Category: Croatia

Vukmir & Associates has advised Erste & Steiermarkische Bank d.d. and Zagrebacka banka d.d. on their provision of a EUR 24 million club loan to the Arena Hospitality Group.

According to the firm, the Arena Hospitality Group, a member of the Park Plaza Group, operates a portfolio of 26 owned, co-owned, leased, and managed properties in Croatia, Germany, and Hungary. Furthermore, “the facility is intended for the financing of Arena’s project of reconstruction and development of Hotel Brioni – one of the symbols of the City of Pula.”

Vukmir & Associates’ team was led by Partner Sanja Tkalec Kovac.

A freely-accessible public healthcare system has always been considered one of the pillars of the modern welfare state. However, the dearth of adequate managerial skills and advance planning within the healthcare framework has often led to systemic problems, like issues with financing for a system that is regarded as a public service by users and a private business by service suppliers. This problem has once again resurfaced in the Croatian health sector, with debts accumulated by public hospitals and pharmacies standing in the way of a regular supply of medicinal products and medical devices by manufacturers, wholesalers, and pharmacies.

Delays in payments by both public hospitals and the Croatian Health Insurance Fund (CHIF) for delivered medicinal products are nothing new in the Croatian healthcare system – state actors have a long-established practice of missing contractual payment deadlines. Although the maximum payment deadline of 60 days is prescribed by law, hospitals and CHIF fall behind on their payments for an average of 360 days. Notwithstanding the government’s previous ad-hoc interventions, the debt owed to medicinal product wholesalers rose to HRK 6.5 billion (about EUR 860 million) at the end of March 2021, corresponding to a whopping 4% of the state budget. And it does not stop there – the debt is growing by a monthly margin of HRK 220 million to HRK 250 million (about EUR 29 million to EUR 33 million), thus representing the latest chain of illiquidity in the state (after the one leading to fall of the agri-food giant, Agrokor). This situation has put the wholesalers of medicinal products in Croatia in an unenviable position: on the one hand, they have a general legal obligation to ensure the appropriate and uninterrupted supply of medicinal products to the market, but on the other hand, by being forced to accept these extremely long payment terms they have effectively been put in the position of indirectly financing the healthcare system.

It is worth noting that, due to the applicable legal framework, wholesalers of medicinal products do not have control over the price formation process for medicinal products. The maximum wholesale prices for medicinal products are set by the Croatian Agency for Medicinal Products and Medical Devices (based on, inter alia, a comparative analysis of prices in certain other EU countries). Furthermore, where medicinal products are included on the list of products partially financed by the CHIF (which partially reimburses the wholesaler for the price of those products), the upper limit of the price is actually set by the CHIF. Consequently, although they are obliged to provide medicinal products at prices mostly dictated by other market participants, wholesalers are denied the ability to collect timely payments for their services, while at the same time being obliged to promptly meet their tax and social duties to the state and obligations to their own business partners. Such market dysfunctionalities endanger the entire supply chain, as they put a strain on both medicinal product wholesalers and manufacturers by impeding their production, distribution, further growth, and investment into new products.

As the situation once again escalated to a Gordian knot between the medicinal product wholesalers and the healthcare institutions, in March this year wholesalers activated a safety mechanism under which they continue to provide medicinal products only in the value corresponding to the amount actually paid by the health institutions, using the received funds to discharge previous claims. Due to the threatened shortage of medicinal products, the government had to intervene by promising monthly injections of HRK 600 million (about EUR 80 million) toward hospital debt and HRK 300 million (about EUR 40 million) toward pharmacy debt until June 2021, when a revision of the state budget is expected to provide funds required to further shorten the payment terms. While this measure may have provided short-term relief, the underlying problem remains and requires a more profound reform of the healthcare system, which will hopefully bring Croatian healthcare institutions closer to the pacta sunt servanda principle and the rule of law.

By Marija Gregoric, Partner, and Ivona Vidovic, Senior Associate, Babic & Partners

This Article was originally published in Issue 8.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Divjak, Topic, Bahtijarevic & Krka has advised the IFC on its EUR 75 million investment in bonds issued by the Erste & Steiermarkische Bank.

According to DTB, “the investment [is] aimed at increasing access to green housing loans and boosting climate finance in Croatia.”

According to the IFC, “IFC’s support will allow the bank to finance mortgage borrowers in the country, with 40 percent of the proceeds earmarked for green housing loans. IFC’s financing package will further enhance the resilience of the financial sector and promote a dynamic domestic corporate bond market by increasing the diversity in instruments offered by Croatian entities.”

DTB’s team included Partner Martina Kalamiza Grozdek and Trainee Lorena Micik.

Divjak, Topic, Bahtijarevic & Krka has advised the United Group on the acquisition of a majority stake in Optima Telekom from Hrvatski Telekom and Zagrebacka Banka. Madirazza and Partners advised Hrvatski Telekom and Zagrebacka Banka.

According to United Group, it is buying a 17.41% stake in Optima from Hrvatski Telekom and a 36.90% interest from Zagrebacka Banka. The transaction is pending regulatory approval.

Optima Telekom offers a range of fixed internet and pay-TV services and serves around 125,000 broadband subscribers and 55,000 pay-TV customers.

United Group is a telecommunications and media services provider in Southeast Europe, operating in Croatia under the Telemach brand.

DTB’s team included Senior Partners Damir Topic and Mario Krka, Lawyers Dina Salapic, Ema Mendjusic Skugor, Olena Manuilenko, Jasna Belcic, Iva Crnogorac, and Dominik Glavina, and Trainees Antonia Mihaljevic, Iva Vukoja, Ana-Maria Sunko, Barbara Simic, and Petar Zubic.

Madirazza and Partners’ team included Managing Partner Josip Madirazza and Partners Marinka Kovacic and Morana Herak.

Squire Patton Boggs and KHS Kunstek, Halle & Simac have advised Croatian Rimac Automobili on its combination with French automotive brand Bugatti Automobiles, a subsidiary of German Volkswagen Group, to create a new auto company – Bugatti Rimac. CMS advised the Volkswagen Group, which owns Bugatti, on the deal.

According to Squire Patton Boggs, the deal will see Rimac Automobili become a group and split into two separate businesses: a new hypercar business, which will operate under the Bugatti Rimac venture, and Rimac Technology. According to the firm, “Rimac Group will be the major shareholder in Bugatti Rimac holding a 55% stake, with Porsche keeping its existing 24% shareholding in the Rimac Group and acquiring a 45% stake in the new company. Bugatti Rimac will be headquartered in Croatia and begin trading as a new combined entity from Q4 2021. Bugatti and Rimac will both continue as separate respective brands, retaining existing production facilities and distribution channels.”

Squire Patton Boggs’ team included Berlin-based Partner Jost Arnsperger and Senior Associate Alina Navarro Melendo, Birmingham-based Partner Andrew Glaze and Associate Shauna Halls, Luxembourg-based Lawyers Christian Bleschke, Diarmuid Ryan, Tatiana Siakka, Sandra Mueller, Christofer Eggers, and Hagen Reinsberg, and Paris-based Lawyers Tony Reed, Pauline Pierce, Agata Buczek, Kevin Cosmao, Marion Cavalier and Valerie Ravit.

KHS Kunstek, Halle & Simac’s team was led by Managing Partner Gordon Kunstek.

CMS’s team was led by Hamburg-based Partners Hilke Herchen and Jacob Siebert.

Editor’s Note: On November 2, 2021, CMS announced that the deal had successfully closed and that the new venture began operating.

Divjak, Topic, Bahtijarevic & Krka has advised the Croatian subsidiary of M7 Real Estate on the acquisition of two urban logistics assets in Zagreb on behalf of the CEREF II fund. 

According to DTB, M7 Real Estate is a specialist in pan-European, regional, multi-tenanted commercial real estate and part of the M7 Investment Group of companies managing properties with a value of around EUR 4.0 billion. According to the firm, both properties are located in Slavonska Avenue and comprise a total of approximately 14,000 square meters and 8,000 square meters of gross leasable area.

DTB’s team included Partner Martina Kalamiza and Associates Marta Hren and Lorena Micik.

Divjak Topic Bahtijarevic & Krka has advised Croatian hotel operator Villa Dubrovnik on its offer of 830,019 ordinary shares on the Zagreb Stock Exchange.

According to DTB, the total listed capital amounts to approximately HRK 83 million, with June 24, 2021, being the first day of trading. Privredna Banka Zagreb acted as the underwriter on the listing.

Villa Dubrovnik is the operator of the eponymous 5-star hotel located in Dubrovnik, Croatia.

DTB’s team included Senior Partner Damir Topic, Attorney-at-Law Marija Gojevic Sparavec, and Associate Lorena Micik.

With the municipal and county elections in Croatia resulting in a change of guards of sorts, Vukelic Law Office Partner Luka Vukelic explains how it might affect the Adriatic country going forward, while also sharing developments regarding the country’s newest unicorn.

“The most important things of note, lately, are the local municipal and county elections that took place in May,” Vukelic begins. “The elections saw the dominant, ruling party – HDZ – lose both Zagreb and Split, which are two of the biggest cities in the country,” he adds. Vukelic says that this is a major hit for the long-governing political party, seeing as how it will lead to them losing access to some HRK 60 billion of budgetary funds. 

The second reason for which Vukelic believes the elections are of note is that they led to fresh faces entering the political stage. “This was the first time in a long time that neither of the two standard-bearing parties, HDZ and SDP, swept the elections on this level,” he says. According to him, having fresh faces means that it may “finally be the time that Croatia breaks the cycle of HDZ and SDP passing the baton.” Still, changes in government notwithstanding, Vukelic feels that it would take a year at least before it could have any impact on investments. “It remains to be seen if the new leaders will fulfill all of their promises of transparency and advancement.”

What does seem to be a favorable thing for reintroducing trust in the legal system in Croatia, Vukelic reports, is the recent apprehension and arrest of three criminal court judges from the Osijek County Court, on charges of corruption. “This made huge waves with lawyers recently – such a thing hadn’t happened in a long time – and could go a long way towards restoring trust in the system,” Vukelic says.

Finally, speaking of the general atmosphere of the Croatian market, Vukelic says that things have been picking up this year. “Investments, transactions – it all went a level higher this year in comparison to the pre-COVID-19 era,” he says. “Investors are propping up, acquiring companies, and the economic outlook predictions are looking up too.” As an example of things improving, Vukelic says that Croatia has just got its second unicorn – Rimac Automobili. “Rimac just unveiled Nevera, a fully electric hypercar, which is the world’s fastest accelerating production road car in history – and it’s a thing of beauty,” he says. “It’s getting a lot of international investor attention.”

Additionally, Vukelic says that the Peljesac bridge – connecting the two parts of Croatia that have been hitherto accessible only via Bosnia & Herzegovina – is due to be completed “in the coming few months.” Tourists are slowly coming back to the country as well, and Vukelic reports that, with daily newly infected numbers hovering around 50 and more than half of the population being inoculated, Croatia may see a good tourism season. “Things are slowly returning to some form of normal, as the country no longer finds itself on red/orange lists when it comes to COVID-19. This holds nothing but promises for the immediate future,” Vukelic concludes.

Vukmir & Associates, working with Covington & Burling and Gibson, Dunn & Crutcher, has advised on Croatian aspects of the spinoff of Merck’s women’s health business, now operating under the name Organon. Baker McKenzie reportedly advised Merck as well.

According to Merck’s official announcement on the completion of the project, Merck’s goal with the spinoff was to create two patient-focused companies with an enhanced strategic and operational focus, improved agility, simplified operating models, optimized capital structures, and improved financial profiles. Merck believes the transaction will deliver significant benefits for both Merck and Organon and create value for Merck shareholders. The spinoff is expected to allow Merck to increase its focus on key growth pillars, achieve higher revenue and EPS growth rates, and enable incremental operating efficiencies of approximately USD 1.5 billion.

Vukmir & Associates’ team was led by Partner Tomislav Pedisic and included Associates Tea Cerinski and Hrvoje Klisanic.

Vukmir & Associates has successfully represented the Museum of Illusions in challenging a decision by the Board of Appeal of the European Union Intellectual Property Office at the EU General Court.

On September 29, 2017, Croatian-based Metamorfoza d.o.o. filed an application for registration of an EU trademark with the EUIPO for Museum of Illusions. On November 9, 2017, Lithuanian-based Tiesios Kreives filed a notice of opposition, which was upheld by the Opposition Division of the EUIPO on January 29, 2019. Subsequently, on December 2, 2019, the Second Board of Appeal of the EUIPO dismissed the appeal. According to Vukmir & Associates, the procedure before the General Court resulted in the annulment of the EUIPO Second Board of Appeal decision, with the EGC having “addressed a variety of legal and factual aspects and most importantly determined the lack of distinctiveness of the phrase Museum of Illusions.”

The Vukmir team representing the Museum of Illusions was led by Attorney at Law Aleksandar Bijelic.