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Mergers and acquisition transactions in Ukraine are basically regulated by the following laws: Law on Business Companies dated 19 September 1991, Law on Enterprises dated 27 March 1991, Economic Competition Protection Law dated 11 January 2001, and Regulation on Security Issuance Registration at the Time of Companies Reorganization adopted by the State Securities and Stock Market Commission on 30 December 1998.

Acquisition

Normally, "acquisition" is a technical term denoting the purchase of one company by another. In Ukraine, an acquisition can be accomplished either through the purchase of a controlling interest in the target or the purchase of its core assets.

The purchase of the controlling interest or ownership of the target can normally be achieved by: entering into an agreement with the persons having the majority of the stake; purchasing a package of shares in the open market; making a takeover offer to the existing shareholders in the target; or subscription to a new issue of shares.

In terms of legal techniques, acquisition of shares appears to be a straightforward procedure whose consummation mostly relies on entrance into the acquisition or subscription agreement and observance of certain mandatory corporate and registra¬tion formalities. In some cases, anti-monopoly clearance is required.

Depending on the acquirer's strategy, an acquisition can be accomplished through consummation of one or several transactions. Acquisition of the target through the acquirer's affiliate or through special purpose vehicles is quite typical in Ukraine. In this case, a special purpose vehicle is a newly established company taking any form suitable to the acquirer that is under the acquirer's sole corporate control. Establishment of a special purpose vehicle as a closed joint-stock company or a lim¬ited liability company appears to be the most suitable form.

Sometimes an acquirer may be interested in purchasing the target's core assets or its integral property complex while allowing the target to operate as an individual business unit. Due to some tax and legal consequences for the acquirer, this form of acquisition requires in-depth tax and legal advice.

Sometimes the acquirer wishes to minimize the risks associated with an acquisition such as minority claims, intervention of hostile or prospective shareholders, bankruptcy of the target, etc. Normally, minimization of such risks can be achieved by taking the core assets out of the target and transferring them to a newly estab¬lished special purpose company that is under the acquirer's sole corporate control. Another complex acquisition is a purchase of the target through bankruptcy procedures. Settlement of creditor's claims and entering into the settlement agreement with the creditors are the key components of the acquirer's successful strategy.

Due Diligence

Normally, an acquirer wishes to investigate the target before an acquisition is completed. For this purpose, it normally employs an external audit and legal team whose investigation results are summarized and presented as a financial and legal due diligence report on a form satisfactory to the acquirer. Along with business negotia¬tions and studies, the financial and legal due diligence reports appear to be the major documents on which the acquirer relies to make a decision on acquisition.

The scope of the due diligence study may be comprehensive depending on the acquirer's risk management policy. Below are sections most often subject to investigation and reporting: financial statements and balance sheets; assessment of compliance of the target's status and business with applicable law; assessment of insolvency and bankruptcy status; employment and environmental law issues; the status of contracts entered into by the target and its customers or creditors.

Typically, a due diligence report addresses the legal status of the target, performance of contractual obligations; title to the production assets and land; taxation; past, present or likely claims; liabilities to third parties; licenses and permits, when applicable; and insurance and company management related issues.

A due diligence report is not open for public viewing.

Mergers

In Ukrainian experience, mergers are less typical than acquisitions. Under Ukrainian law, a merger is a specific type of reorganization of two or more compa¬nies into a single company where the companies being fused lose their corporate identity and the new company (survivor) acquires the assets and liabilities of the rest.

While Ukrainian law is not specific on the merger procedure, certain formal requirements are laid down in Ukrainian securities regulations concerning the merger of joint stock companies.

The major disadvantage of the merger is that it inevitably entails the risk of transfer of liabilities of the merging entities to a single company. Finally, due to some lack of regulation, the process of transferring assets and liabilities appears to involve a complicated accounting procedure.

The major disadvantage of the merger is that it inevitably entails the risk of transfer of liabilities of the merging entities to a single company. Finally, due to some lack of regulation, the process of transferring assets and liabilities appears to involve a complicated accounting procedure.

Anti-Monopoly Clearance

Acquisition and merger transactions must be achieved in compliance with the Ukrainian anti-monopoly regulations. In particular, the Economic Competition Protection Law dated 11 January 2001 laid down legal grounds for the encouragement and protection of economic competition including its specific cases as mergers and acquisitions. The recently enacted economic concentration regulations' version dated 19 February 2002 has introduced the criteria and procedure for Anti-Monopoly Committee clearance.

Below is the summary of key issues under the anti-monopoly clearance procedure:

• the following cases are qualified as likely concentration and, as such, require anti-monopoly clearance: a merger, direct or indirect acquisition of core assets as an integral property complex, acquisition of a structural sub-unit, including assets of the company being liquidated, direct or indirect acquisition of ownership by other means resulting in attainment or exceeding 25 % or 50 % of votes in the target;
• terms of the anti-monopoly procedure, the anti-monopoly case is qualified on a group basis approach where the subjects of concentration (acquirer, target and seller) and their connecting persons (such as parent, subsidiary, affiliate, holding, etc.) are deemed a single unit;
• the following thresholds signal an anti-monopoly case: the aggregate value of assets or aggregate turnover of goods of subjects of concentration (including abroad) in the pre¬ceding financial year exceeded EUR 12 million, and the aggregate value of assets or aggregate turnover of goods (including abroad) of at least two subjects of concentration exceeded EUR 1 million, and the aggregate value of assets or aggregate turnover of goods in Ukraine of at least one of the subjects of concentration exceeded EUR 1 million.

If all three thresholds are met, anti-monopoly clearance is inevitably required. The requirements and standards for documents and information for passing the clearance are comprehensive. A list of documents to be submitted varies depending on the type of transaction concerned. Mainly, it includes the founding documents; the certificate of registration; acquisition and merger draft agreements; information on the concentration; and information on the company to be acquired. The Anti-Monopoly Committee is authorized to require additional data at its own discretion.

Fees for passing anti-monopoly clearance are approximately USD 1,000.

The official consideration period varies from 45 days up to four and half months once the relevant package and the application form have been submitted to the Anti-Monopoly Committee.