Global Public M&A Guide

Czech Republic

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Takeover Tactics
6. Takeover Tactics

[Last updated: 1 January 2025, unless otherwise noted]

6.1 Inside information

A Czech company is obligated to disclose to the public all "inside information" that directly relates to it. Disclosed information has to be comprehensive and may not be distorted.

  • "Inside information" means information of a precise nature which has not been made public, relating, directly or indirectly, to one or more issuers of financial instruments or to one or more financial instruments and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.
  • Information shall be deemed to be of a "precise nature" if it indicates a set of circumstances which exists or may reasonably be expected to come into existence, or an event which has occurred or may reasonably be expected to do so, and if it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of financial instruments or related derivative financial instruments.
  • "Information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments or related derivative financial instruments" shall mean information a reasonable investor would be likely to use as part of the basis of their investment decisions.

It is up to the company to determine if certain information qualifies as "inside information". This will often be a difficult exercise, and a large gray area will exist as to whether certain events will need to be disclosed or not.

6.2 In the event of a public takeover bid

In the event of a (potential) public takeover bid, the Czech takeover bid rules provide that an announcement can only be made upon the CNB's notification containing information that there are no reasons to prohibit such announcement (or its failure to issue a letter of prohibition). This means that the CNB would normally have to be informed prior to disclosure.

6.3 Insider dealing and market abuse

The rules relating to insider dealing and market abuse are under the Market Abuse Directive and the Market Abuse Regulation. The Market Abuse Regulation is directly applicable in the Czech legal system.

6.4 Common anti-takeover defense mechanisms

The table below contains a summarized overview of some of the most probable mechanisms (given the Czech legal environment) that can be used by a target company as a defense against a takeover bid. These take into account the restrictions that apply to the board and general shareholders' meeting of the target company pending a takeover bid.

Mechanism Assessment and considerations

1. Capital increase (poison pill)

Capital increase by the board (authorized capital).
  • Capital increase by subscription of new shares shall only be permitted if the issue price of the previously subscribed shares has been paid up in full by the shareholders. This prohibition does not apply where the registered share capital is only increased by in-kind contributions.
  • Requires approval by a majority of at least two-thirds of the votes of the present shareholders in total and for each type of shares whose rights are affected by that decision. Unless provided otherwise in the bylaws of the company, the general shareholders' meeting shall have quorum if the shareholders present hold shares the par value or the number of which exceeds 30% of the registered share capital.
  • The decision of the general shareholders' meeting to approve a capital increase shall be certified by a notary deed.
  • The decision becomes effective upon its registration in the Commercial Register (this does not apply to companies whose shares are admitted to trading on a European regulated market).

2. Share buyback

Share buyback "with a view to avoid imminent and serious harm" to the company.
  • It is unclear whether a normal share buyback authorization can be used following the announcement of a bid.
  • Acquisition of own shares shall only be permitted if the issue price of the previously subscribed shares has been paid up in full by the shareholders.
  • Requires approval of the general shareholders' meeting by a simple majority of votes by the present shareholders. The decision shall state conditions of the acquisition.
  • The target company may not acquire its own shares if such an acquisition would result in the company's bankruptcy pursuant to Czech insolvency legislation.
  • The acquisition shall not result in a decrease of equity below the subscribed registered share capital increased with the funds which cannot be distributed among the shareholders pursuant to the Czech Companies Act or the bylaws.
  • The target company has resources to establish a special reserve fund for own shares.
  • Buybacks are to be made in compliance with corporate, transparency and market (abuse) rules.

3. Sale of crown jewels

An arrangement affecting the assets of, or creating a liability for, the company which is triggered by a change in control or the launch of a takeover bid.
  • If a significant part of the company's enterprise would be sold, a prior approval by the general shareholders' meeting (with two-thirds of the votes cast) would be required.

4. Frustrating actions

Actions such as significant acquisitions, disposals, changes in indebtedness, etc.
  • Only transactions which have sufficiently progressed already (prior to receipt of notification of a takeover bid) may be implemented by the target's board.
  • Other transactions (especially those that can frustrate the takeover) require shareholders' approval after the takeover bid has been notified to the target.

5. Shareholders’ agreements

Actions such as significant acquisitions, disposals, changes in indebtedness, etc.
  • It is generally acceptable for shareholders to enter into an agreement regarding the exercise of voting rights.
  • Assumes a stable shareholder base or reference shareholders.
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