible in relation to the transfer of an undertaking as a whole and not a (partial) transfer of a business. Again, this is also debatable and, given how recent these changes are, it is not yet possible to anticipate where the courts will stand in this matter.

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 had an impact on M&A activity 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 materially 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 2019 include the following:

  1. increasing the fight against cartels;
  2. reinforcing its ex officio capabilities to conduct investigations;
  3. increasing knowledge on the use of algorithms or AI by companies that could lead to anticompetitive practices; and
  4. obtain greater celerity in merger control investigations.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.

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 current 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.

In addition, important deals are ongoing or in the pipeline, such as the sale of Altice's Portuguese fibre business and the sale of Tranquilidade by Apollo.


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=314609582&DESTAQUESmodo=2 

3 Information available on the Portuguese Statistics Institute website: https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=353902457&DESTAQUESmodo=2 

4 According to the 2018 annual report released by Transactional Track Record and Intralinks in December 2018: https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/Mercado-Iberico-4T-2018/1849/ 

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.

8 Directive No. 2011/61/EU, of 8 June 2011, on Alternative Investment Funds Managers.

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

10 According to the 2018 4Q report released by Transactional Track Record and Intralinks in December 2018: https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/Mercado-Iberico-4T-2018/1849/ 

11 According to the 2018 4Q report released by Transactional Track Record and Intralinks in December 2018: https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/Mercado-Iberico-4T-2018/1849/