April has seen the coming into force of the new Government of Serbia’s (“GoS”) Regulation on Sale of Capital of Large Privatization Subjects. The sale of capital is a model of privatization of companies through sale of shares rather than sale of assets. The model is usually conducted through a call for bids, followed by a public auction where the offered price is the only criteria to determine the buyer.
In case of large privatization subjects (companies with annual revenue in the year preceding the privatization of over RSD 50 billion, i.e. approx. EUR 400 million), the Privatization Act allows for a proceeding that involves more space for negotiations, and the new regulation regulates the process in more detail.
The process involves two stages:
1. submission of non-binding bids; and
2. submission of binding bids followed by negotiations.
During stage 1, potential bidders are allowed access to general financial and business data of the company being privatized, based on which they make a non-binding bid. Based on the bids submitted during the first stage, a tender commission selects bidders which will be allowed access to complete materials needed for a thorough financial and legal due diligence.
After the detailed analysis of the information on the target company, binding bids are made. The criteria for determining the best bid is much wider than just the price offered, and also includes: the terms of sale, future planned investments, the scope of the redundancy/welfare program and other terms and conditions. At the final stage, the successful bidder is given an opportunity to negotiate the details of the share purchase agreement with the representatives of the GoS.
The main benefit of this model is the opportunity for the bidders to make a more nuanced offer while, at the same time, the GoS can make its decision based on a wider set of criteria (both economic and social) and not just the sale price. Moreover, the GoS and the bidder are allowed to fine-tune the agreement through negotiations, although, the scope of changes should be limited to the extent that does not substantially change the binding bid to the bidders advantage, since this would discriminate against other bidders which did not get the same opportunity to negotiate.
By Milan Samardzic, Partner, and Rastko Pavlovic, Associate SOG / Samardzic, Oreski & Grbovic
- Serbia Opens Negotiation Chapters 23 and 24
- Central Register of Temporary Restrictions of Rights of Entities Registered with the Serbian Business Registers Agency Started Working
- Government Incentives for Making Audiovisual Works in Serbia
- Announcement of the Serbian Personal Insolvency Act and Relevant Regional Experiences
- SOG Advises Lundin Mining on Purchase of Shares in Timok Project