Abstract
Takeover regulation, providing rules for public tender offers aiming at acquiring shares of a target company listed on a regulated market, has become an integral component of a functioning equity market.
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Notes
- 1.
These principles can be found, e.g., as General Principles in the European Takeover Directive or the City Code on Takeovers and Mergers in the United Kingdom (“City Code”).
- 2.
The report on takeover and other bids by Professor Robert R. Pennington, EU Commission Working Document XI/56/74-E (“Pennington Report”), stated in point 88, p. 75, that the reason for requiring the offeror to offer all those persons to whom an offer is addressed exactly the same terms for their holdings is to prevent “special arrangements for the benefit of holders of large blocks of securities by which they are paid rateably more for their securities than smaller investors.” The Legislative Materials for the German WpÜG, BT-Drs. 14/7034, p. 35, state (with respect to the rule stipulating that holders of the same class of securities of a target company shall be treated equally) that offers where the amount of consideration offered is staggered in accordance with the time of the declaration of acceptance, in order to cause a “greyhound race” of the holders of the securities, violate the general principle of equal treatment.
- 3.
Cf. the Pennington Report (ibid.; footnote 2); a first legislative initiative failed when the European Parliament rejected a joint draft of Commission and Council on July 4, 2001.
- 4.
Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004, on takeover bids, Official Journal of the European Union, April 30, 2004, No. L 142/12.
- 5.
European Commission, Report to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the application of Directive 2004/25/EC on takeover bids (COM(2012) 347 final, dated June 28, 2012 (“2012 Report”), p. 2, paragraph 3.
- 6.
If the prerequisites for a squeeze-out are fulfilled, member states shall ensure that the offeror is able to require all the holders of the remaining securities to sell those securities at a fair price to the offeror.
- 7.
If the prerequisites for a sell-out are fulfilled, member states shall ensure that a holder of remaining securities of the target company is able to require the offeror to buy those remaining securities at a fair price under the same circumstances as provided for with respect to a squeeze-out.
- 8.
The board neutrality rule (Article 9 of the Takeover Directive) provides that during the bid period the board of the target company must obtain prior authorization from the general meeting of shareholder before taking any action which might result in the frustration of the offer.
- 9.
The breakthrough rule (Article 11 of the Directive) neutralizes pre-bid defences during a takeover by making certain restrictions (e.g., share transfer or voting restrictions) inoperable during the takeover period and allows a successful offeror to remove the incumbent board of the target company and modify its articles of association.
- 10.
The Commission stated in its 2012 Report (ibid.; footnote 5), p. 3, paragraph 7) that 19 member states have transposed the board neutrality rule while 3 member states have transposed the breakthrough rule. About half of the member states allow companies who are subject to the board neutrality rule and/or breakthrough rule (by law or based on the articles of association of the company) not to apply the rule when they are confronted with a takeover offer by an offeror who is not subject to the same rule (reciprocity).
- 11.
2012 Report (cf. footnote 5).
- 12.
Ibid.; footnote 5, p. 9, paragraph 21.
- 13.
Ibid.; footnote 5, p. 3, paragraph 6. An external study conducted on behalf of the Commission included Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Poland, Portugal, Romania, the Slovak Republic, Spain, Sweden, and the UK.
- 14.
Ibid.; footnote 5, p. 5, paragraph 13, footnote 15: An external study conducted on behalf of the Commission (http://ec.europa.eu/internal_market/company/docs/takeoverbids/study/study_en.pdf) included the following third countries: Australia, Canada, China, Hong Kong, India, Japan, Russia, Switzerland, and the USA.
- 15.
Ibid.; footnote 14. The external study (which included the third countries Australia, Canada, China, Hong Kong, India, Japan, Russia, Switzerland, and the USA) concluded on p. 237: Three out of nine Major Non-EU Jurisdictions (China, Japan, and the USA) do not provide for an option to squeeze out minority shareholders following a successful takeover bid. Such jurisdictions may provide for alternative mechanisms permitting the exclusion of minority shareholders. Five out of nine Major Non-EU Jurisdictions (India, Canada, Japan, Switzerland, and the USA) do not provide for a minority shareholder right to force the majority shareholder to sell out their shares.
- 16.
According to Part 28, Section 943 (1), of the Companies Act 2006, the Takeover Panel must adopt rules giving effect to Articles 3.1, 4.2, 5, 6.1–6.3, 7–9, and 13 of the Takeover Directive.
- 17.
The City Code also has received a statutory basis in relation to the Isle of Man, Jersey and Guernsey.
- 18.
Sections 966 et seq. Companies Act 2006.
- 19.
Sections 974 et seq., 979 et seq. Companies Act 2006.
- 20.
Sections 974 et seq., 983 et seq. Companies Act 2006.
- 21.
Its general principles are the same as the general principles set out in the Takeover Directive.
- 22.
Rule 9.1 of the City Code provides, as an exception, that a mandatory offer will not be required where control of the target company is acquired as a result of a voluntary offer made in accordance with the City Code to all the holders of voting equity share capital and other transferable securities carrying voting rights.
- 23.
The offer must also be made to the holders of any other class of transferable securities carrying voting rights. Offers for different classes of equity share capital must be comparable.
- 24.
“Control” is defined as an interest, or interests, in shares carrying in aggregate 30 % or more of the voting rights of a target company, irrespective of whether such interest or interests give de facto control.
- 25.
Rule 21 of the City Code.
- 26.
Leitsätze für öffentliche freiwillige Kauf- und Umtauschangebote bzw. Aufforderungen zur Abgabe derartiger Angebote in amtlich notierten oder im geregelten Freiverkehr gehandelten Aktien bzw. Erwerbsrechten (Guidelines for Public Voluntary Purchase and Exchange Tender Offers, as well as Invitations to Issue Such Offers, for Shares or Rights Traded on the Official Market or the Regulated Free Market).
- 27.
Text in German language published in Fleischer/Kalss, Das neue Wertpapiererwerbs- und Übernahmegesetz, Munich, 2002, p. 197 et seq.
- 28.
Schuster/Zschocke, Übernahmerecht/Takeover Law, Frankfurt am Main, 1996 (with supplement March 1998), p. 48 et seq.
- 29.
Bilingual edition, with annotations: ibid.; footnote 28, p. 74 et seq.
- 30.
Ibid.; footnote 28, p. 53. On October 16, 1997, the BSK adopted modifications to the Takeover Code, mainly concerning the mandatory offer and the related pricing rules, which were published on November 28, 1997, and entered into effect on January 1, 1998.
- 31.
Until the modifications of November 28, 1997 (cf. footnote 30), the control threshold pursuant to the Takeover Code was originally fixed at 50 % of the voting rights of the target company. According to the revised provision, control could be obtained below the previous threshold. With respect to shareholder resolutions, for instance, control was presumed only if the potential offeror obtained at least a share of voting rights that would have constituted a percentage of voting rights equal to at least 75 % of the share capital present and entitled to vote at each of the three preceding shareholders’ meetings of the target company.
- 32.
Cf., e.g., Kallmeyer, in: ZHR 161(1997), p. 435 et seq.
- 33.
Schuster, in: Zschocke/Schuster, Bad Homburger Handbuch zum Übernahmerecht, Heidelberg, 2003, Part A, point 27.
- 34.
Legislative Materials, BT-Drs. 14/7034, p. 27. The WpÜG is designed to ensure a fair and orderly procedure, greater transparency during the public tender offer procedure giving shareholders and employees comprehensive information rights, as well as equal treatment for minority shareholders.
- 35.
Zschocke/Rahlf, in Wegerich, Business Laws of Germany, 2012 edition, Volume 1, Chapter 2:2, p. 145 et seq.
- 36.
Legislative Materials, BT-Drs. 14/7034, p. 28.
- 37.
The WpÜG primarily applies to German stock corporations and partnerships limited by shares whose securities are admitted to trading on a domestic organized market. Certain provisions of the WpÜG apply to (cross-border) European offers in cases where the shares in domestic or foreign target companies are quoted on an organized market outside the target company’s country of residence. Details are set out in the WpÜG and the WpÜG Applicability Regulation (WpÜG-Anwendbarkeitsverordnung).
- 38.
For the analysis of whether a shareholder holds a controlling stake in a target company within the meaning of the WpÜG not only the shares legally owned by the shareholder count towards the 30 % threshold but also voting rights that are attributed to the shareholder.
- 39.
The WpÜG and the WpÜG Offer Regulation (WpÜG-Angebotsverordnung) set forth the requirements under which, apart from the possibility of disregarding certain voting rights, an acquirer of control can be released from the obligation to make a mandatory offer by way of an exemption decision rendered by the BaFin in its discretion after having considered the interests of the participants involved (the offeror and the shareholders of the target company). The BaFin may issue its exemption decision subject to conditions to address subsequent changes in the facts underlying the acquirer’s application.
- 40.
Details are set forth in the WpÜG and the WpÜG Offer Regulation.
- 41.
Subject to certain limitations, the management board must abstain from any acts that could frustrate the success of the offer. The WpÜG lays out four exemptions to the neutrality obligations. The prohibition to frustrate the offer does not apply to (1) acts that a prudent and diligent manager of a company not affected by a takeover offer would also have taken; (2) the search for a competing offer; (3) acts taken with the consent of the supervisory board; and (4) defensive acts of the management board approved by the shareholder meeting in advance.
- 42.
The WpÜG provides that a target company may provide in the articles of association that the neutrality rule and/or breakthrough rule under the Takeover Directive shall apply (“opt-in”); to ensure a level playing field for cross-border takeovers, a reciprocity clause (pursuant to such reciprocity clauses, provisions in the articles limiting the effectiveness of share transfer restrictions or the ability of the company’s management to take defensive measures against takeovers shall be subject to the reservation that the offeror in the instant case or a company controlling this offeror is subject to a regulation equivalent to the provisions of the WpÜG for the case of its own potential takeover) may be included in the target company’s articles of association.
- 43.
After the amendment of the 1995 Federal Stock Exchange Act, Swiss takeover law is governed primarily by several regulations: (1) the Federal Financial Market Infrastructure Act (“FMIA”); (2) the Financial Market Infrastructure Ordinance (“FMIO”); (3) the Swiss Financial Supervisory Authority’s Financial Market Infrastructure Ordinance (“FMIO-FINMA”); and (4) the Ordinance of the Swiss Takeover Board on Public Takeover Offers (“TOO”).
- 44.
The FMIA contains a section concerning “public acquisition offers” but does not clearly define the term “public.”
- 45.
The FMIO provides that the equity securities of a company with registered office in a foreign country shall be deemed “mainly listed” in Switzerland if the company must fulfill at least the same duties for the listing and maintenance of the listing on a stock exchange in Switzerland as a company with registered office in Switzerland.
- 46.
The FMIA provides that if, in connection with a public acquisition offer, Swiss and foreign law are simultaneously applicable, then application of the provisions of Swiss law may be relinquished to the extent that the application of Swiss law would result in a conflict with the foreign law and the foreign law provides a protection of the investors that is equivalent to that provided under Swiss law.
- 47.
Art.125 (3), (4) FMIA.
- 48.
The threshold is to be calculated on the basis of the total number of voting rights according to the entry in the commercial register, Art. 34 (1) FMIO-FINMA.
- 49.
The FMIA does not contain a definition of the term “control.”
- 50.
The Takeover Board may grant exceptions from the mandatory offer obligation in certain justified cases; cf. Art. 136 (1), (2) FMIA, Art. 40 et seq. FMIO-FINMA.
- 51.
Art. 135 (2) FMIA.
- 52.
Art. 42 FMIO-FINMA provides, inter alia, that this is the volume-weighted average price of all on-exchange transactions executed during the 60 trading days prior to publication of the offer or the advance announcement, as the case may be, which must be adjusted to take into account any sizable fluctuations owing to special events.
- 53.
Art. 43 FMIO-FINMA.
- 54.
The so-called best price rule, as laid down in Art. 10 TOO, provides that if the offeror acquires equity securities of the target company in the period from the publication of the offer until 6 months after the additional acceptance period at a price that exceeds the offer price, it must offer this price to all recipients of the offer. The best price rule also applies to the acquisition of financial instruments and to offers relating to such instruments.
- 55.
Public tender offers which are not qualified as mandatory tender offers are considered as voluntary tender offers.
- 56.
Art. 35 TOO. Art. 36, 37 TOO lay out certain unlawful or inadmissible defensive measures.
- 57.
Details are provided in Art. 137 FMIA, Art. 120 et seq. FMIO.
- 58.
TOB decision 594/01 of March 5, 2015, and TOB decision 598/01 of April 1, 2015.
- 59.
According to that clause, the board of Sika can reject an acquirer of registered shares as shareholder to the extent that such acquirer’s number of registered shares exceeds 5 % of the total number of registered shares registered with the commercial register.
- 60.
The share capital of Sika comprises registered shares with restricted transferability, which are not listed anymore since 2003, and bearer shares which are listed in the main standard segment at the SIX Swiss Exchange.
- 61.
On December 22, 2014, Saint-Gobain assigned all rights and obligations of the SPA to a company controlled by it.
- 62.
TOB decision 594/01 of March 5, 2015, p. 8, 12.
- 63.
TOB decision 598/01 of April 1, 2015, p. 10, 13; the TOB decision was confirmed by the decision of the FINMA Takeover Committee of May 4, 2015 (p. 10 et seq., 17) and the judgment of the Swiss Federal Administrative Court of August 27, 2015 (B-3119/2015).
- 64.
Ibid.; footnote 63, p. 8.
- 65.
Cf., e.g., media releases of Sika dated January 26, 2015, April 15, 2015, July 24, 2015, or April 12, 2016.
- 66.
Sika stated in media releases dated April 7, 2015 and June 11, 2015 that in the proceedings concerning SWH’s requests with regard to the restriction of the voting rights, as well as for an ex parte order prohibiting any restrictions of SWH’s voting rights at the general meeting on April 14, 2015, SWH’s requests were denied by the Cantonal Court of Zug and that SWH’s appeal was denied by the Superior Court of Zug which held that the issue of the restriction of the voting rights shall be decided in ordinary proceedings. Sika stated in a media release dated October 2, 2015 that SWH has challenged certain decisions of the extraordinary shareholders’ meeting of July 24, 2015, mentioning that the principal issue in both proceedings is whether the transfer restriction as set forth in Sika’s articles applies to the intended sale of family Burkard’s stake in Sika to Saint-Gobain.
- 67.
Schuster, in: Zschocke/Schuster (ibid., footnote 37), Part A, points 72 et seq.
- 68.
The Williams Act (“An Act providing for full disclosure of corporate equity ownership of securities under the Securities Exchange Act of 1934”) added a number of provisions to Sections 13 and 14 of the Exchange Act addressing beneficial ownership disclosure, tender offers, and changes in control, including Sections 13(d) and 13(e) [15 U.S.C. 78 m(d)–(e)]; and Sections 14(d) and 14(e) [15 U.S.C. 78n(d)–(e)] (Commission Guidance on Mini-Tender Offers and Limited Partnership Offers, Part I, in: footnote 2).
- 69.
The term “tender offer” has never been defined in any statutory provision or rule (cf., footnote 68, Part I).
- 70.
Schuster, in Zschocke/Schuster (ibid.; footnote 35), Part A, point 73.
- 71.
Schuster, in Zschocke/Schuster (ibid.; footnote 35), Part A, point 75.
- 72.
EU member states have the competence to introduce additional measures which go beyond the requirements of the Takeover Directive as long as the Directive’s general objectives are observed.
- 73.
ESMA/2013/1642, dated November 12, 2013. According to Art. 2 (1) (d) of the Takeover Directive, “persons acting in concert” shall mean natural or legal persons who cooperate with the offeror or the target company on the basis of an agreement, either express or tacit, either oral or written, aimed either at acquiring control of the target company or at frustrating the successful outcome of a bid.
- 74.
Ibid.; footnote 73, p. 5 et seq.
- 75.
Ibid.; footnote 5, p. 10, paragraph 25.
- 76.
Ibid.; footnote 5, p. 10, footnote 38, pointing to an overview on p. 130 of the External Study. Also the ESMA public statement includes an overview on national control thresholds, alternative primary thresholds, additional mandatory bid thresholds, and secondary thresholds in the concerned member states of the EU, as well as in Iceland (Ibid.; footnote 73, Appendix B, p. 11 et seq.).
- 77.
Ibid.; footnote 5, p. 10, paragraph 25.
- 78.
Resolution of May 21, 2013 (2012/2262(INI)), paragraph 15.
- 79.
Legislative Proposal, BT-Drs. 17/3481 dated October 27, 2010.
- 80.
In the context of a takeover offer under the German WpÜG by an offeror (belonging to the McKesson group) for shares of the target company Celesio AG, the offeror bought convertible bonds in order to convert them in the context of the offer to pass the target 75 % threshold. The Frankfurt Regional Court held in a judgment dated December 2, 2014 (3-05 O 44/14) that, in the context of determining the minimum offer consideration, acquisition prices for convertible bonds are irrelevant for determining the prior acquisition price for new shares created by conversion of the convertible bonds - at least in the case of an offeror’s “derivative acquisition” of already issued convertible bonds from a seller. That judgment was set aside by the Frankfurt Higher Regional Court with a remarkable judgment dated January 19, 2016 (5 U 2/15), focusing closely on the economic purpose behind the acquisition of the convertible bonds in the specific case. However, in view of the importance of the applicability of the provision of the WpÜG at issue, the Frankfurt Higher Regional Court allowed an appeal which is currently pending before the German Federal Supreme Court.
- 81.
Judgment dated June 11, 2013, II ZR 80/12.
- 82.
The court found, among other things, that the WpÜG has the purpose of creating framework conditions and, therefore, is primarily capital market law oriented, and that the provision stipulating the obligation to submit an offer document and make an offer is not a statute that is intended to protect another person.
- 83.
Art. 6 (1), (2), (3) (i), Art. 8 (2) and Art. 9 (5) of the Takeover Directive.
- 84.
Art. 6 (3) (i) of the Takeover Directive.
- 85.
Art. 9 (5) of the Takeover Directive.
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Zschocke, C. (2017). Takeover Regulation as Part of a Functioning Equity Market. In: Francioni, R., Schwartz, R. (eds) Equity Markets in Transition. Springer, Cham. https://doi.org/10.1007/978-3-319-45848-9_24
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