Uzbekistan: Mergers & Acquisitions 2016

Last Updated: 22 February 2017
Article by Nail Hassanov and Maxim Dogonkin

1 RELEVANT AUTHORITIES AND LEGISLATION

1.1 What regulates M&A?

Joint-stock companies, limited and additional liability companies, general and limited partnerships are covered by M&A legislation. M&A transactions are regulated by the following laws and legislative acts:

  • Civil Code of the Republic of Uzbekistan dated 27 December 1994 and 01 July 1999 respectively (as amended).
  • Law No.223-I On Joint-Stock Companies and Protection of Shareholders' Rights dated 26 April 1996 (in the new edition as amended).
  • Law No.308-II On Commercial Partnerships dated 6 December 2001.
  • Law No.310-II On Companies with Limited and Additional Liability dated 6 December 2001 (as amended).
  • Law No.163 On the Securities Market dated 22 July 2008 (in the new edition as amended).
  • Law No. ZRU-319 On Competition dated 6 January 2012 (as amended).
  • Regulation on the procedure for issuance of the preliminary approval for establishment of associations of legal entities, consolidation and merger of legal entities (approved by the Resolution of the Cabinet of Ministers of Uzbekistan No. 344 dated 27.12.2013).
  • Regulation on the procedure for issuance of the preliminary approval for acquisition of shares of legal entities (approved by the Resolution of the Cabinet of Ministers of Uzbekistan No. 230 dated 20.08.2013).
  • other by-laws, including sector-specific rules.

1.2 Are there different rules for different types of company?

M&A legislation applies to companies that are incorporated and traded in Uzbekistan, whether these companies act as purchasers or targets in a transaction. If a foreign company wishes to purchase an Uzbek joint-stock company (JSC) such transaction will also be regulated by Uzbek M&A laws. M&A rules are generally the same for JSC and private companies, though some procedural differences in executing transactions take place. Foreign target companies are not affected by the M&A legislation.

It should be noted that Uzbek JSC may not trade over 25% of their shares in foreign jurisdiction. Moreover, where a company having state share is considered to have strategic interest for the economy of Uzbekistan, placing of its shares is subject to preliminary review by the Commission on Monitoring over Effective Use of State Shares in Publically Listed Companies.

1.3 Are there special rules for foreign buyers?

It is generally determined by the relevant laws that there is no special regime for foreign buyers. With that, however, some sector-specific rules as, for instance, those regulating mass media limit participation of foreign companies.

1.4 Are there any special sector-related rules?

There are some specific rules that apply to particular industries, including banking, insurance, mass media, natural monopolies, non-banking credit organisations and professional participants of securities market.

1.5 What are the principal sources of liability?

Besides contractual liability, there are procedural requirements set by company, competition and security market laws (administrative liability). It should particularly be noted that in accordance with security market laws, participants of the securities market might be found liable for market manipulation, deliberate dissemination of false information, insider dealing, or any efforts resulting in misleading on the price of securities. Liability of the persons involved in these illegal actions is determined by the court.

2 MECHANICS OF ACQUISITION

2.1 What alternative means of acquisition are there?

There are several ways on how acquisition of shares in of JSCs may be done. The main and the most straight-forward way is the purchase of a newly-issued stock that can be done by conclusion of an agreement between the target and the bidder. In such case, the issue prospectus defines potential buyers in advance (the so-called 'private subscription').

The purchase of shares from the existing shareholders is done through the Republican stock exchange if the relevant company is listed there or through an independent organiser of trades. Formally, this process is done through public trades, where any party may participate in the bids. In practice, however, placement of shares in public trades is preceded by direct negotiations between the parties. Once the parties reach an agreement, the target company places its shares in the stock exchange or organized public trades by making a public offer to sell the shares, while the potential bidder makes an offer to acquire the shares. The transaction is closed and registered by the stock exchange or the independent organiser of trades without the direct participation of the parties. The parties shall pay the service fees of the stock broker or the independent organiser of trades.

The third option is acquisition through either merger or consolidation. The merger entails creation of a new company having rights and obligations of the companies that are liquidated as a result of the merger. The consolidation is a takeover of a target company by the purchase as a result of which the target company is liquidated and its rights and obligations are transferred to the purchaser, which in its turn becomes the legal successor of the target company. In both cases, shareholders of participating companies must approve the transaction and the relevant agreement is to be signed. This procedure may be time-consuming, as it requires the initiation of liquidation and re-registration procedures.

2.2 What advisers do the parties need?

There are no specific legal requirements prescribing the appointment of particular consultants. It may only be mentioned that if the shares are traded at the stock exchange, professional participants (brokers, investment intermediates or others as defined by law) are to be involved. As a matter of practise, parties to M&A transactions seek the advice of accountants, lawyers, financial, and investments consultants.

2.3 How long does it take?

The law does not set time limits within which M&A transaction must be completed. Therefore, the timeframes are determined by many factors as, for instance, the time required for the receipt of prior consent of the governmental authorities, complexity of the relevant transaction, terms of legal and financial audit, if carried out, and so forth.

2.4 What are the main hurdles?

There are many specific hurdles that may be encountered in the course of particular transactions. The main of them relate to receipt of consent (clearance) of the relevant governmental authorities, inflexibility of statutory provisions of procedural nature covering rights and obligations of shareholders as well as sale/purchase of securities, legislative gaps complicating implementation of complex deals.

2.5 How much flexibility is there over deal terms and price?

If the shares are listed at the stock exchange and are bought from target's shareholders, quotes are to be applied. However, if the shares of the target were not traded at the stock exchange for over 3 months then the parties are free to set their own prices. Additionally, if the shares are traded at the foreign exchange trading floor and the bidder wishes to purchase over 5% of the target's shares, then the parties are free to set their own prices.

In all other cases Uzbek law does not put forward rigid requirements as to deal terms and price that are to be agreed between the parties.

2.6 What differences are there between offering cash and other consideration?

It is presumed by Uzbek law that non-cash consideration may only be offered when new shares are issued. Conditions of accepting the non-cash consideration are supposed to be specified in the shareholders' decision on issuance of shares.

2.7 Do the same terms have to be offered to all shareholders?

There is no legal requirement as to the equality of terms.

2.8 Are there obligations to purchase other classes of target securities?

Uzbek law does not set any obligations to purchase other classes of target securities.

2.9 Are there any limits on agreeing terms with employees?

Rules applicable to M&A transactions do not limit agreements with employees. Employees that hold shares in the target are not subject to any specific regulations and are treated as other shareholders. The bidder is thus free to negotiate benefits and future employment terms with target.

2.10 What role do employees, pension trustees and other stakeholders play?

There is no requirement to obtain approval of M&A deals from employees, their representatives, pension trustees or any other stakeholders.

It should only be noted that pursuant to Uzbek labour legislation in the case of a change of ownership, the collective bargaining agreement as concluded between the company and its employees shall remain in force for a period of 6 months. Within this period, the parties are supposed to renegotiate it.

2.11 What documentation is needed?

A particular set of documents is determined by terms of the transaction in question and its type as described in 2.1 above.

In the case of an acquisition of newly issued shares the decision on issuance of shares is required as well as the agreement between the target and the buyer.

In the case of an acquisition of shares from target's shareholders, being the most widespread type of acquisition transactions, the deal is concluded through the electronic trading system. The principal documents in that case will include the application for sale and the application for purchase, both setting main conditions of the sale-purchase and submitted to a licensed organiser of trades or appointed brokers (if traded at the stock exchange), the relevant agreement with the organiser of trades or brokers, the written waiver of pre-emptive rights if applicable, corporate resolutions, and some documents of technical nature (re-registration certifications, etc).

In the case of a merger or a consolidation the necessary documentation includes the decisions of shareholders of participating companies on approval of the transaction, the relevant agreement between the companies, the act confirming transfer of rights and obligations from one company to another, a series of documents on liquidation and re-registration of a company/companies.

2.12 Are there any special disclosure requirements?

In the case of a merger or a consolidation the information is to be published in a state newspaper 'Birja' and on the official website of the stock exchange.

In the case of an acquisition of newly issued shares (private subscription), the issuance prospectus is published in state newspaper 'Birja' and on the official website of the stock exchange.

Further, in case of any acquisition, a buyer (one company or several affiliated companies) acquiring 20 or more % of shares of a JSC as a result of one or a series of transactions is obliged to disclose the relevant information in the state newspaper 'Birja' and on the official website of the stock exchange. Likewise, there is a disclosure requirement for a person taking over more than 35% of shares of a JSC.

The information about the transaction must also be published on the websites of the buyer (if a JSC) and the target.

With that, no financial disclosure or valuation is required

2.13 What are the key costs?

The principle costs include fees payable to professional advisors, stock exchange commission fees or commission fees of an independent organiser of trades (if applicable) as well as fees of professional advisors (accountants, tax consultants, lawyers, valuators).

2.14 What consents are needed?

It may be required to get the preliminary consent of antitrust authorities.

Whether it be an acquisition, a consolidation or a merger, the consent is necessary when the companies participating in the transaction and operating in a commodity market have an aggregated book value of assets or net sales for the last calendar year of more than a 100.000-fold minimum wage or one of the companies takes a dominant position. The consent is to be sought by the companies operating in financial markets when an aggregated book value of their assets exceed the threshold set by law (450,000 USD for banks, 25,000 USD for insurance companies, 3,000,000 USD for financial lease companies, 400,000 for non-banking credit organisations) or one of the companies takes a dominant position.

In the case of an acquisition one additional threshold is applied - the consent is necessary if a bidder takes control of more than 35% of shares, but previously owned none or less than 35% (or 50%/50% or 66%/66% respectively).

Specific consents may also be necessary in particular sectors. Thus, in the banking sector, the consent of the Central Bank is required if more than 20% of shares of a bank are bought by a company or affiliated companies.

2.15 What levels of approval or acceptance are needed?

In the case of private subscription the approval of 50% the target shareholders participating in the general meeting is required. In the case of a merger and a consolidation, the approval of 75% of shareholders participating in the general meeting is required. The quorum for general meetings in all the cases is 50% of voting shares.

In the case of an acquisition from target shareholders, no approval is required.

2.16 When does cash consideration need to be committed and available?

In the case of an acquisition of newly issued shares, a consolidation or a merger, payment conditions are to be agreed between the parties in the relevant agreement.

In the case of an acquisition of shares of current target shareholders, money consideration is to be transferred to special clearance account before the public trades. An independent organiser of trades or the stock exchange ensures immediate transfer of payment for the shares to a seller's account as soon as the trades are over.

3 FRIENDLY OR HOSTILE

3.1 Is there a choice?

Uzbek law does not define the concepts of hostile and friendly acquisition and does not regulate the issue.

3.2 Are there rules about an approach to the target?

As a rule, target shareholders are approached by a potential bidder. There are no specific rules as to approaching the target itself.

3.3 How relevant is the target board?

The target board is not able to intervene into the transaction. It only has some organisational responsibilities as, for instance, the holding of a shareholders meeting.

3.4 Does the choice affect process?

Not applicable.

4 INFORMATION

4.1 What information is available to a buyer?

A buyer has access to publically available information, including foundation documents, financial statements and material information on buyer's activities. In the case of an acquisition of newly issued shares (private subscription), a consolidation or a merger, additional information may be requested based on the relevant agreement between the parties.

4.2 Is negotiation confidential and is access restricted?

Confidentiality may be maintained in the case of private subscription, a consolidation and a merger.

In the case of an acquisition of shares from current target shareholders, open trades are to be organised. With that, preliminary informal confidential negotiations may be conducted with potential investors.

4.3 When is an announcement required and what will become public?

Information about a consolidation or a merger is to be published in the state newspaper 'Birja' or on the official website of the stock exchange within two days after their registration with the relevant authorities. General information about details of the transaction should be provided.

Information about an issuance of new shares is to be published on the website of the stock exchange two weeks before the issuance.

Information about any acquisition satisfying thresholds described in Section 2.12 is to be published within 5 days after the registration of the transaction.

4.4 What if the information is wrong or changes?

Although there is no legal requirement to update information published in connection with the transaction, there is a liability for providing wrong information. Therefore, changes are to be made as soon as possible.

5 STAKEBUILDING

5.1 Can shares be bought outside the offer process?

Uzbek law provides only for those ways of stakebuilding that were described above.

5.2 Can derivatives be bought outside the offer process?

The same publication and registration requirements are applicable to derivatives. With that, derivatives may be traded based on direct sale-purchase agreements without the necessity to organise public trades. It should be noted, however, that Uzbek law significantly limits derivate transactions in equity shares and their usage may not be considered as an effective way of acquisition.

5.3 What are the disclosure triggers for shares and derivatives stakebuilding before the offer and during the offer period?

Generally, aforementioned disclosure requirements apply (see question 2.12).

5.4 What are the limitations and consequences?

It is generally presumed that all trades in shares in the secondary market are public (with the exception of derivative transactions as described above). As soon as all these and other legal requirements are satisfied, there are no further limitations on stakebuilding in general. With that, certain sector-specific rules may apply. For example, it is not possible for a single shareholder to own more than 25% of shares in a bank.

6 DEAL PROTECTION

6.1 Are break fees available?

Uzbek law does not set break fees available. In the case of private subscription, a merger or a consolidation the relevant clauses may be included in the agreement between the parties.

6.2 Can the target agree not to shop the company or its assets?

Since the target is not directly involved in negotiations between its shareholders and the buyer, such agreement is likely to irrelevant.

6.3 Can the target agree to issue shares or sell assets?

Such agreement may be reached between the buyer and the target as soon as the governing bodies of the target (including if applicable the general meeting) have approved the agreement.

6.4 What commitments are available to tie up a deal?

In the case of private subscription, a merger or a consolidation, some contractual commitments may be set in the agreement.

In the case of an acquisition of shares from current target shareholders, it is possible to conclude a contract obliging the parties to participate in the public trades, though actual enforceability of such agreement is subject to discussion.

7 BIDDER PROTECTION

7.1 What deal conditions are permitted and is their invocation restricted?

In the case of a merger or a consolidation, deal conditions are subject to negotiations between the parties.

In the case of an acquisition of newly issued shares (private subscription), conditions may be incorporated in the relevant agreement with the buyer.

In the case of an acquisition of shares from current target shareholders, an offer of the bidder is submitted to an independent organiser of trades or brokers at the stock exchange and includes only the following information:

  • name of the target,
  • number and a type of shares the bidder wants to acquire,
  • minimum and maximum price payable for each share.

7.2 What control does the bidder have over the target during the process?

Uzbek law does not provide for special instruments of control. In the case when the agreement is concluded as described in Clause 7.1 above, the bidder and target shareholders may negotiate such instruments.

7.3 When does control pass to the bidder?

Control is deemed to pass when the deal is registered with the relevant state authority.

7.4 How can the bidder get 100% control?

Getting 100% control is the matter of negotiations with target shareholders. No alternative ways are available.

8 TARGET DEFENCES

8.1 Does the board of the target have to publicise discussions?

No publication of discussions is required by law.

8.2 What can the target do to resist change of control?

The board cannot resist change of control.

8.3 Is it a fair fight?

In the case of private subscription, a merger or a consolidation no such rules are designed.

In the case of an acquisition of shares from current target shareholders, open trades are the principal tool for ensuring fairness.

9 OTHER USEFUL FACTS

9.1 What are the major influences on the success of an acquisition?

The primary factor that influence the success of an acquisition is the consent of the target's shareholders. Another crucial factor is to choose a right scheme of making an M&A transaction since the main hurdle is getting all necessary regulatory consents and proper execution of all necessary documentation.

9.2 What happens if it fails?

There are no particular legal restrictions applicable in such case, but if the bidder still wants to make an acquisition it may be necessary to start the entire procedure all over again.

10 UPDATES

10.1 Please provide a summary of any relevant new law or practices in M&A in your jurisdiction.

In accordance with the Presidential Decree No. PP-2454 dated 21 December 2015, all JSCs shall have foreign shareholding, which shall be no less than 15% by 1 July 2016. If JSCs fail to meet these requirements, they need to be re-organized to other legal forms. JSCs and their shareholders shall take all necessary steps to attract foreign investor so that to ensure compliance with this requirement of the Decree. It is, therefore, expected that amendments will be made to some laws regulations applicable to M&A transactions in order to facilitate their conclusion.

Originally published in the International Comparative Legal Guide to Mergers & Acquisitions 2016 by Global Legal Group, London.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions