Special report: Portugal’s M&A false starts

Portugal’s lawyers have been busy this year on a number of big deals, but not all have succeeded. Why?

Q:  How have the high-profile and complex deals in the Portuguese market in the past year affected your outlook and strategy?

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Antonio Villacampa Serrano, partner, Uría Menéndez : Our strategy and outlook have not changed as such. We continue to have and create balanced teams made up of young lawyers, most of whom started off as trainees in the firm, working hand-in-hand with experienced partners.

Our departments have seen balanced levels of growth in the past year due to the increasing number of M&A and finance transactions, as well as litigation and tax matters. We have been involved in some of the most significant deals of the year and are confident in our ability to grow sustainably.

Diogo Leónidas Rocha, partner, Garrigues : Those deals involved several parties including bidders, sellers, the government and financial advisers. We have been involved in almost all of them.

The opportunities are a result of events related to the bailout programme, banking capital adequacy improvement requirements and the collapse of Banco Espírito Santo.

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Joana Andrade Correia, co-head of corporate and M&A, Raposo Bernardo: Portugal’s economy seems have started to recover and we have noticed some real foreign investment growth. Although we prefer to be conservative we see a positive outlook for practice areas such as M&A, private equity, real estate and tax. Our way of looking at the market involves a long-term vision and we anticipate more complex and high-profile operations of this type in Portugal.

The government’s privatisation programme has shown Portugal in a favourable light. This has allowed us to intensify our strategy of capturing foreign investment clients bringing new capital for the country. We have done this through roadshows.

Aside from that, we have tried to improve our message on providing global support to clients as well as legal advice. This has produced favourable results.

The visibility of the privatisation programme, budget discipline and the good politics brought about by the Troika can bring even more benefits to Portugal in terms of foreign investment.

“The outcome of the election, in which no single party achieved a majority, leaves questions unanswered” – Antonio Villacampa Serrano

Q:  Two of the deals outlined in this report have failed – the attempted sale of Novo Banco and Caixabank’s bid for BPI. Is this is just luck or is it characteristic of the Portuguese market?

Villacampa Serrano: Rather than being characteristic of the Portuguese market we believe this can be explained by looking at the circumstances of the transactions mentioned. Both involved the banking sector, one of which – Caixabank’s bid for BPI – was an attempt to end a longstanding deadlock – some of the other shareholders in a general meeting refused to waive the voting cap imposed on Caixabank by BPI’s articles of association.

The other – the attempted sale of Novo Banco – was a highly specific situation, as Novo Banco was the first case of a bail-in by a bank-financed resolution fund, following the collapse of Banco Espírito Santo. The risks and uncertainties involved in this transaction, the publication of Novo Banco’s disappointing half-year results and the election period that followed, led to the suspension of the transaction until after the election was concluded.

Andrade-Correia
Joana Andrade Correia

Andrade Correia: It was due to certain contingencies. From what is known about Caixa and BPI, it seems it was not about lack of understanding among shareholders or any characteristic of the Portuguese market. Indeed, the interest of Caixa in this operation, as well as the rest of the shareholders that did not want to leave and sell, shows how everybody wants to maintain and intensify their presence in the Portuguese market.

The Novo Banco deal failed for different reasons, more to do with the type of process adopted to sell and timing and conditions than to the country itself.

Leónidas Rocha: Each case has its own peculiarities. Novo Banco was the first ‘good bank’ experience in Europe resulting from a resolution measure. Although it is a small bank at a European level, it serves as a test case to see if this regulatory strategy works as a banking recovery measure for future similar situations in Europe. It is therefore important to ensure a positive outcome.

Caixa’s bid for BPI was basically a negotiating strategy between two shareholders rather than a stock market transaction. I do not feel therefore that this is characteristic of the Portuguese market. Other large transactions have succeeded, such as the acquisition of BESI, where we acted as legal advisers to the Chinese group Haitong.

Q:  What has been your standout piece of legal work this year and why?

Villacampa Serrano: Advising on the acquisition of PT Portugal. We advised Altice in the different phases of this M&A deal, including structuring the transaction from both a legal and tax point of view, drafting and negotiating the transaction documents, dealing with supervisory entities, monitoring a carve-out process and all the closing formalities associated with a deal of this magnitude.

What made the deal even more challenging was the role of third parties in the process. On the one hand the restructuring of Oi after the merger with PT Portugal was still underway, which had some effect on the deal. Furthermore, Oi’s group structure and the shareholders’ agreements in place at that time made the process of obtaining Oi’s authorisation for the deal rather complex. On the other hand, Isabel dos Santos launched a takeover bid for Portugal Telecom SGPS SA (the former shareholder of PT Portugal) which, among other things, had the effect of constraining the actions of the board of directors, with a corresponding effect on the process of obtaining Oi’s and its shareholders’ authorisation.

The deal was demanding from both a legal and strategic perspective, and required full commitment from a senior team in addition to a continuous search for solutions at each phase to enable our client to achieve its goal.

Andrade Correia: Our firm has acted for several of the foreign institutional investors that have analysed privatisations. When a privatisation begins it involves collecting legal information about the investment rules of the country, the tax regime, corporate laws, the favourable regime applicable to the target company and so on. This is usually done in co-operation with the investor’s in-house legal department or the law firm they use for international projects. It is an important job and a critical phase, during which investors decide whether or not to enter into a privatisation process.

This year, we have already supported a potential investor analysing the investment in the privatisation of the public transport element in an urban solid waste management company owned by Empresa Geral do Fomento (EGF). In the past year we have done the same for Correios de Portugal.

We could not accept the mandates of any interested party in the Novo Banco case – and in the beginning there were 17 – because we are Novo Banco’s lawyers so that would conflict us in attempting to maintain a transparent relationship.

In general, we are having an exciting year with regard to transactional work involving the M&A, regulation and tax departments.

Leónidas Rocha: I’d say the acquisition of Banco Espírito Santo by Haitong, not only because the transaction succeeded, but also because BESI was an 100 per cent subsidiary of Novo Banco, and the deal ended up being more complex due to the resolution measure involvement.

Q:  How will your legal work be affected if the banking sector continues to consolidate?

Villacampa Serrano: Consolidation in any sector is always a challenge as it means fewer potential clients in the market. Nevertheless, we are especially well-positioned to thrive under these conditions due to our strong international focus. In particular, we think the entry of international players in the market (mainly as investors in Portuguese banks) will offer significant opportunities.

Andrade Correia: This is an important question. The Portuguese banking system is still fragile and does not have the right conditions to regularly support big investments. This is an obstacle mainly to Portuguese investors looking for financing from outside – from European or Asian banks. For the foreign banks, the problem is not so relevant, considering they usually complete investments through external financing or even with their own capital.

Leonidas Rocha: We assisted Haitong in the acquisition of BESI and also Banco Santander in its attempt to acquire Novo Banco. We have also participated in other banking consolidation attempts, although we are subject to confidentiality obligations.

In any case, we have a strong banking practice and experience, and feel that bank consolidation will create further opportunities for our practice.

Q:  Senior officials are trying to install a stable government after a complicated election. How will the new government affect the legal market?

Villacampa Serrano: The outcome of the election, in which no single party achieved a majority, leaves questions unanswered. The two alternatives are the continuation of the Social Democratic and Popular Party coalition, now without a parliamentary majority, or a government formed by a post-election coalition between the Socialist Party and other parties of the left. While it is still impossible to say how the new government will affect the legal market, we do not foresee any specific impact from either of the above possible outcomes.

However, political uncertainty may lead to the suspension of some investment and business decisions in the short term.

Leónidas Rocha: It’s not possible to anticipate the outcome of the negotiations between the parties. The country’s president has not yet taken a decision on the new government.

Obviously, stability is a major concern as several reforms and actions are needed.

Behind the deal: Caixabank’s failed bid for BPI

In February 2015 Spanish banking giant Caixabank made a strategic move to take a bigger stake in Portuguese lender Banco BPI.

Caixabank, which already owned 44.1 per cent of the lender, launched a €1.09bn takeover bid in a move that would give it complete control of Portugal’s fourth-largest bank.

Problems were rife during the negotiation process, where BPI disputed the bid valuation of its business. Caixabank called on Uría Menendez to counsel it during the transaction, while BPI was advised by PLMJ .

Isabel dos Santos, Africa’s wealthiest woman and BPI’s second-largest shareholder, with an 18.6 per cent stake, is understood to have been against the merger with Caixabank and instead favoured a union with Banco Comercial Português (BCP)

In June 2015, Caixabank dropped the bid, opening BPI up a possible merger with BCP.

Behind the deal: Sale of Barclays’ Spanish assets to Bankinter

One of the successful deals in the Portuguese banking sector in 2015 was the Barclays asset sale to Spanish bank Bankinter for approximately €175m as part of chairman John McFarlane’s turnaround plan to sell assets and cut costs.

The deal involved selling off assets including retail banking, wealth and insurance management businesses, and part of the corporate banking businesses.

Bankinter and its subsidiary Bankinter Vida would gain around 1,000 banking and insurance employees from Barclays, as well as its 84 branches in Portugal.

PLMJ represented Barclays during the deal, while Uría Menendez represented Bankinter, with partner Antonio Villacampa leading the team.

Behind the deal: The failed sale of Novo Banco

Market uncertainties were at the heart of the failed sale of Novo Banco in September this year. The bank, which had been carved out of Banco Espiritu Santo after a €4.9bn rescue in 2014, failed to reach an agreement with China’s Focus International and Anbang Insurance Group.

The two bidders were part of a line-up including Spain’s Banco Santander, US private equity firm Apollo Global Management and Cerberus Capital Management, which had all been invited by Bank of Portugal to make bids after a previous round.

The bank said none of the proposals met its conditions on price and risk.

The sale process is expected to resume in 2016 depending on an improvement in market conditions.

Vieira de Almeida represented Novo Banco during the transaction, with M&A partner Jorge Bleck leading the team.

Behind the deal: Portugal Telecom asset sale

Portugal Telecom’s asset sale plan almost collapsed after months of uncertainty and in fighting amongst shareholders. At the start of 2015 shareholders approved the company’s plan to sell Oi SA’s Portuguese assets to Luxembourg-based Altice for €7.4bn.

Through the acquisition Altice’s small presence in Portugal would grow significantly and allow it to become a key competitor in the country next to Vodafone and NOS.

Portugal Telecom was represented by Uría Menendez during the deal.

Behind the deal: TAP Portugal airline privatisation

Portuguese flagship carrier TAP Portugal underwent a contest for its privatisation process in 2015 after the government decided to withdraw its stake in the company.

Cuatrecasas Gonçalves Pereira represented the Gateway consortium, which was awarded the privatisation procedure, in a complex deal that involved many lawyers and departments of the Lisbon office.

Cuatrecasas Portugal managing partner and M&A partner Diogo Perestrelo led on the deal, which involved a large group of lawyers including aviation partners Luís Soares de Sousa and Telma Carvalho, corporate and M&A lawyers Ana Remondes, Margarida Leal Oliveira, Elsa Pardal, Nuno Marques, Stéphanie Silva and Guilherme Galante (Corporate and M&A); competition and EU law partners António Vitorino and Rita Leandro Vasconcelos and a 14-strong due diligence team.

Key figures:  Portugal

GDP:  $230bn

Inflation: 0%

Population:  10.4m

Unemployment:  11.9%

Life expectancy at birth:  80

Source: World Bank, Statistics Portugal