The Deal: On October 4, 2017, CEE Legal Matters reported that Dentons’ Bratislava office had advised CNIC Corporation Ltd., an investment company owned by the Chinese government, on its acquisition of Prologis Park Galanta-Gan in Slovakia – which Dentons described as “the largest logistics asset, both by area and investment volume, ever sold in the CEE region” – from Prologis, and that Kinstellar had advised Prologis on the deal.
The Players:
- Counsel for CNIC Corporation: Martin Mendel, Partner, Dentons Bratislava
- Counsel for Prologis: Roman Oleksik, Partner, Kinstellar Bratislava
CEELM: Roman, how did you and Kinstellar originally become involved with Prologis in this matter?
R.O.: We’ve been advising Prologis since they entered the Slovak market back in 2006. We’ve been involved in many interesting and challenging transactions with the Prologis team over the years. We had just finished assisting them with the sale of the logistics park in Nove Mesto nad Vahom [to Arete Invest – ed.] at the beginning of 2017. The Prologis team was happy with our work and it was probably natural for them to approach us with the Galanta transaction.
Our mandate was clearly defined from the very beginning and included assisting Prologis with the set-up of the data room, answering questions of the buyer related to the due diligence, negotiating all transaction documents, as well as assisting it with signing and closing.
CEELM: Had CNIC already expressed its interest in Galanta-Gan before you were retained, or did you actually help Prologis find CNIC?
R.O.: No, we were not involved in finding CNIC and we are not able to say when exactly CNIC expressed their interest in the transaction.
CEELM: Were you tasked with assisting in negotiations over price and other terms?
R.O.: No, we were not asked to handle the business terms of the transaction. Our involvement was limited to negotiating the legal text and assisting the client with the business decisions which arise during such negotiations.
CEELM: What about you, Martin? How and when were you and Dentons brought on board?
M.M.: We were requested to prepare our fee proposal on Friday, April 7, 2017. The client sent its request by e-mail at 9.00 am in the morning and asked for our proposal on the very same date. Thanks to our marketing department and very swift response by our Managing Partner (Peter Kubina), who received the initial e-mail, we were able to clarify the main points of the client request and prepare our fee proposal that same day. I understand that the client requested fee proposals from various international law firms in Slovakia. After an initial review by the client our fee proposal was finalized on April 11, 2017 and we met the client on April 24, 2017 to present our fee proposal and our team. The client made its decision after the personal meeting. Next day, we were already discussing the time plan of the transaction and our services.
Our initial mandate was pretty standard – to perform legal due diligence and to prepare/revise transaction documentation and advise the client in negotiation of the contracts.
CEELM: Who were the members of your teams, and what were their individual responsibilities?
R.O.: I led this transaction on behalf of Kinstellar. In addition to being the supervising partner on this matter, I was actually engaged in almost every single document exchanged on the matter and thus did a very hands-on job for the client. The team had strong support in Miroslav Kapinaj and Michaela Nemethova, as both are very talented and hardworking lawyers.
M.M.: Our team consisted of five people. I led the team and dealt with day-to-day issues both for the due diligence and the transaction. Finalization of the transaction took much longer than initially contemplated – ten weeks (the purchase price was paid to the sellers on Oct 13, 2017 (nearly five and half months after we commenced our work)) – so we had to deal with substitutions. During my absence, Miroslava Jesikova was the main contact for the client in negotiating the shares purchase agreement and escrow agreement. Tatiana Mergesova also worked on the transaction – in particular she drafted and negotiated various documents and agreements executed by the parties at the signing meeting in addition to the main share purchase agreement. Both of them also did due diligence, with Miroslava reviewing lease agreements and Tatiana examining documents related to title of SPVs to real estate (land and buildings in Galanta). In addition, Katarina Pecnova reviewed corporate documents provided in the data room.
My involvement in legal due diligence was limited to guidance (if and when needed) and the final revision of the due diligence report before we sent it to the client. The final member of our team, Peter Kubina, monitored the project and became involved when strategic decisions were needed.
CEELM: How was the transaction structured, and how did you help it get there?
R.O.: The transaction was structured as a share deal – sale of shares in four entities of Prologis. The purchase price was transferred to an escrow account and paid to the seller after the share transfer was registered in the Commercial Registry.
M.M.: The transaction was a quite standard share deal in which six Dutch and Luxembourg sellers entered into a long form share purchase agreement with a Luxembourg purchaser. The same parties entered into an escrow agreement with UniCredit Bank in Slovakia. And finally, on the very same date, the parties executed also short form transfer agreements that were registered with the Commercial Register.
CEELM: How long did the process take, overall, from your first contact with your clients until signing?
R.O.: We were approached by Prologis in March 2017. The deal was signed in September 2017. It was probably not my fastest transaction, but given the size and importance of the deal, it went relatively fast.
M.M.: Our work started on April 25, 2017 when we had kick-off meeting with CNIC. The share purchase agreement was signed on September 25, 2017. That means it took five months to get there.
CEELM: Roman, you describe it as not being particularly fast. Why was that? We’ve heard that Chinese investors require more time, usually, than local investors, to get the necessary approvals and authorizations. Was that why?
R.O.: The deal was quite big and it is probably not surprising that it took longer to close. Moreover, the negotiations continued during summer vacation season which usually has impact on timing. Of course, CNIC had to obtain all internal approvals. I do not have insight into how such internal approval procedures worked, but I did not have the feeling that they were unusually burdensome or delayed.
CEELM: What would you each describe as the most challenging or frustrating part of the process?
R.O.: I do not think that there was any feeling of frustration in this transaction. Of course, negotiations were not always easy, but in my view they were fair, productive, and to the point on both sides. As often is the case in such deals, the challenge was to meet the deadline for signing agreed by the parties. There are always last minute changes, some documents are missing apostille, and so on.
M.M.: The difference between the legal systems and cultures of (i) our client and the sellers on one side, and (ii) our client and the Slovak jurisdiction – the jurisdiction of the target companies – on the other side meant that we had to spend more time explaining certain specifics of the transaction and the Slovak legal system (for example, the mandatory use of electronic mailboxes by legal entities and the legal risks related thereto).
CEELM: Was there any part of the process that was unusually or unexpectedly smooth?
R.O.: Prologis logistics parks are valuable assets.This results from a combination of factors: location, quality of construction, no compromises when it comes to management services, a very good portfolio of tenants, balanced lease terms, and professional legal support from the outset. Therefore, it is no surprise that the structure of the transaction did not involve any changes. I think that the outcome of the due diligence was more than satisfactory for the buyer. There was no need to implement any additional material measures to improve the shape of the assets or negotiate any complex conditions precedents or conditions for the release of the purchase price. All this allowed the parties to proceed with the registration of the transfer of shares immediately after the signing and timely payment of the purchase price.
M.M.: Thanks to the smooth cooperation with Kinstellar, discussion of due diligence findings and arranging for remedies was extremely swift and needed nearly no client involvement.
CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?
R.O.: There were no material changes in the scope of the mandate and so we were more or less able to stick to our original fee estimates.
M.M.: We performed our original mandate to the full extent and we had to do much more than that. We advised the client on establishing the entity in Luxembourg that was used as a purchaser, we cooperated with tax advisors in order to explain the distribution of net profit from Slovak SPVs in relation to the “company in crisis” concept of the Slovak Commercial code, we assisted the client in obtaining residency permits in Slovakia, and so on.
CEELM: What specific individuals at Prologis directed you, and how would you describe your working relationship with them?
R.O.: Ildiko Kollar [Legal Counsel CEE at Prologis – ed.] supervised all legal aspects of the transaction. Daan van den Hoven and Martin Polak [Prologis Vice President Transactions, Europe and Prologis Senior Vice President – ed.] took the lead on the commercial side of the deal. The Prologis team are of a type that never loses sight of all pieces in a transaction (including all legal aspects). They are able to communicate with their external counsels in an effective way, understand the legal issues at stake, and take the most appropriate commercial decisions (without the need to accuse their lawyers of making their lives difficult or the transaction more complicated).
M.M.: I worked with Siwei Kirk Lai, project manager at CNIC Corporation. Our cooperation was very intensive. In addition to a regular exchange of e-mails, it was not unusual to have three or more phone calls a day. Kirk was working very hard to have the deal closed and despite the time difference he responded to e-mails anytime, as if he never slept.
CEELM: Roman, how would you describe the working relationship with your counterparts at Dentons on the deal?
R.O.: We made our fee estimate subject to the assumption that the buyer would be represented by a law firm that not only understood how to run complex transactions, but also had a real grasp of the particular issues in the local real estate market. I can confirm that the qualities of the local Dentons team were in line with all our assumptions. Another aspect which I personally appreciated is that Dentons has no urge to decorate their meeting rooms with the scalps of the lawyers representing the other side. This allowed us to concentrate on real issues. It was a great pleasure working with Martin Mendel and his team.
CEELM: And Martin, what are your feelings about working with your counterparts at Kinstellar?
M.M.: Kinstellar and especially Roman Oleksik demonstrated extremely wide experience in transactions of this type. Despite the complexity of the deal, Roman’s approach significantly helped to negotiate all transaction documents in a very effective and professional way without needing to play a “game” for the client, pretending a fierce fight between lawyers to earn their fees. It was really a great pleasure to work with Roman and I look forward to having such an opportunity again.
CEELM: How would you describe the significance of the deal in Slovakia, and the region?
R.O.: Is the purchase of Galanta logistics parks by CNIC part of One Belt One Road initiative run by China? – one can only speculate. In any regard, I believe the transaction has an important place in the development of economic relationships between CEE and China.
M.M.: The deal proves that a balanced project (technically and commercially) in Slovakia has no problem in attracting investments from any part of the world.
This Article was originally published in Issue 5.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.