Mergers and Acquisitions Report: Tunisia

Samir Abdelly of Abdelly & Chaary and Partner assesses the M&A regulatory framework in Tunisia

Section 1: GENERAL OUTLOOK

1.1 What have been the key recent M&A trends or developments in your jurisdiction?There are no key recent M&A developments in our jurisdiction.1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?

Section 2: REGULATORY FRAMEWORK

2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?The following legislation principally governs public M&A activity: the Tunisian Commercial Companies Code; law no. 91-64 of July 29 1991, addressing competition and prices, as subsequently amended; law no. 94-117 of November 14 1994, adressing reorganisation of the financial market, as subsequently amended; and the General Regulation of the Stock Market of Tunis, as subsequently amended.The primary regulatory bodies are: the Financial Market Council (Conseil du Marché Financier); the Tunisian Competition Council (Conseil de la Concurrence); and the Ministry of Commerce.2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?The Financial Market Council supervises takeover bids.The Tunisian Stock Exchange Market (Bourse des Valeures Mobilières de Tunis) monitors trading on all regulated markets.

Section 3: STRUCTURAL CONSIDERATIONS

3.1 What are the basic structures for friendly and hostile acquisitions?

Hostile acquisitions of a Tunisian public target are generally structured as a tender offer by the bidder to all or part of the target’s shares at the same price in cash and/or shares. A friendly acquisition is often preceded by the purchase of one or several blocks of shares. When the acquisition is paid in shares, it may be structured as a merger, subject to the approval of a two-thirds majority of an extraordinary general meeting of the two companies.

3.2 What determines the choice of structure, including in the case of a cross-border deal?

The acquisition is often preceded by an acquisition of share blocks in the framework of an acquisition on a cash deal basis. In a share deal, the acquirer may structure its acquisition as a merger operation. The acquisition is preceded by a takeover bid to squeeze out minority shareholders, after which the company can execute the merger.

In a cross-border deal, the target company’s activity must be considered. Certain sectors restrict foreign ownership and require prior authorisation of the Ministry of Trade and/or the Central Bank of Tunisia.

3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?

An acquisition can take two to three months to complete. A higher offer or a competing offer may be filed with the Financial Market Council up to five trading days before the closing of the previous offer. The timeline can be extended when regulatory approval or antitrust proceedings are required.

3.4 Are there restrictions on the price offered or its form (cash or shares)?

A public offer can be made in cash, shares or a combination of the two. The Financial Council Market may need to review the price offered, depending on objective assessment criteria or the characteristics of the target’s company.

3.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?Minority shareholders have the right to withdraw from the capital of the target company through a public repurchase offer or mandatory public tender offer.

3.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?

The general principle is that the bidder must treat all shareholders of the same class of a target’s company the same. Minority shareholders do not enjoy specific protections against the payment of control premiums, or other preferential pricing for selected shareholders.

However, any person who, alone or in concert exceeds (even unintentionally) the 40% threshold of the shares or voting rights in the target must file an offer for 100% of the target’s share capital and equity-linked securities.

Any person who, alone or in concert exceeds (even unintentionally) the 95% threshold of the shares or voting rights in the target must file a public repurchase offer.

3.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?

Except for certain limited conditions for voluntary offers, public offers cannot be conditional and are irrevocable upon filing. The banks filing the offer on the bidder’s behalf guarantee payment.

Section 4: TAX CONSIDERATIONS

4.1 What are the basic tax considerations and trade-offs?

The basic tax is for stamp duty and registration at the charge of the purchaser. Value added tax is also applicable.

4.2 Are there special considerations in cross-border deals?

For cross-border deals, tax treaties with the Tunisian Republic will be applied.

Section 5: ANTI-TAKEOVER DEFENCES

5.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?

The most common anti-takeover defences that a company can use to resist a hostile takeover bid is to separate the power of the company from its share capital.

This means that the power of the company could be focused at the level of the reference shareholders, whereas the other shares are deprived of their voting rights. The company can also make a statutory ceiling for participations.

5.2 How do targets use anti-takeover defences?

The target can use anti-takeover defences to invalidate a transaction. However, in most cases the target will use such defences to obtain a higher price or postpone the acquisition until competing bidders are involved.

5.3 Is a target required to provide due diligence information to a potential bidder?

The target company may (but is not required to) allow a due diligence review. The existence of the due diligence review, as well as any privileged information disclosed though the due diligence process, must be disclosed in the offer prospectus.

5.4 How do bidders overcome anti-takeover defences?

Bidders can overcome anti-takeover defences by offering a higher price.

5.5 Are there many examples of successful hostile acquisitions?

Section 6: DEAL PROTECTIONS

6.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?

It is difficult to prevent an interloper from filing a competing offer because any competing offer must be approved by the Financial Council Market.

However, in practice, the acquirer may use break fees and undertakings from the target not to actively seek counter bidders.

6.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?

As indicated in section 6.1, any competitor has the right to make a public offer as long as the offer remains open. Break fees are not provided for under Tunisian laws and as such, are not prohibited.

However, general principles regarding the liability of the directors to act in the target’s interests make break fees rare in practice.

Section 7: ANTITRUST/REGULATORY REVIEW

7.1 What are the antitrust notification thresholds in your jurisdiction?

In accordance with article 7 of the Competition Law, antitrust review will apply only if:

the concerned companies have together achieved at least 30% of the sales, purchases or other transactions during the three fiscal years over a national market of substitutable goods, products or services or over a substantial part of such market;
the global turnover achieved in the local market reaches at least TND 20 million (approximately $10 million).

7.2 When will transactions falling below those thresholds be investigated?

7.3 Is an antitrust notification filing mandatory or voluntary?

Antitrust notification filing is mandatory if the transactions meet the conditions indicated in section 7.1.

7.4 What are the deadlines for filing, and what are the penalties for not filing?

Any project of concentration or concentration operation shall be subject to the prior authorisation of the Ministry of Commerce by the concerned parties. This must be filed no later than 15 days from the date of conclusion of the concentration act, merger, and publication of the purchase offer of exchange of rights or obligation or acquisition of control participation.

Without prejudice to the sanctions stated by courts, the Competition Council may order the concerned operators in breach of these requirements to pay a fine of no more than five percent of their pre-tax turnover as achieved in Tunisia during the last financial year.

7.5 How long are the antitrust review periods?

No response from the Ministry of Commerce for three months from the date of a transaction’s referral can be taken as the Ministry’s tacit acceptance of the deal.

7.6 At what level does your antitrust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?

The Ministry of Trade and/or the Competition Council do not have jurisdiction to review or impose penalties for failure to notify deals that do not have local competition effect.

7.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?

Bidders established in Tunisia must comply with all Tunisian laws and regulations.

In connection with the labour law, the change in control of a company (being an employer) does not have any effect on the employment contracts made between the parties.

Foreign ownership restrictions apply in certain sectors (such as commercial, financial and real estate). These require majority ownership (at least 51%) by Tunisian investors.

Section 8: ANTI-CORRUPTION REGIMES

8.1 What is the applicable anti-corruption legislation in your jurisdiction?

The relevant legislation includes: the Tunisian Penal Code; the Framework Decree (Décret-Cadre) of November 14 2011 pertaining to the fight against embezzlement; and Decree of February 18 2011, creating the National Commission on Investigation into Corruption and Embezzlement.

Article 91 of the Penal Code provides that:
a breach will occur where any person has bribed or attempted to bribe by donations or promises of donations, or presents or advantages of any kind to a public officer (and any person to be treated as a public officer within the meaning of the Penal Code) to perform any act related to his function, even a rightful act related to the function of the public officer, but not subject to a consideration, or to facilitate the achievement of an act related to his function, or to refrain from doing any act that it is his duty to do.

There is no offence for bribing either a private person or company under the Tunisian Penal Code.

The Framework Decree introduced criminal sanctions for corruption within the private sector. However, the laws criminalising corruption in the private sector have not been enacted.

8.2 What are the potential sanctions and how stringently have they been enforced?

Violation of the prohibition on giving gifts or hospitality to government officials and/or public servants is punishable by five years imprisonment and a fine of TND 5,000.

Section 9: OTHER MATTERS

9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?