General

An EU Directive on takeover bids sets minimum guidelines for the conduct of takeover bids involving the securities of companies governed by the law of an EU state or where the securities are admitted to trading on a regulated EU market. It seeks to provide an adequate level of protection for holders of securities in the EU by establishing a framework of common principles and general requirements which States must implement to more detailed rules in accordance with their national systems.

The Directive does not apply to takeover bids issued by companies, whose object is the collective investment of capital by the public which operate under principle of risk spreading and the units of which are  repurchased or redeemed on demand out of the assets of the company and where steps are taken to ensure that stock exchange values do not vary significantly from net asset value.

Principles I

States mostly ensure the following principles are complied with

Holders of securities of the same class of an offeree company must be given equal treatment. If the person acquires control of a company, the other holders of security must be protected.

The addressees of the bid must have sufficient time and information to be able to reach a properly informed decision on the bid. The board of the offeree company must give its views on the effect of the implementation of bid on employment, conditions of employment, and location of the company’s place of business.

The board of the offeree company must act in the interests of the company as a whole and most not deny the holders of securities the opportunity to decide on the merits of the bid.

False markets must not be created in the securities of the offeree company. The offeror and any company connected or concerned by the bid must not act in such a way that there the price of the securities becomes artificial and the normal functioning of the market is distorted.

Principles II

An offeror must announce the bid only after ensuring he can fulfil in full any cash consideration if such is offered and after taking all reasonable measures to secure implementation of any other type of consideration.

An offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

States must designate authorities competent to supervise bid. The authorities must be public bodes or private bodies recognized by national law. States must inform the commission of the designation.

The authority competent to supervise the bid is that of the State in which the offeree company has its registered office if the company’s securities are admitted to trading on a regulated market in that State. In other cases, such as where as the securities are not admitted or admitted on trading on more than one regulated market, the Directive lays down rules for deciding the competent authority.

Supervisory authorities and bodies responsible for supervising capital markets must cooperate and supply each other with information.

Obligation to Offer All Shareholders

Where a person, as a result of his own acquisition or the acquisition by persons acting in concert with him, holds securities of a company which give him a specified percentage of voting rights, giving him control of that company, states must ensure that that person is required to make a bid as a means of protecting the minority shareholders. Such a bid must be addressed at the earliest opportunity to all the holders of those securities for all their holdings at the equitable price.

Where control has been acquired following a voluntary bid to all holders of securities for their holding, the obligation to launch a bid no longer applies.

The percentage of voting right which confers control and the methods to calculation must be determined by the rules of the Member State where the company has its registered office.

Supervisory authorities may be authorised by States to adjust the equitable price in circumstance and in accordance with criteria which are clearly determined. Any such decision must be substantiated and made public.

By way of consideration, the offeror may offer securities cash or a combination. Where the consideration does not consist of liquid securities admitted to trading in a regulated market, it must include a cash alternative. States may provide that a cash consideration must be offered at least as an alternative in all cases.

Publicity and Information

States must ensure the decision to make a bid is made public without delay and that the supervisory authority is informed of the bid. They must ensure the offeror is required to draw up and made public in good time enough for the document containing the necessary information to enable the holders of the offeree company securities to reach a properly informed decision on the bid.

The Directives lays down minimum information that the offer documents must contain. It must state the terms of the bid, the identity of the offeror, the consideration offered, maximum and minimum percentage or quantities of securities which the offeror undertakes to acquire. It must also state the conditions to which the bid is subject, the offeror’s intention with regard to the future business of the offeree company, the time allowed for acceptance of the bid and the national law which will apply to the purchase contract.

Employees or the representatives must be informed in detail in the event of a takeover bid. The directive extends the obligation to inform and consult staff to the employees of the offeror company. It also provides that the information for and consultation of employees must be in line with the relevant national provisions and the national various community provisions adopted in this field.

Course of Bid

States must provide that the time allowed for the acceptance of bid may not be less than two weeks or more than ten weeks from the date of publication of the offer. In some circumstances, they may provide that the period of ten weeks may be expanded.

It is up to States to decide the obligations of the board of the offeree company. The requirement that the board of the offeree company must obtain the prior authorization of the shareholders before taking any defensive action is optional. States may leave it up to companies themselves to decide.

States may disapply members’ extraordinary right such as multiple voting rights, appointment rights, or restrictions on transfers during the bid. States may leave it up to the companies themselves to decide whether or not to apply the rule.

States must lay down rules governingthe conduct of bids at least regarding the following:

  • Lapsing of bids;
  • Revision bids;
  • Competing bids;
  • Disclosure of the result of bids;
  • Irrevocability of bids and conditions permitted;

Buying Out Remaining Shareholders

An EU Directive allows for squeeze-out-right, allowing the majority shareholder to require the remaining minority shareholders to sell their securities. States must ensure that an offeror is able to require all the holders of the remaining securities to sell them at a fair price.

Squeeze-out-rights may be introduced in the following situations:

  • Where the offeror holds securities representing not less than 90 percent of the capital carrying voting rights in the offeree company. A higher threshold up to 95 percent may be set.
  • Where following acceptance of the bid, it acquired or firmly contracted to acquire securities representing not less than 90 percent of the capital carrying lawful rights and 90 percent of the voting rights comprised in the bid.

If the offeror wishes to exercise the right to squeeze-out, it must do so within three months of the time allowed for acceptance of the bid. A fair price must be guaranteed. The power to squeeze-out is combined with a sell-out right enabling minority shareholders to require the majority shareholder to buy their security following a takeover bid. States must ensure that the holder of remaining securities is able to require the offeror to buy the securities from him at a fair price.

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