Important amendments to the public offer rules were recently published and are expected to enter into effect on 1 July 2012. This newsletter highlights the following main changes:
- introduction of a 'put up or shut up' rule;
- clarification of the disclosure requirement for offerors;
- amendment of the rules on the announcement of an 'unsolicited' public offer;
- the possibility of increasing the offer price more than once;
- expansion of the exemption from the obligation to make a mandatory offer (the exemption will also apply in the event of – in brief – certain irrevocable undertakings, and where a party joins an existing exempt group).
In addition, several further changes to the public offer rules are expected to enter into effect on 1 January 2013:
- the exemption from the obligation to make a mandatory offer following a voluntary offer will be restricted;
- there will be an obligation to make a public announcement in the event of, among other things, the acquisition or loss of 'predominant control' (triggering the mandatory offer obligation or causing it to lapse).
Background
The last set of major amendments to the public offer rules dates back to the end of October 2007, when the European Takeover Directive was implemented in Dutch law. Since then a number of controversial public takeovers have raised the question as to whether the offer process needs to be tweaked. The main purpose of the current amendments is to improve the offer process and to enhance transparency. To this end, the Decree on Public Takeover Offers (Financial Supervision Act) (Besluit openbare biedingen Wft) and the Exemption Decree on Public Takeover Offers (Financial Supervision Act) (Vrijstellingsbesluit overnamebiedingen Wft) will be amended.
Amendment to Decree on Public Takeover Offers
Introduction of a 'put up or shut up' rule
Under this rule, the Dutch Authority for the Financial
Markets (Autoriteit Financiële Markten, the
"AFM"), acting at the request of the potential target
company, can oblige a potential offeror to either announce a public
offer within six weeks or disclaim its intention of doing so. The
potential target company can make this request if the potential
offeror has disclosed information suggesting that it is considering
the preparation of a public offer. Whether such information will be
deemed to have been disclosed depends on the circumstances of the
case. According to the explanatory notes to the new rule, a mere
rumour is not sufficient, and in most cases the information must
have been made public more than once. An example is where there are
repeated public statements demonstrating interest in the potential
target company. However, the information does not have to be
precise and detailed: after all, it is already the case under the
current rules that if the information is sufficiently concrete,
this will be deemed to constitute the announcement of an offer.
Consequently, the AFM will have a certain degree of discretion to
decide whether or not to grant a 'put up or shut up'
request. The key criterion is whether the potential target company
is suffering adverse consequences from the failure to provide
clarity, such as operational disadvantages or adverse share price
effects.
Various scenarios can arise:
- The potential offeror announces its intention to make an offer, starting the offer process (the relevant statutory time periods will start to run).
- The potential offeror announces that it has no intention of making an offer. In such a case, both the potential offeror and any parties acting in concert with it are prohibited during a six-month period from announcing or making a public offer. During this period they are also prohibited from increasing their stake in the potential target company to a level that would require them to make a mandatory offer (30% or more of the voting rights in the general meeting of shareholders).
- If the potential offeror fails to comply with an AFM order, the potential offeror and any parties acting in concert with it are prohibited during a nine-month period from making or announcing an offer. In addition, a cease and desist order or a penalty can be imposed.
- If a competing offeror announces an offer during the six-month or nine-month period(s), the potential offeror is again allowed to make an offer.
The six-month waiting period will also apply if, at any time during the offer process, the offeror fails to take the next step in the process. An example of this is where the offer document has been approved, but the offeror decides not to make the offer. Another is where the offeror decides not to declare the offer unconditional because a condition has not been fulfilled.
Clarification of the disclosure requirement for
offerors
Under the new rules, every offeror must immediately
publicly disclose price-sensitive information (by means of a press
release) insofar as this information relates directly to itself or
to the proposed, announced or issued offer. This amendment makes it
clear that if the offeror is a listed company and is, in principle,
under an obligation to disclose 'own' price-sensitive
information, that offeror is also required to disclose information
that is price-sensitive for the target company if such information
is 'connected with the proposed, announced or issued
offer', even it is not necessarily 'directly related to the
offeror'.
Announcement of an 'unsolicited' offer
The announcement of an intended public offer marks the
start of the offer process and the relevant statutory time periods.
In the case of a friendly offer, the announcement usually coincides
with the conclusion of an agreement (possibly a conditional one)
between the offeror and the target company about the main elements
of the offer. The situation is different with an
'unsolicited' offer, which is not based on an agreement
between the offeror and the target company. Such an offer will be
deemed to have been announced once the offeror announces
sufficiently concrete information about the content of the offer,
such as the name of the target company in combination with the
takeover price or a time schedule. This rule has now been
elaborated upon: if the target company announces, immediately after
the publication of said information by the offeror, that it is
still in negotiations with the offeror, the latter will not be
deemed to have announced an unsolicited offer. This enables the
target company to prevent the statutory time periods attached to
the offer process from starting prematurely, i.e. during
negotiations that may still lead to an agreement for a friendly
offer. This is important as the offeror may be required, during the
negotiations, to make concrete announcements about the proposed
offer (e.g. if confidentiality is no longer guaranteed).
Offer price may be increased more than once
Currently, the offeror is permitted to increase the price
only once during the acceptance period. This rule is to be
abolished: an offeror will, in principle, be entitled to raise the
price an unlimited number of times during the acceptance period. If
such an increase leads to a change in the composition of the price
and the increase does not consist exclusively of cash, the offeror
must publish a supplement to the offer document. If the remaining
acceptance period is shorter than seven working days, the period
will be extended so that shareholders have at least seven working
days to respond to the price increase.
Amendment to Exemption Decree on Public Takeover Offers
A party that acquires 'predominant control' (30% or more of the voting rights in the general meeting of shareholders) in a listed company having its corporate seat in the Netherlands is in principle obliged to make a public offer for all shares, and for all consenting depositary receipts for shares, in the target company (a mandatory offer). This rule is intended to provide minority shareholders with an exit opportunity. The obligation to make a mandatory offer is subject to several exemptions. These will now be amended/supplemented, as discussed below.
Lowering of percentage for whitewash procedure regarding
mandatory offers
A party that acquires predominant control in a company is
currently exempted from the obligation to make a mandatory offer if
the general meeting of shareholders agrees to the exemption with a
majority that includes at least 95% of the votes cast by
independent shareholders. Independent shareholders are shareholders
other than the party having predominant control and, if applicable,
parties acting in concert with it. The 95% requirement is so high
that the whitewash procedure is rarely, if ever, applied in
practice. Market parties have therefore urged that the requisite
percentage be lowered to 75%; however, it is only being lowered to
90%. The Minister of Finance believes that a further reduction
would undermine the position of minority shareholders to an
unacceptable degree. It is doubtful whether this change will
sufficiently increase the practical effectiveness of the whitewash
procedure.
Exemption in the case of irrevocable undertakings
In practice an offeror will often agree with a majority
shareholder that the latter will tender his shares under the offer
to be made by the offeror. In such cases, however, the voting
arrangements made often lead to the offeror/majority shareholder(s)
jointly obtaining predominant control. At the urging of market
parties, an exemption is to be introduced; this will apply where a
majority shareholder makes an irrevocable undertaking that
satisfies the following conditions:
- the undertaking is unconditional and imposes an irrevocable obligation on the shareholder to offer his securities under the public offer;
- the undertaking ceases upon the public offer being declared unconditional; and
- the undertaking obliges the shareholder to vote at the general meeting of the target company in favour of resolutions that are specifically mentioned in the undertaking, are subject to the public offer becoming unconditional and relate directly to the public offer (e.g. a resolution on the appointment of new board members).
Joining an existing exempt group of parties acting in
concert
At present, a group of parties acting in concert and
together having predominant control are exempt from the obligation
to make a mandatory offer if they already had predominant control
when the rules on mandatory offers were introduced (28 October
2007). This exemption is now being expanded to include –
in brief – a party that subsequently joins such an exempt
group. This is subject to the condition that the joining party may
not unilaterally determine how the group's voting rights are
exercised.
Exemption for underwriters of share issues
Another change is that an exemption will apply in
situations where a bank acquires predominant control in its
capacity as underwriter of share issues. This will be subject to
the following conditions: within a period of one year the bank must
reduce the size of its interest to below the 30% threshold and,
during that year, it must refrain from exercising the voting rights
obtained as a result of the underwriting.
Proposed changes effective from 1 January 2013
At the end of April, a bill introducing a Financial Markets Amendment Act 2013 (Wijzigingswet financiële markten 2013) was submitted to the lower house of the Dutch parliament. This bill also contains an amendment to the rules on the exemption from the obligation to make a mandatory offer, as well as a new disclosure obligation. The Minister of Finance aims to have the new legislation enter into effect on 1 January 2013.
Limitation of mandatory offer exemption after voluntary
offer
Under the current rules, if a party acquires predominant
control pursuant to a voluntary public offer for the
shares in the target company it is not subsequently obliged to make
a mandatory offer, because the minority shareholders have
already had an exit opportunity. The bill tightens up this
exemption from the mandatory offer obligation: the exemption will
henceforth only apply if pursuant to the voluntary offer the
offeror can exercise more than 50% of the voting rights in the
general meeting of shareholders. The aim behind this is for the
minority shareholders to be offered a reasonable price, thus giving
them a realistic exit opportunity.
New disclosure obligation
At present, a party that has acquired predominant control
is obliged to make an offer after a 30-day grace period, unless,
during that period, it reduces the size of its interest to below
30% of the voting rights in the general meeting of shareholders. In
this connection, the bill introduces an obligation to make an
immediate public announcement as soon as predominant control is
acquired or lost during the grace period.
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.