M&A and Corporate Advisory Director at RSM Poland
Takeovers, due to the government’s draft amendment to the act on controlling certain investments, is again hitting the front pages. In a nutshell, it will be up to the Chairman of the Office of Competition and Consumer Protection to decide if the transaction may be carried out. This restriction concerns investors from outside the European Union and the European Economic Area. Reading between the lines, amid the current recession caused by SARS-COV-2 such regulations are mainly to stop the inflow of capital from Asia. However, frankly speaking, this will also affect other important investors, including those from the US or even those more “European” ones, from the UK.
Objectively, such control over investments (called protection) would be justified if there were attempts to take over businesses having strategic value for Poland, most of all in the public sector. But how to reconcile such a form of “protection” with private business?
All because of the pandemic
The pandemic and the related recession surely affect the trade and companies’ operations. However, it should be remembered that one day the crisis will be over and that not all businesses are affected to the same extent. It is true at the time of the recession the prices of companies drop (it is one of the key factors that are supposed to justify the introduction of the provisions in question), but does it concern all of them? There are, in fact, companies who remain unaffected (or this effect is marginal) and those which benefit from the economic crisis and their prices skyrocket, thus, the potential sale may be carried out on extremely attractive conditions.
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There is no logical explanation or answer to the question why, under the guise of the pandemic, the government introduces laws restricting the freedom of disposing of private property. Why should anyone who has been building his business for his entire life and had to repeatedly overcome bureaucratic obstacles ask for permission to sell own property?
The proposed amendment to the act in question poses a real threat of delaying or even blocking transactions for investors outside of the EU and the European Economic Area. It should be remembered that the investor, though often patient, will not wait forever, as the money has to be put to work.
Questions with no answers
The government wishes to control and, in fact, hinder transactions, and fails to offer the parties anything in return. The proposed restrictions are completely out of balance. Thus, the question arises, why, for the sake of maintaining this balance, the government cannot become one of the parties to the transaction and offer, e.g., to buy out the company at a market price, disregarding the loss in value being a result of the pandemic? On the other hand, such a solution would raise further doubts: why should an average taxpayer be burdened with the cost of such transactions? The basic source of the state income are taxpayers’ pockets. And – what is crucial – why the consequences of potential refusal of the Chairman of the Office of Competition and Consumer Protection regarding the performance of the transaction should be borne by the entrepreneur himself? If he sees any benefits in the transaction such a decision would deprive him of any.
Will there be thus any compensatory claims? Moreover, what is exactly the purpose of these actions? Currently, the majority of the aid instruments proposed and executed under the so-called Anti-crisis shield are debt instruments. And what if an enterprise that uses them, regardless of good intentions and perfect plans, will not be able to service such an “aid” and, subsequently, the owner will not receive the consent of the Office of Competition and Consumer Protection for performing the sale? Will such an enterprise be taken over by the state due to debts at a minimum price?
Finally, there are also questions regarding those who fail to receive any state aid, and yet the crisis will affect them negatively, forcing them to take difficult decisions – bankruptcy or sale. What if there is an investor outside of the EU or EEA, offering an attractive and acceptable price, but no administrative consent can be obtained?
Whom does it concern?
The protection concerns businesses with revenue in Poland exceeding EUR 10 m in either of the two fiscal years preceding the expressed interest in taking over the business.
It includes business sectors that are key for safety protection, public health and order, e.g.:
- listed companies;
- developers of software used in key sectors, including power plants, fuels, water supply, cash supply, credit/debit card payments, hospitals, sale of prescribed medicine, air, rail, maritime or inland waterways transport, road and public transport as well as food supply;
- business activity related to electric energy, gas, fuels, telecommunications, food processing, manufacture of medicines, chemicals and fertilisers, explosives, weapons and ammunition as well as products manufactured for the purposes of military or police.
Not all cases are the same, not everyone has the same reasons for conducting the transaction or is forced to sell the business. It should be highlighted that the sale (although desirable) is not always a possible solution as such, at the end of the day it always takes two (a seller and a buyer). The fact that someone is willing to sell does not necessarily mean that someone else will be interested in buying. This additional obstacle introduced by the government may significantly aggravate the difficulties with finding an investor. We have to remember that takeovers often trigger further development of the company, however, it seems now that this issue is completely removed from the discussion.
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