ETHIOPIA Law and Practice Contributed by: Getu Shiferaw, Mehrteab Leul, Michael Sebsibe and Debora Belachew, Mehrteab & Getu Advocates LLP (MLA)
and environment; employment, pension and security; intellectual property and information technology; liti - gations and disputes; insurance; anticorruption; and money laundering. Legal due diligence entails reviewing the documents and information that the target company provides (as requested) and verifying them against information obtained through independent searches by regulatory organs in order to confirm that the target company is compliant; if it is not, the risks of non-compliance should be highlighted, and solutions recommended. Commercial and financial due diligence, which may be conducted by financial experts, may cover the market positions, accuracy of the figures, assets, liabilities and financial stability of the target company. 5.4 Standstills or Exclusivity Standstills and exclusivity agreements are commonly required by prospective buyers in the initial stage of the transaction, in the form of term sheets, heads of Documentation of tender offer terms and conditions in definitive agreements is not prohibited in Ethiopia, though it is not common. This is because public M&A are not yet undertaken, and tender offers are not com - mon in private M&A. Therefore, definitive agreements do not include tender offer terms and conditions, but typically cover transaction processes, conditions, war - ranties and some common deal-protective clauses. 6. Structuring 6.1 Length of Process for Acquisition/Sale The timeline for acquiring/selling a business var - ies depending on the nature of the transactions, the complexity of the deal, the negotiation time and gov - ernment approvals. Normally, private M&A transac - tions can be completed within six months if things go smoothly. However, it may take longer if the transac - tion is complex, the negotiations become hostile and/ or government approval is delayed. terms or exclusivity agreements. 5.5 Definitive Agreements
In contrast, public M&A require prior approval from the ECMA and the preparation and disclosure of several documents; therefore, these transactions may take longer than private mergers. 6.2 Mandatory Offer Threshold The Commercial Code of Ethiopia provides a manda - tory offer threshold: 50% or more of the capital of a target company. Therefore, any person who intends to buy shares representing 50% or more of the capital of a target company shall make a tender offer to all remaining shareholders of the company. This gives the remaining shareholders the opportunity to sell their shares to acquirers when control of the target company changes hands. This threshold applies to private M&A. In public M&A, a bidder who acquires, directly or indi - rectly, more than the required majority percentage of the shares admitted to trading of a listed company shall – within 30 days from the date of acquisition – submit an offer to purchase all the remaining shares traded in the exchange. The ECMA is mandated to issue a directive determining the majority percentage of the shares admitted to trading of a listed company, but this directive has not yet been enacted. 6.3 Consideration Cash is the most commonly used consideration in M&A in Ethiopia. The most commonly used tools to bridge value gaps between parties are the earn-out arrangement, equity rollover and vendor take-back loan. 6.4 Common Conditions for a Takeover Offer In the case of a private takeover offer, common pre - requisites for the transaction include the seller obtain - ing the necessary regulatory approvals, tax clearance and certain other legal requirements. There are no restrictions on the use of offer conditions. However, there are no common conditions in the case of a public takeover offer, as such takeovers are not yet practiced in Ethiopia. The relevant capital market laws do not restrict the use of offer conditions, but the offer should comply with these laws, including with respect to the application fees and obtaining prior approval from the ECMA.
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