Overview of Mergers and Acquisitions in Ireland

General Overview

1. What legislation governs M&A activity in Ireland?

Mergers and acquisitions in Ireland are governed by the Irish Takeover Panel Act, 1997 and the:

• Takeover Rules, 2007;
• Substantial Acquisitions Rules, 2007; and
• The EC (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 (the "Takeover Regulations").

The Takeover Rules apply to public companies incorporated in Ireland that trade, or have in the previous 5 years traded on the Irish Stock Exchange or the London Stock Exchange, New York Stock Exchange or the NASDAQ.

They will also apply in circumstances where the Irish Takeover Panel would have jurisdiction in respect of a bid for the securities of the company under the Takeover Regulations.

The EC Merger Control Regulation applies when the merger or acquisition has a Community dimension. If not, the merger or acquisition may be subject to the Competition Act, 2002.

The Companies Acts 1963 to 2009 legislate for various aspects of public and private mergers and acquisitions transactions, in addition to governing the formation and administration of companies incorporated in Ireland and the duties of their directors and officers, including rules relating to prospectuses, financial assistance, compulsory acquisition of minority interests and minority shareholder remedies.

The European Communities (Stock Exchange) Regulations, 1984, which implemented the Admissions Directive 79/279/EEC and the Interim Reports Directive 82/121/EEC designate the Irish Stock Exchange as the competent authority and empower it to administer the requirements of the Directives.

The Listing Rules issued by the Irish Stock Exchange apply in Ireland to companies admitted or seeking admission to the Irish Stock Exchange. The Irish Enterprise Exchange (the Irish AIM) was established on 12^th April 2005 and the IEX Rules cover admission to this market of the Exchange.

The Prospectus (Directive 2003/71/EC) Regulations 2005 and the Market Abuse (Directive 2003/6/EC) Regulations 2005 supplement the Listing Rules and contain rules regarding the content of prospectuses, and the disclosure of inside information, respectively.

The Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules require the disclosure of periodic and ongoing information by issuers, and of major holdings and voting rights by holders.

The Investment Intermediaries Act, 1995 (for IIA authorised investment business firms) and the EC (Markets in Financial Instruments) Regulations 2007 (for MiFID authorised investment firms) state that when a party proposes to acquire directly or indirectly shareholdings exceeding 10%, 20%, 33% or 50% of an authorised investment business firm, that party and the disposing party must notify the Financial Regulator of the proposal as soon as possible. The Financial Regulator then has one month to request additional information and has the ability to approve or impose conditions on the acquisition. Under the Financial Regulator's Prudential Handbook for Investment and Stock Broking Firms and its Supplementary Supervisory Requirements for Investment Firms, notification to the Financial Regulator is also required in respect of any direct or indirect acquisition or disposal of shares or other interest in any other undertaking or business by an authorised investment business/ firm, other than for the purpose of trading book activities.

The EC (Licensing and Supervision of Credit Institutions) Regulations, 1992 contain provisions relating to holdings by credit institutions in other entities. A credit institution must not acquire, directly or indirectly, more than 10% in any undertaking or business without written approval of the Financial Regulator, and the credit institution must notify the Financial Regulator of any divestment of the whole or part of such holdings. A party proposing to acquire holdings exceeding 10%, 20%, 33% or 50% of the holding in a credit institution, must notify and receive the approval of the Financial Regulator.

The EC (Non-Life Insurance) Framework Regulations 1994 and the EC (Life Assurance) Framework Regulations 1994 govern the operation and supervision of insurance undertakings in Ireland and provide that any party who proposes to acquire either directly or indirectly, a holding 10% or more of the voting rights in an insurance undertaking, or a holding that makes it possible to exercise significant influence over the management of the undertaking must notify the Financial Regulator and on a proposed increase in the holding to 20%, 33% or 50% or more. The Financial Regulator must consult with competent authorities in other Member States when the insurance undertaking would become a subsidiary of a credit institution, investment firm or another insurance undertaking in the Member State concerned. The Financial Regulator will have 3 months to oppose the acquisition. Disposals must also be notified to the Financial Regulator. The insurance undertaking itself must notify the Financial Regulator on becoming aware of any of the above acquisitions or disposals and must notify the Financial Regulator annually of the names of qualifying shareholders and the size of the shareholdings.

The UCITS Regulations/ Unit Trusts Act, 1990/ Part XIII of the Companies Act, 1990 / Investment Limited Partnerships Act, 1994 regulate firms which provide services to collective investment schemes (management/ administration companies of unit trust schemes and investment companies and the general partner of an investment limited partnership). Approval from the Financial Regulator is required in respect of any proposed change in ownership or in 'significant shareholdings' (10% of more) of those firms. The UCITS Regulations bring the qualifying shareholder requirements for management companies into line with the standards for insurance undertakings noted above.

The EC (Assessment of Acquisitions in the Financial Sector) Regulations, 2009 (the "2009 Regulations") recently introduced harmonised procedural rules and evaluation criteria for the assessment of acquisitions and increases in holdings of financial sector companies. Previously this area was governed by the separate sectoral legislation outlined above. However, the 2009 Regulations have established a harmonised legal framework setting out the entire procedure to be applied by the Financial Regulator when assessing acquisitions of or increases in holdings in the shares of credit institutions, insurance undertakings, assurance undertakings, reinsurance undertakings, investment firms, market operators of regulated markets and UCITS (undertakings for collective investments in transferable securities) management companies.

The 2009 Regulations provide that where any person or entity proposes to acquire or dispose of a "qualifying holding" of 10% or more of the shares in financial sector companies, whether directly or indirectly, they must notify and obtain the approval of the Financial Regulator. Notification must also be made, and approval obtained, in circumstances where a person or entity wishes to increase (or decrease) their holding in a financial sector company above (or below) 25%, 33% or 50%. Financial sector companies are obliged to notify the Financial Regulator where they become aware of any of the above acquisitions or disposals and must notify the Financial Regulator annually of the names of qualifying shareholders and the size of the shareholdings. The 2009 Regulations also prescribe the period in which the Financial Regulator must assess the proposed acquisition or disposal, and sets out the criteria which it may consider in approving or opposing the proposed transaction.

2. What have been the most significant M&A transactions in Ireland over the past year?

In 2009 the value of deals involving Irish companies fell to approximately €4.1 billion, down from approximately €8.6 billion in 2008 (the approximate figures are due to the fact that more than half of all deal announcements were silent on deal value in 2009). There were 140 deals agreed during the year (down from 276 in 2008 - a 49% decrease).

When broken down, the figures reveal that 100 of these acquisitions were made by Irish companies and that the value of deals by Irish firms fell by approximately 59% from the previous year to approximately €2 billion.

Building materials giant CRH plc made a total of 17 acquisitions worth €450 million. There were reasonable levels of activity in the food, drink, agriculture, waste, energy and natural resource sectors.

The largest five deals in 2009 were:-

3. How, and to what extent, is foreign involvement in M&A transactions in Ireland regulated/restricted?

In repealing the Mergers, Takeovers and Monopolies (Control) Act, 1978 (as amended) and the Competition Act, 1991, the Competition Act 2002 eliminated the 'common good' criteria from the substantive test adopted by the Competition Authority, replacing it with a 'substantial lessening of competition' test. This has ensured that mergers and acquisitions are now assessed purely on competition grounds rather than political or other considerations.

The Broadcasting Commission licences and monitors broadcasting in Ireland. The Commission's Ownership and Control Policy Document requires applicants to maintain a local ethos but does not regard local ownership as an essential element in achieving this. The Commission does however consider reciprocal arrangements for investment and licensing when reviewing applications from non-EU applicants.

Due Diligence

1. What are the principal disclosure requirements in a typical M&A transaction in Ireland?

In Ireland the principle of 'caveat emptor' largely applies to a bidder in a merger and acquisition transaction.

The bidder will generally carry out due diligence enquiries and in an acquisition of a private company seek warranties and indemnities. The extent of the due diligence exercise that can be carried out will largely depend on the time available, the financial and technical resources available to the bidder and the willingness of the vendor and target to disclose confidential information. If a bid is recommended the vendor and target may voluntarily make information available to the bidder, however if hostile, due diligence will be restricted to information in the public domain, such as information required to be disclosed under the Companies Acts, the Takeover Rules and the Irish Listing Rules.

2. To what extent do the current disclosure requirements achieve market transparency?

A certain amount of information is required to be disclosed by holders and issuers under a combination of the Companies Acts, the Transparency Regulations and Transparency Rules, the Takeover Rules (if the offeree is the subject of a bid) and if quoted, the Irish Listing Rules. Both public and private companies are required to file particular documents and information at the Companies Registration Office and Office of the Revenue Commissioners. These disclosure requirements which achieve a transparent market for securities in Ireland are comparable to those in the rest of the EU.

3. How significant an issue is prospectus liability in a typical M&A transaction?

In Ireland the Investment Funds, Companies and Miscellaneous Provisions Act, 2005 ("CA 2005") imposes criminal sanctions for including untrue statements in a prospectus or omissions of information required by EU prospectus law. Highlighting the importance of verification of the prospectus document, the sanctions imposed are:

• on summary conviction a fine of up to €5,000 or a term of imprisonment not exceeding 12 months, or both; and

• on indictment a fine of up to €1,000,000 or a term of imprisonment not exceeding 5 years, or both.

CA 2005 also provides for statutory compensation to persons suffering loss or damage as a result of the untrue statement or omission.

There are also civil sanctions for the publication of untrue statements in a prospectus under common law, tort and in equity.

4. What are the key unresolved issues in Ireland?

The Companies Consolidation and Reform Bill, which will consolidate 13 Companies Acts and numerous statutory instruments has been presented for public comment but is not likely to be passed into law until late 2010.

Takeovers

1. Are there any specific regulations and/or regulatory bodies governing takeovers in Ireland?

The Irish Stock Exchange regulates listing and trading of securities on the Exchange.

The Irish Takeover Panel is the body responsible for the monitoring and supervision of takeovers and other relevant transactions in relation to securities in relevant companies in Ireland.

The Competition Authority is a statutory body which administers and enforces the primary anti-trust legislation relating to the acquisition of Irish undertakings.

In the case of media mergers or acquisitions, the Minister for Enterprise, Trade and Employment can require the Competition Authority to investigate the merger or acquisition and override a determination of the Competition Authority.

The powers and functions of the Financial Regulator are mentioned above.

2. What are the various methods by which a takeover can be achieved?

A takeover of a company in Ireland can be achieved by any of the following methods:

Mandatory Offer

Scheme of Arrangement

 

3. How differently do the legislation/regulatory treat hostile and voluntary takeover bids?

 

Where a bid is recommended by the board of the target, the offer document will generally be a joint document that includes the target board's views on the offer. If hostile, the views of the target board will be contained in a separate document issued within fourteen days of the offer document. In a hostile bid the target can not without the consent of the Takeover Panel announce trading results, profit or dividend forecast, an asset valuation, proposal for a dividend payment or other information after the thirty-ninth day following the date on which the offer document is posted.

 

4. What penalties are imposed for parties who violate takeover regulations (or equivalent)?

 

Irish Takeover Panel

 

The Takeover Panel may conduct hearings to determine if a person has acted in accordance with the Takeover Rules. It is an offence to fail to attend the Panel when summonsed, attend without just cause, refuse to testify under oath, perjure oneself or obstruct the Panel in the conduct of its hearings.

 

The Takeover Panel may impose a maximum fine on summary conviction of €1,900 or 12 months imprisonment or both.

 

If the Panel considers that a party is not complying with its rulings or directions it may apply to the High Court seeking an order to require any party to the transaction to do, or refrain from doing any act, or annul any transaction that has been carried out in defiance of its rulings or directions. The Court may order consequential or restitutionary relief.

 

Irish Stock Exchange

 

The Irish Stock Exchange (ISE) may privately censure an issuer (and or its directors) for contravention of the Irish Listing Rules or may refer the matter to its Listing Committee, which may censure or suspend or cancel the listing of the issuer's securities, or any class of securities.

Office of the Director of Corporate Enforcement ("Director") and Director of Public Prosecutions ("DPP")

The Director may prosecute:

• criminal offences under the Companies Acts by way of summary proceedings (offences punishable by a fine not exceeding €1,904.61 or by imprisonment for a term not exceeding 12 months or both); and

• civil offences on indictment or summarily by either seeking an injunction to require a company or an officer to make good a default, freezing assets, or requiring the restoration of money or property.

The DPP is the only person who can prosecute indictable criminal offences. The maximum penalty for a criminal offence under the Companies Acts when prosecuted on indictment is €12,697.38 and the maximum term of imprisonment of five years (but these can be higher in relation to specified offences such as fraudulent trading, three specific offences relating to insider dealing in shares and furnishing false information).

Under the Companies Act 1990 ("CA 1990"), the Director, the DPP, members, officers, employees and creditors of companies and the Registrar of Companies also have standing to seek an order to disqualify a director.

Private persons, when members or creditors of a company can also take action to force compliance with the Companies Acts.

5. What are the thresholds for disclosing bids and offers?

The CA 1990 provides that any person who acquires an interest in voting shares in a public company must notify the company within a specified period if the acquisition results in them having an interest in 5% or more of any class of those shares. Once the 5% threshold has been reached each increase or decrease needs to be notified including a decrease which brings the interest below the 5% threshold. The term "interest" is broadly defined and includes rights to call for the delivery of shares and rights or obligations to acquire or take an interest in shares, whether such rights or obligations are conditional or absolute. Failure to notify the company will result in a loss of the ability to enforce rights in relation to the shares.

Where a company is listed on the Irish Stock Exchange, the Transparency Regulations 2007 (implementing EU Council Directive 2004/109/EC) and the Transparency Rules of the Financial Regulator (made under S.22 of the Investment Funds, Companies and Miscellaneous Provisions Act 2006) require shareholders to notify the issuer when their voting interests in the issuer pass certain thresholds. The issuer must then notify the Exchange.

In the case of a company incorporated in the European Economic Area with its registered office in Ireland, the shareholders must notify the issuer where their interests reach, exceed or fall below 3%, 4%, 5%, 6%, etc, and each 1% threshold thereafter up to 100%.

In the case of a non-Irish issuer listed on the ISE, the shareholders must notify the issuer where their voting interests in the issuer reach, exceed or fall below 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.

Competition/Antitrust

1. What have been the major recent developments in competition policy and legislation as they relate to M&A in Ireland?

The Competition Act, 2002 raised the thresholds for mergers or acquisitions which must be notified to the Competition Authority, to those for which:

In 2009 the Competition Authority received 27 notifications in total, down on the 38 received in 2008. Of the 27 notified transactions, 23 were cleared during the phase 1 stage of the investigation and three were outstanding at the end of the year. The Authority initiated only one phase 2 investigation, which was cleared (once certain undertakings were obtained by the Authority in relation to the conduct of the business following completion of the proposed transaction).

2. How are the competition/antitrust regulations enforced in Ireland?

The Competition Act, 2002 is enforced by the Competition Authority under powers provided to the Authority in that Act and the DPP.

Mergers and Acquisitions

The Authority can impose a fine for a failure to notify a notifiable transaction:

For continuing offences, a daily fine of €300 on summary conviction and €25,000 on indictment may be levied.

The fines may be levied against persons in control of an "undertaking", including officers of companies, partners of partnerships and other individuals who authorise or permit the contravention.

Any merger or acquisition which is put into effect in contravention of the Act (including voluntary notified mergers or acquisitions) is void.

A notification will not be valid when any information provided or statement made is false and misleading in any material respect. Any decision made on the basis of such a notification will be void.

Persons who contravene a commitment, determination or order of the Authority are guilty of a criminal offence and are liable:

For continuing offences a daily fine of €300 on summary conviction or €1,000 on indictment may be imposed.

Restrictive Agreements and Practices

An undertaking guilty of a cartel-type offence (direct or indirect fixing of prices; limiting output or sales or the sharing of markets or consumers), has committed a criminal offence and will be liable:

For continuing offences a daily fine of €300 on summary conviction or up to €40,000 on indictment may be imposed.

Abuse of Dominant Position

An undertaking guilty of abusing its dominant position in trade for goods or services in the State has committed a criminal offence and will be liable:-

A director, manager or other officer can be liable for an offence of an undertaking when they have authorised or consented to the doing of the acts constituting the offence.

Once again, fines of €300 on summary conviction or up to €40,000 on indictment may be imposed for each day of the continuing offence.

3. How does the legislation/regulations approach the issue of "abuse of dominant position"?

Section 5(1) of the Competition Act, 2002 (based on Article 82 of the EC Treaty) provides that any abuse by one or more undertakings of a dominant position in trade for any goods or services in the State is prohibited.

The test as to whether an undertaking holds a dominant position is that it can act independently of its competitors, its trading partners (suppliers and customers) and ultimately the consumer. Dominance is assessed by reference to a number of factors, including market share.

Section 5(2) of the Act states that such abuse may consist in:

4. To what extent are parties in an M&A transaction subject to prior notification requirements?

Details of notifiable mergers or acquisitions must be submitted to the Competition Authority within 1 month after the conclusion of the agreement or the making of the public bid and can not be put into effect until determined by the Authority.

Prior to the agreement or bid, parties to a merger or acquisition (whether notifiable or not) may discuss jurisdictional and legal issues and the form of any notification with the Authority when they can satisfy the Authority that they have a bona fide intention of proceeding with the transaction. As evidence of such an intention, the Authority will accept a signed form of heads of agreement, memorandum of understanding or letter of intent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.