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LAW ON TAKEOVERS IN THE EU (THIRTEENTH DIRECTIVE)

LAW ON TAKEOVERS IN THE EU (THIRTEENTH DIRECTIVE). ACQUIRING VOTING CONTROL. Two ways of ex post acquiring voting control of the company : buying offered shares on the market public takeover bid. ACQUIRING VOTING CONTROL. Problems associated with buying free shares on the market :

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LAW ON TAKEOVERS IN THE EU (THIRTEENTH DIRECTIVE)

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  1. LAW ON TAKEOVERS IN THE EU(THIRTEENTH DIRECTIVE) др Вук Радовић, LL.M.

  2. ACQUIRING VOTING CONTROL Two ways of ex post acquiring voting control of the company: • buying offered shares on the market • public takeover bid

  3. ACQUIRING VOTING CONTROL Problems associated with buying free shares on the market: • unknown results – no guarantees • high costs • length of the procedure TAKEOVER BID

  4. TAKEOVERS SHs of X SHs of Y cashor securities shares of company Y X Y bidder target company

  5. TAKEOVERS X SHs who haven’t accepted the bid SHs who accepted the bid ScenarioI CompanyX acquires voting control in company Y Y

  6. TAKEOVERS X SHs who haven’t accepted the bid SHs who accepted the bid ScenarioII CompanyX does not acquire voting control in company Y Y

  7. TAKEOVERS Definitions in takeover law • takeover bid • bidder (offeror) • acquirer • target company (offeree company) • securities • hostile takeover • market for corporate control • voting control • board of the target company

  8. TAKEOVER DIRECTIVE History of Takeover Directive (divided into four phases) • First phase: 1970-1985 • Pennington’s draft (1974) • reason for failure: • undeveloped takeover market • rare takeover cases • modest or non-existent national takeover legislature • unclear area

  9. TAKEOVER DIRECTIVE • Second phase: 1985-1992 • 1988 – Carlo de Benedetti takeover attempt • 1989 – first takeover directive proposal (amended in 1990) • major characteristic: detailed takeover regulation • reasons for failure: • opposition by Germany • MBR • takeover defenses • opposition by UK • implementation measures

  10. TAKEOVER DIRECTIVE • Third phase: 1993-2001 • 1996 – second takeover directive proposal • three differences in comparison with first proposal • framework directive • way of implementation • deadline for implementation • problems raised by the EP • equitable price in mandatory bids • principle of neutrality • employee protection • introducing squeeze-out right

  11. TAKEOVER DIRECTIVE • Third phase: 1993-2001 • July, 2001 – EP voting (tie vote) • key event: Vodafone took over Manesmann • division between Member States: • Germany, Austria, Netherlands and Italy – AGAINST • UK, France, Denmark and Sweden – IN FAVOR • major problem: who is authorized to adopt takeover defenses • GMS • Board of directors

  12. TAKEOVER DIRECTIVE • Fourth phase: 2001-2004 • 2001 – High Level Group was formed • Winter report on takeovers (2002) • principle of shareholders’ decision-making • principle of proportionality • squeeze-out and sell-out right • equitable price • deadlock was imminent • Portugal proposed a solution Takeover Directive was adopted in 2004 Optional character of Articles 9 and 11

  13. TAKEOVER DIRECTIVE General principles: • equal treatment of all shareholders • minority shareholders protection • full, accurate and timely information to shareholders • board of directors must act in the interest of the company • shareholder decision-making • prohibition of creating false markets • securing the necessary funds to purchase the shares • to avoid preventing target company to conduct normal business for longer than is justifiable – obligation to implement the takeover procedure in the shortest time possible

  14. TAKEOVER DIRECTIVE Nature of Takeover Directive provisions: • minimum requirements that have to be observed by Member States • Member States are free to introduce additional more stringent conditions and requirements • principle of flexibility

  15. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  16. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  17. TAKEOVER DIRECTIVE MANDATORY BID RULE • Justification • minority SHs protection • justifiable distribution of takeover premium • Basic characteristics • only one situation where an acquirer has an obligation to publish a takeover bid • acquiring voting control is necessary • the way of acquiring is irrelevant • the percentage of voting rights which confers control is not defined

  18. TAKEOVER DIRECTIVE MANDATORY BID RULE • Basic characteristics • further instruments cannot replace MBR • must be addressed to all holders of voting securities • acting in concert introduced w/o further explanations • short time for launching MB • sanctions are left to Member States • Exception • voluntary full bid • other exceptions

  19. TAKEOVER DIRECTIVE MANDATORY BID RULE • Equitable price • presumption – highest price paid (6-12 months) • possible derogations by MS • ex post purchase • Nature of consideration • cash (in three situations obligatory at least as an alternative) • securities • both

  20. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  21. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  22. TAKEOVER DIRECTIVE SQUEEZE-OUT RIGHT • Justification • minority SHs presence creates risks and costs to majority shareholder • makes takeover bids more attractive to potential bidders • efficiency argument • Diversity between Member States • Types of target company • Link to takeover bid • following a full bid

  23. TAKEOVER DIRECTIVE SQUEZEE-OUT RIGHT • Threshold • usually 90-95% of voting rights • two alternatives: • indirect connection with takeover bid (90-95%) • direct connection with takeover bid (90%) • Consideration • amount – fair price • voluntary bid – 90% have accepted • mandatory bid • other situations • form

  24. TAKEOVER DIRECTIVE SELL-OUT RIGHT • Justification • risk of abuse of dominant position by the majority shareholder • difficult to obtain fair market price in illiquid market • counterpart for squeeze-out right • not such a big burden for majority shareholder • to lower the pressure to tender in the takeover bid • Mutatis mutandis application of squeeze-out right rules

  25. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  26. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  27. TAKEOVER DIRECTIVE DUTY OF NEUTRALITY • The most disputable provision – Article 9 • Two opposite principles – meaning and justification • DUTY OF NEUTRALITY • BOARD VETO RULE • Takeover directive principles • must act in the interest of the company as a whole • must not deny the holders of securities the opportunity to decide on the merits of the bid

  28. TAKEOVER DIRECTIVE DUTY OF NEUTRALITY • Scope of application • Personal scope of application • target company • board • Temporal scope of application • beginning of ‘neutrality zone’ • end of ‘neutrality zone’ • Material scope of application • actions that may result in the frustration of the bid • actions that may deny the holders of securities the opportunity to decide on the merits of the bid

  29. TAKEOVER DIRECTIVE DUTY OF NEUTRALITY • Prior authorization of the GMS • short period for convening the GMS • quorum and majority are not defined • takeover defense must be known (specific and concrete) • Exceptions from duty of neutrality • white knight defense • writing an opinion of the bid • normal business operations

  30. TAKEOVER DIRECTIVE DUTY OF NEUTRALITY • Ex post approval of the GMS • Optional regime • three levels of application: • primary level (Member States level) • secondary level (individual corporations level) • reciprocity rule (member States level)

  31. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  32. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  33. TAKEOVER DIRECTIVE BREAKTHROUGH RULE • Second most disputable provision – Article 11 • Ius novum • Principle of proportionately • Applicable only in connection with takeover procedure • Applies to takeover defenses adopted: • ex post or ex ante • by the board or GMS

  34. TAKEOVER DIRECTIVE BREAKTHROUGH RULE • Temporary non-application of takeover defenses • Applies only to enumerated takeover defenses • that limit SHs of target company • to accept the bid • to vote • that limit the acquirer • additional conditions

  35. TAKEOVER DIRECTIVE BREAKTHROUGH RULE • Exceptions • Equitable compensation for any loss • Optional regime • Breakthrough rule in the future

  36. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  37. TAKEOVER DIRECTIVE Five pillars of Takeover Directive MANDATORY BID RULE SQUEEZE-OUT AND SELL-OUT RIGHT DUTY OF NEUTRALITY BREAKTHROUGH RULE DISCLOSURE OF INFORMATION

  38. TAKEOVER DIRECTIVE DISCLOSURE • Bidder’s obligations • publication of a decision to make a bid • publication of a bid • minimum content of a bid • time allowed for acceptance

  39. TAKEOVER DIRECTIVE DISCLOSURE • Target company’s obligations • opinion of the bid and reasons on which it is based • transparency of takeover defenses • general application • permanent disclosure • addressees • general public – annual report • shareholders – explanatory report

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