By Julia Foresman, Managing Editor

SloveniaThe Slovenian market has been undergoing a watershed reversal of state-protectionist policies since the government announced last year the privatization of 15 companies, including telecommunications giant Telekom Slovenije and Nova Kreditna Banka Maribor, the country’s second largest bank.

This momentum is unlikely to slow, particularly in the wake of the recent election of Prime Minister Miro Cerar.  Pummeled by years of recession and political instability, Slovenia has ushered in a new era with Cerar, who has expressed renewed- if not cautious- interest in reducing the government’s role in the economy.

Privatization has long been unpopular in Slovenia, a former Yugoslav country with a population of just two million, which has held steadfastly to an economic policy of maintaining local control over domestic enterprises for fear of selling out to foreigners.

While other former communist countries have welcomed the influx of Western capital, Slovenia has pursued a course of protectionism.

“Such approach has been supported even by certain economic experts, majority political parties, social partners (trade unions) and certain media which all contested attempts to open the Slovenian economy to foreign investment,” explained Gregor Pajek, a Partner at Rojs, Peljhan, Prelesnik. However, the tide has turned, he said, as the sovereign debt levels have ebbed above 80 percent. The sale of state-owned assets is a critical part of ratcheting down the down level to be in compliance with the European Union limit of 60 percent.

While the jury is still out, Slovenian attorneys welcome the exigency of these changes, provided for under the Slovenian Sovereign Holding Act.  The current situation – generally considered as the second round of privatization – is influenced by the legacy of the initial privatization process in the early 1990s, when the transition to a market-oriented economy was inextricably related to mass privatization.

“This mass privatization has been heavily influenced by the concepts of social property and self-management of companies, which had singled out the Yugoslav economic system,” Pajek said. “Slovenia’s approach to privatization has been a mixture of free distribution of shares, internal buyouts at a discount and commercial privatization. The result of the mass transitional privatization process was an unstable ownership structure composed of insiders, private and state-owned financial institutions and a small share of foreign owners. A significant portion of the economy remained in direct or indirect state ownership.”

Of course, the other side of the initial “privatization coin” was the financial sector. Slovenia had. And still has, a largely bank-oriented financial system and is the only post-socialist state to have kept a significant portion of the banking sector in domestic ownership.

In addition, Slovenia’s route to privatization has been complicated by dissenting political voices.  “While political factors play a role, the majority consensus seems to be that politics should be decoupled from the business sector in terms of being actively involved in the corporate governance of the [state-owned] companies,” Pajek said.

Marko Ketler, a partner at ODI Law Firm in Ljubljana noted, “The positive side of being in a financial crisis is that now we have to privatize, which will have multiple positive effects on the Slovenian economy. There is a clear signal from Brussels that Slovenian privatization is a priority.”

And it is a high priority at that. The Slovenian Parliament adopted a resolution according to which 15 companies would be privatized in June 2013. So far, three out of 15 companies have been privatized, whereby the SPA for the sale of Aerodrom Ljubljana has been signed and the closing is expected in a few weeks.

And there are now a few more transactions pending. The major one is Telekom Slovenia, in which the state has a 73 percent stake.

“The companies pushed for the sale, including Slovenia’s incumbent telecom operator, Telekom Slovenia, the second-largest state-owned bank, Nova KBM, and the national airline Adria Airways,” Ketler said. “However, just before the elections on July 13, the government adopted a resolution that Slovene Sovereign Holding cannot close any transaction that are in the process of privatizing.

“This was a strange decision,” said Ketler, “we were all surprised in a negative manner with [former Prime Minister Alenka Bratusek’s] actions. “We felt she had to ride on wave of public opinion which is, in general, against privatization.”

In the end, the adopted resolution amounted to a political gamble that failed to pay off.  In the elections held on July 13, a new party captured 34 percent of the vote, including 36 seats in parliament.

The new government eventually, after a few weeks, adopted a resolution to annul the resolution of July 3. While the privatization transactions can resume, M&A legal teams are operating without new timelines and a vague mandate.

Pajek noted, “the (new) government indicated we should not continue the privatization on a one-size-fits-all basis, but rather on a case by case basis having in mind particularly the specifics of the business sector in question and the fact of how far has the sale process been furthered.”

Telekom Slovenia, for example, is still stalled and waiting for the political consent to be re-opened. Still, concern ultimately seems low. “I expect everything will continue in a few weeks’ time,” said Ketler.  “The next one to two years will be quite busy and privatization of the remaining companies will hopefully continue.”

Business, in fact, shows no signs of slackening even amid some uncertainty.

“We have hired four new people in the past two months from last year, which has had a good impact on our business development,” Ketler said. “We have been involved in all three privatization cases that have closed and we’re currently advising bidders in remaining privatization cases. Business has definitely picked up in a very positive way. We expect to be involved in all other processes and imminent transactions.”

Based on the current state of things, Slovenian M&A attorneys should have their hands full for the foreseeable future.

“This will continue until the majority of companies are privatized, or for the next three to five years. After that, I’m not sure, but time will tell. There are only so many companies attracted to M&A transactions as bidders and it’s a small market. The two main pillars for our purposes are restructuring and M&A deals as we’ve received demand for M&A and restructuring,” Ketler predicted.

“Particularly in the post-acquisition phase of M&A transactions where RPPP boasts a particularly outstanding track record we can already see that clients seek legal services in activities related to overall business restructurings, including covering legal aspects in operative and financial restructurings,” Pajek added. “The additional aspect in the post-acquisition phase in terms of legal services is also integration of the target into the existing corporate group.  As an upcoming and strengthening trend in the business of law I see also the capacity to combine both worlds of the legal service: on one hand being able to provide full service on a one-stop-shop basis for corporate clients and still have focus on particularities of the specialized areas of law, which results in having the internal organizational structure divided in sections or departments.”

Firms remain cognizant of other challenges as well.

According to Pajek, “the mandates are becoming more and more challenging – transactions require understanding of the broader picture and an understanding of the interplay of many areas of law from corporate, regulatory to finance, depending of course also on the industry in question. To tackle these challenges our approach has always been based on a good transaction team that offers not only a depth of expertise, but also a breadth of experience and sound commercial judgment in all areas of our practice. We make a great effort to firstly understand the client’s needs and objectives, analyze the situation to see where the potential pitfalls are that could prevent the achievement of the goals.”