Amendments to Dutch public offer rules
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).
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.