Acquisition Finance 2019

Last Updated November 07, 2019

Italy

Law and Practice

Authors



BonelliErede is one of the largest independent law firms in Italy, with offices in Milan, Rome, Genoa, Brussels, London, Cairo (in co-operation with Bahaa-Eldin Law Office), Addis Ababa (in co-operation with Tameru Wondm Agegnehu Law Office), Dubai, Frankfurt (in co-operation with Hengeler Mueller) and Beirut (as part of the integration of the law firm Tribonian Law Advisors). It offers a full range of commercial legal and tax services, combining business acumen with academic excellence. BonelliErede comprises 82 partners, five local partners, 21 of counsels, and more than 400 associates supported by over 220 staff employees. The firm's banking and finance expertise encompasses acquisition finance, corporate finance, property finance, restructuring, financial services and related regulatory issues. BonelliErede is one of the leading practices in Italian banking law for leveraged buy-outs, financing public bids and takeovers. The team regularly assists lenders and borrowers in syndicated loans, bilateral loans, large-scale corporate loans and on all aspects of corporate and property financing.

Banks (Italian and international) are still the main players as lenders in the Italian acquisition finance market. Funds and insurance companies have not played a material role as lenders so far, due to the restrictions provided by the Italian banking laws (although some restrictions have been recently removed, as explained below). Certain transactions have involved the issuance of bonds, which are normally listed and underwritten by qualified investors.

In the last few years, in reaction to the credit crunch, the Italian Government has implemented important changes to the Italian regulatory and tax framework with the aim of making new financing options (alternatives to the traditional bank financing model) available to Italian companies.

Law Decree No 91 of 24 June 2014 (Competitiveness Decree), converted into Law No 116 of 11 August 2014, has made it possible for Italian insurance companies and Italian securitisation vehicles (that is, companies incorporated in accordance with the Italian securitisation law) to engage in direct lending to Italian borrowers, subject to the fulfilment of certain conditions and requirements.

Furthermore, Legislative Decree No 44 of 4 March 2014, which implemented Directive 2011/61/EU on alternative investment fund managers (AIFM Directive), has made it possible for Italian AIFs to invest in credit by granting facilities. Law Decree No 18 of 14 February 2016, converted into Law No 49 of 8 April 2016, has also authorised European AIFs to invest in credit in Italy (including in the form of direct lending) subject to certain conditions and without requiring funds to set up a permanent establishment.

Italian corporates frequently utilise full recourse financing structures to fund the acquisition of their targets. Thus, Italian corporates are not so active in the LBO market.

If the acquisition finance transaction is local and both the acquiring company and the lenders are Italian, the documentation is usually governed by Italian law. However, if the transaction involves an international purchaser, a private equity fund or international lenders, or if the size of the deal is significant, the finance documents tend to be governed by English law. In these cases, the acquisitions can also be funded through an issuance of bonds.

If the finance documents are governed by English law, it is necessary to amend certain sections of the documents to address Italian law-related issues.

As far as governing law aspects are concerned, there is no remarkable differentiation between corporate loans, acquisition finance and LBOs transactions in the Italian lending market.

Standard documentation (such as the Loan Market Association documentation, adapted to the features of the Italian market), is generally used as a basis for drafting and negotiating acquisition finance documents.

While these documents can be governed by English law, certain sections must usually be amended to deal with specific Italian law issues.

A loan document governed by Italian law can be negotiated and executed in either the Italian or English language. If it is executed in English, an Italian sworn translation is required for admissibility in evidence before an Italian court.

The issuance of legal opinions is standard in the context of acquisition finance transactions in Italy. Usually, lenders’ counsels issue the validity and enforceability legal opinion of the finance documents, while the borrower’s counsels deal with the issuance of the capacity and authority legal opinion. However, if the financing transaction is structured in the form of a bond issuance, the borrower/issuer’s counsel is also required to issue an enforceability opinion with respect to the bond documents.

Senior debt is typically used in corporate acquisition finance. Leverage finance transactions can include a senior and a junior component.

Mezzanine debt is not frequently used in Italian acquisition deals, although it can be used in multi-jurisdictional deals. Equally, payment-in-kind debt and equity kicker structures are not commonly used.

Bridge loans are commonly used in Italian LBOs acquisition deals and generally refinanced upon the merger of the acquisition vehicle with the target company.

In recent years, the acquisition deals carried out by private equity funds have been financed with the proceeds from the issuance of high-yield bonds (combined with a revolving credit facility).

For the utilisation of private placements, please see 3.4 Bonds/HYB above. Loan notes instead are not common in the Italian market.

The components of a debt financing vary, depending on the size of the deal. Larger financings can comprise a combination of the following:

  • senior and junior debt;
  • highyield bonds and revolving credit facility;
  • term and revolving debt;
  • first and second lien debt in the form of loans or notes;
  • vendor financing;
  • hedging.

Where multiple sources of debt are used, there would be different categories of creditors keen to protect their respective interests. The purpose of inter-creditor agreements is to regulate contractually the relationship between the different categories of creditors through the following:

  • establishment of priorities of payment (payment subordination and/or security subordination);
  • if and when a lender can receive payments from the borrower (payment blockage);
  • if and when a lender can enforce its rights against the borrower (standstill periods);
  • access to collateral and distribution of the proceeds deriving from the enforcement of that collateral.

These inter-creditor issues mostly arise in the case of large cross-border acquisition finance deals where there is a subordinated piece in the debt structure (that is, second lien, mezzanine debt, and so on). In these cases, the inter-creditor documentation is often based on Loan Market Association standards. Most deals in the Italian market (particularly domestic deals) are currently funded on a pari passu basis. Therefore, inter-creditor issues do not represent a major concern in most cases, or the inter-creditor documentation is relatively simple. However, an inter-creditor agreement is always needed if the acquisition financing contemplates the use of a vendor loan (which is not unusual).

Please see 4.1​ Typical Elements above.

It is quite standard in acquisition financing transactions to have an inter-creditor agreement among lenders and hedge counterparties, in order to regulate: (i) the pari passu or subordinated ranking of the hedge counterparties vis-à-vis the lenders (and the waterfall of payments); and (ii) the distribution of the enforcement proceeds among lenders and hedge counterparties.

If a new company is created to carry out an acquisition, it is standard practice for lenders to take security over both:

  • the shares or quotas of the new company; and
  • the shares or quotas of the target company.

Lenders generally request to enter into security arrangements with all the group companies, while the borrower seeks to agree on security principles excluding non-material assets and setting out materiality thresholds and limitations of liability.

Under Italian law, security can be taken mainly over:

  • shares or quotas of a company;
  • real estate property;
  • equipment and machinery;
  • IP;
  • receivables arising from contracts; and
  • bank accounts.

The methods of taking security over the above assets vary according to the type of asset concerned.

Shares or Quotas

In order to grant a pledge over shares in a joint-stock company or quotas in a limited liability company, a deed of pledge is required. To perfect a pledge over shares, a director of the company whose shares are pledged must annotate the pledge on the share certificates (or the shareholder should endorse the certificates by way of security in favour of the secured creditors) and in the company's shareholders' ledger. To perfect a pledge over quotas, the relevant deed must be notarised and filed with the competent companies' register (registro delle imprese). If the deed was executed before a foreign notary public, it must also be apostilled (where necessary) and deposited with an Italian notary public together with a sworn translation (if it is not executed in Italian).

If the company whose shares are pledged is listed (or has opted to have dematerialised shares), no share certificates will be available and the pledge would be subject to:

  • the Italian Consolidated Financial Act (Legislative Decree No 58 of 24 February 1998, as amended);
  • Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims (Collateral Directive) (where applicable) and the relevant Italian implementation law.

Inventory

In principle, a pledge over equipment and machinery (and raw materials) can be granted. However, in order for a pledge to be created, the pledged assets (or the document conferring the power to dispose of the asset) must be delivered to the lenders or to a third party designated as custodian by both the lenders and the grantor. As an alternative to a pledge, a form of floating charge (privilegio speciale) can be created if the financing has a term of more than 18 months (Article 46, Italian Banking Law).

Law Decree No 59 of 3 May 2016, as converted into Law No 119 of 30 June 2016, introduced the so-called "non-possessory pledge" (pegno non possessorio) to the Italian legal system. This aims to allow the perfection of a security interest over movable assets relating to the exercise of the business activity of an enterprise without the need to deliver the asset to the secured creditor or a third-party custodian. The non-possessory pledge must then be registered in an electronic register held by the Italian Tax Agency (Agenzia delle Entrate), which has not yet been established.

Bank Accounts

This type of security qualifies as security over receivables (namely, over the balance on the relevant bank accounts) when the depositary bank is a third party. In the case of security over the balance on bank accounts, the depositary bank must make an annotation in its books in accordance with the Collateral Directive.

Receivables

Receivables that can form the subject of a security interest include:

  • receivables arising from share/asset purchase agreements;
  • insurance proceeds;
  • rental income;
  • intercompany loans;
  • hedging proceeds.

Security over receivables can be granted in the form of a security assignment or of a pledge. The perfection of both the security assignment and the pledge requires the notification to, or the acceptance by, the relevant debtor (with a document bearing a date certain at law). With regard to insurance receivables, a loss payee clause (clausola di vincolo) can be included in the insurance policy.

Intellectual Property Rights

Security over Italian patents, designs, trade-mark registrations and trade-mark applications typically takes the form of a pledge. A deed of pledge is required for this purpose. The perfection of the pledge requires the filing of the deed of pledge with the Italian Patent and Trade Mark Office. The deed of pledge must be notarised, and is usually executed in Italian before an Italian notary public. It is in principle possible to execute it before a foreign notary public but, in this case, the deed must also be apostilled (where necessary) and deposited with an Italian notary public together with a sworn translation (if it is not drafted in Italian).

Real Estate Property

A deed of mortgage is required to grant a mortgage over land/property. The deed of mortgage must be notarised and registered in Italy. Therefore, it is usually executed in Italian before an Italian notary public. In principle, the deed can be executed before a foreign notary public, but he or she would not be able to carry out all the necessary title searches. The perfection of the mortgage requires registration with the competent land register (to be carried out by the Italian notary public).¬Law Decree No 59 of 3 May 2016, converted into Law No 119 of 30 June 2016, introduced a new form of security interest over real estate properties, called "patto Marciano". The debtor (a company) and the creditor (a bank or other entity authorised to carry out lending activity in Italy) may agree that, upon default of the borrower, the creditor will become the owner of the real estate property subject to security. This security interest can be granted by way of notarial deed.

Movable Assets

Common forms of security over movable property include:

  • pledges;
  • special mortgages on registered movable property, such as aircraft and vessels;
  • floating charges under Article 46 of the Italian Banking Law (only to secure claims under bank facilities with a term of more than 18 months); and
  • non-possessory pledge (pegno non possessorio).

Please see 6.2 Restrictions below.

Due to the restrictions on financial assistance, security interests over the assets of a target company are granted only after the "whitewash" merger between the target company and the acquiring entity is completed in accordance with Article 2501-bis of the Italian Civil Code. If the merger is carried out in accordance with this provision, the merger plan must identify the financial resources to be used by the company resulting from the merger in order to meet its debt obligations, and an independent expert must certify that the assumptions and conclusions drawn in the merger plan are reasonable.

Please see 6.2Restrictions below.

In general terms, were an enforcement event to occur, the relevant secured creditor would be entitled to enforce the security interests created to its benefit. As a general principle, before enforcing the relevant security, the secured creditor usually has to serve a notice to the debtor (and/or the relevant security-provider) whereby the debtor (and/or the relevant security-provider) is ordered to comply with its obligations and should the default not be remedied, the secured creditor would be entitled to enforce the security interests.

Pursuant to Italian law, depending on the type of security interest, a creditor can start different enforcement proceedings which may be classified, mainly in court-administered proceedings and out-of-court proceedings (in particular, the Italian legal framework implementing the Collateral Directive (Directive 2002/47/EC) provides special procedures for the enforcement of security interests on financial collaterals).

Guarantees are a common form of credit support and are normally documented in a written undertaking executed by the guarantor for the benefit of the lender(s). A guarantee can be in the form of either:

  • a surety, under which the guarantor personally guarantees the fulfilment of the debtor's obligation(s), jointly and severally with the debtor; or
  • a first-demand guarantee, under which the guarantor pays the beneficiary a certain amount of money on first demand, regardless of any potential challenge by the debtor.

As a general rule, for an Italian company to provide a guarantee:

  • there must be a corporate benefit;
  • it is necessary to include adequate provisions in the company's articles of association, in particular, the possibility to provide guarantees must be mentioned in the corporate object of the company;
  • the guarantee must specify a maximum guaranteed amount.

While a corporate benefit for a downstream guarantee/security is usually self-evident, this may not always be true in the case of an up-stream or cross-stream guarantee/security.

Generally, an Italian company can provide an up-stream or cross-stream guarantee/security if there is an actual corporate benefit, such as a direct or indirect consideration for the provision of the guarantee/security. The company's directors must address and evaluate the existence of a corporate benefit. As the concept of "group benefit" is not sufficient per se to justify a guarantee under Italian law, the relevant board of directors must also carry out a careful analysis of the transaction when deciding whether there is a corporate benefit.

The provision of an up-stream or cross-stream guarantee/security must be financially balanced. Therefore, a cap limiting the maximum guaranteed/secured amount must be inserted in the guarantee/security. This cap must be in line with both:

  • the value of the company (for example, the net worth of the company); and
  • the value of the benefit that the company is to receive or is likely to receive by providing the guarantee/security (for example, the amount directly borrowed by it or its subsidiaries and the amount of intercompany loans received by it or its subsidiaries with the proceeds of the financing).

Usually, no fees are required to grant a guarantee in favour of a debtor when the companies belong to the same corporate group. However, the payment of a fee could be useful to reinforce the relevant corporate benefit.

Under Italian law, a lender can in principle be liable to the borrower for:

  • unlawful withdrawal of financing (interruzione abusiva di credito);
  • unlawful refusal of financing (ingiustificato rifiuto di credito);
  • mismanagement of the borrower (gestione di fatto);
  • management and co-ordination of the borrower (direzione e coordinamento);aiding and abetting a borrower's director in breaching his or her fiduciary duty (concorso nell'inadempimento dell'amministratore).

A lender can also be liable to the borrower's creditors for unlawful financing (concessione abusiva di credito).

The following applies in relation to claw back (Articles 67 and 65, Royal Decree No 267 of 16 March 1942 (Italian Bankruptcy Law)):

  • security granted in relation to a debt simultaneously created (including a third party's debt) can be clawed back by the insolvency trustee if it was granted within a hardening period of six months before the declaration of bankruptcy, if the insolvency trustee can prove that the relevant secured creditor was aware of the security-provider's insolvency at the time the security was granted;
  • security granted in relation to a pre-existing debt (that is, a debt already existing at the time the security was granted) can be clawed back by the insolvency trustee if it was granted within a hardening period of one year before the declaration of bankruptcy, unless the relevant secured creditor can prove that, at the time the security was granted, it was not aware of the security-provider's insolvency;
  • payments of amounts due and payable can be clawed back by the debtor's insolvency trustee within a hardening period of six months before the declaration of bankruptcy, if the insolvency trustee can prove that the creditor was aware that the debtor was insolvent at the time of the payment;
  • payments of amounts that fall due on or after the date the bankruptcy was declared are ineffective against the bankruptcy estate and other creditors, if made in the two years before the declaration of bankruptcy. Therefore, if a debtor prepays amounts that are not due and payable at the time of payment, and is declared bankrupt in the following two years, the creditor will be exposed to a declaration of ineffectiveness of the payment received, and to the related obligation to reimburse the relevant amounts to the insolvency estate. To obtain a declaration of ineffectiveness of payments, the insolvency trustee does not need to provide any evidence that the creditor was aware of the debtor's insolvency, and the creditor cannot object that it was unaware of the insolvency.

Please note that the Italian legal framework relating to insolvency/bankruptcy proceedings has been recently overhauled pursuant to Legislative Decree 12 January 2019 No 14 which at the time this article goes to press has not yet come into effect (except for few provisions). However, the new legal insolvency law framework confirms the claw-back principles above in the context of the new insolvency proceedings regulated thereunder.

Debt buy-back is not common in acquisition finance transactions. Indeed, under Italian law, when the capacity as lender and borrower fall on the same person, the underlying debt is extinguished together with all ancillary rights (including security). Therefore, there is a risk of a court either:

  • reclassifying the loan purchase as a prepayment, which may be in breach of prepayment provisions; or
  • subjecting the loan purchase to the pro-rata sharing provisions in the loan agreement.

To overcome this, a buy-back can be structured as a purchase of the debt by the borrower's holding company.

Favourable tax regimes and exemptions from withholding tax on interest payments have been made available to medium/long-term financings granted by banks and other entities established in an EU country. The Law Decree No 91 of 24 June 2014 (Competitiveness Decree) has significantly amended the tax rules applicable to medium/long-term loans, through the following measures:

  • a withholding-tax exemption for interest payments made in relation to medium/long-term loans granted to companies by the following entities:

a) financial entities established in an EU Member State;

b) entities listed under Article 2, paragraph 5, numbers 4) to 23) of EU Directive 2013/36/EU on capital requirements;

c) insurance companies incorporated and authorised to carry out their activity according to rules issued by an EU Member State; and

d) institutional investors (that is, entities whose activity consists of making or managing investments on their own behalf or on behalf of other persons, as defined by Circular Letter No 23/E of 1 March 2002, among others), even if they are not treated as taxpayers in their country of residence, but provided that they are resident in a country allowing an adequate exchange of information and subject to supervision in the country in which they are incorporated.

  • an extension of the circumstances in which the special substitute tax (imposta sostitutiva) regime applies. Loan agreements with a term of more than 18 months and one day can be subject to the special substitute tax regime if parties to the agreements expressly opt for the regime, and the loan is granted by (Article 15, Presidential Decree No 601 of 29 September 1973):

a) Italian or EU banks;

b) Italian securitisation vehicles incorporated in accordance with Law No 130 of 1999;

c) insurance companies incorporated and authorised to carry on their business in accordance with rules issued by an EU Member State; or

d) investment funds established in an EU Member State or a European Economic Area state that has an adequate system for the exchange of information with Italy.

  • before this reform, the regime only applied to loans with a term of more than 18 months and one day that were taken out in Italy and granted by Italian and EU banks. If the special substitute tax regime applies:

a) the relevant loan agreement will be subject to substitute tax at the flat rate of 0.25% calculated on the amount of the loan advanced to the borrower; and

b) the loan agreement (together with any related security and guarantee granted) will be exempt from registration tax (imposta di registro), stamp duty (imposta di bollo), cadastral and mortgage taxes (imposte ipotecarie e catastali) and government franchise tax (tassa sulle concessioni governative), which would otherwise apply.

In general terms, a qualifying lender definition is essentially aimed at identifying those lenders which the borrower would have to gross up, in the event of a change in law (or similar) which requires the application of withholding taxes on payments made to those lenders.

In the context of acquisition finance transactions, the concept of Italian Qualifying Lender in principle refers to a lender beneficially entitled to receive interest and other proceeds assimilated to interest according to Italian tax law, falling within one of the categories listed below:

  • a bank or a financial institution duly authorised or licensed to carry out lending activity in Italy provided that it is a resident of Italy for tax purposes and which is not carrying out its lending activity through a permanent establishment located outside of Italy;
  • an Italian permanent establishment of a financial institution or another entity not resident in Italy for Italian tax purposes, duly authorised or licensed to carry out banking activity in Italy for which any income received (i) qualifies as business income (reddito di impresa) for Italian income tax purposes and (ii) is actually attributed to that permanent establishment;
  • each of the following entities under the requirements set forth in Article 26, paragraph 5-bis of Italian Presidential Decree No 600 of 29 September 1973:
  • a credit institution established (stabilito) in an EU Member State, or acting for the purposes of its lending activity through a permanent establishment located in an EU Member State;
  • an insurance company incorporated and authorised under legislation enacted according to the laws of a Member State of the European Union;
  • entities included in the list provided for by Article 2, paragraph 5, numbers 4) to 23) of the Directive No 2013/36/EU;
  • a foreign institutional investor of Article 6, paragraph 1, letter (b), of legislative decree 1 April 1996, No 239, even if not treated as taxpayers in their country of residence, which is established in a country or territory allowing for a adequate exchange of information with Italy and which is subject to regulatory supervision in the foreign jurisdiction where it is established; or
  • an Italian lender which satisfies the following conditions:

a) is treated as a resident of a jurisdiction having a double tax agreement with Italy which makes provision for full exemption from Italian taxation on interest and other proceeds assimilated to interest;

b) does not carry on a business in Italy through an Italian permanent establishment in Italy, through which the lender carries out its activity; and

c) complies with any relevant procedural requirements required to obtain the full benefit provided by the double taxation treaty.

The 2008 Finance Bill repealed thin-capitalisation rules. Consequently, starting from 1 January 2008, the deductibility of interest paid by Italian companies on loans granted or guaranteed by qualified shareholders or related parties is no longer subject to thin-capitalisation rules. However, there are new provisions regulating the deduction of interest expenses, which provide that (Article 96, Presidential Decree No 917 of 1986, as amended by Article 1, paragraph 33, Finance Bill 2008 and by Article 1, paragraph 1, Legislative Decree No 142 of 2018):

  • interest expenses accrued on loans and similar financial transactions are deductible for an amount corresponding to the interest income accrued on loans and similar financial transactions, as well as to the interest income relating to past fiscal years and carried forward; and
  • any excess of interest expenses over interest income is deductible for an amount not exceeding 30% of the operating gross margin (relevant operating gross margin).

The operating gross margin is defined as the difference between the production value and the production costs, excluding the amortisation of intangible fixed assets, depreciation of tangible fixed assets and rent from financial leasing of fixed assets, as shown in the relevant profit and loss account, as calculated according to tax rules (Tax EBITDA).

The portion of non-deductible interest exceeding the above threshold (interest excess) cannot be deducted in the fiscal year in which it accrues. However, the interest excess can be carried forward without any time limit and deducted from the income realised in the following fiscal years, if the relevant operating gross margin is not entirely used to allow interest accrued in the same year to be deducted (operating gross margin excess). Additionally, the operating gross margin excess of a fiscal year can be carried forward, with a five-year limitation. Specific rules apply to companies that opt for the domestic tax consolidation regime. More specifically, the operating gross margin excess of companies included in a tax unit can be used to allow the deduction of the interest excess of other companies included in the same tax unit.

The financial sector is the most important regulated industry in Italy, and includes:

  • banks;
  • financial intermediaries;
  • investment firms (società di intermediazione mobiliare) (SIMs);
  • asset-management firms (società di gestione del risparmio) (SGRs);
  • collective investment undertakings, including:

a) investment companies with variable capital (società di investimento a capitale variabile) (SICAV); and

b) investment companies with fixed capital (società di investimento a capitale fisso) (SICAFs).

  • payment and e-money institutions; and
  • insurance undertakings.

Since the Single Supervisory Mechanism entered into force in 2014, the (direct or indirect) acquisition of any of the following stakes in Italian banks requires the authorisation of the European Central Bank, after the Bank of Italy's assessment:

  • a stake granting at least 10%, 20%, 30% or 50% of the voting rights in the bank;
  • a stake enabling the holder to exercise a significant influence over the bank's management; and
  • a controlling stake.

The authorisation procedure takes 60 working days, unless the term is suspended due to information requests by the authority.

The same thresholds and term apply to acquisitions of qualifying and controlling stakes in:

  • financial intermediaries, payment and e-money institutions, SGRs, SICAVs, SICAFs and SIMs, which must be authorised by the Bank of Italy; and
  • insurance undertakings, which must be authorised by the Italian Insurance Regulator.

In all the above cases, the competent authority can grant the authorisation if the sound and prudent management of the target is ensured and specific requirements are satisfied, namely:

  • the acquirer's good reputation, integrity and professionalism must be verified;
  • the acquirer must have a sound financial status in relation to the business envisaged in the target (specific evidence of the acquirer's financial situation and the funding sources for the acquisition is required);
  • the individuals to be appointed as directors, statutory auditors or general manager(s) within the target after acquisition must comply with specific "fit and proper" requirements;
  • the medium to long-term business plan must ensure that the target will continue to comply with the applicable framework, including rules on corporate governance, prudential requirements, internal controls, and so on;
  • the group that the target will join and the relationship with the acquirer must allow effective supervision, exchange of information and clear allocation of responsibilities between the competent authorities;
  • the proposed acquisition must not entail risks of money laundering or terrorist financing.

The current domestic situation has seen the M&A market revamped because of the reforms of co-operative banks and public intervention measures to rescue banks in crisis. As a result, the European Central Bank and Bank of Italy are increasingly focusing on the "fit and proper" requirements of management body members and key function holders, while scrutinising authorisation applications to ensure sound and prudent management across the industry.

For acquisitions through indirect shareholdings, a key role in the legal framework’s development will also be played by the recently issued European Supervisory Authorities Joint Committee’s guidelines (not yet enacted in national law). The guidelines introduce the new multiplication criterion – in addition to the former control criterion − as a trigger for prior authorisation in M&A transactions: the new criterion entails the multiplication of the percentages of the holdings throughout the corporate chain. It starts with the direct holding in the target undertaking – which has to be multiplied by the holding at the level immediately above – and continues up the corporate chain for as long as the result of the multiplication continues to be 10% or more (ie, a qualifying holding).

So far, the Italian Banking Act has recognised the control criterion as the sole criterion to identify the acquirer of an indirect holding in an Italian bank, whereas:

  • holdings acquired or otherwise held through a subsidiary (società controllata), a fiduciary company (società fiduciaria) or a third party (interposta persona) must both be counted to identify the entity or entities required to obtain prior authorisation; and
  • a broad notion of control that is triggered whenever, among other things, one entity has the right to:

       a) lead the subsidiary’s shareholders’ meetings; and/or

       b) appoint or revoke the majority of the subsidiary’s board of directors.

In Italy, the provisions implementing Directive 2004/25/EC on takeover bids (Takeover Directive) are included in the:

  • Italian Consolidated Financial Act (Legislative Decree No 58 of 24 February 1998 as amended); and
  • Regulation No 11971 of 19 May 1999 (Issuers Regulation), as amended, issued by the Italian National Commission for Companies and the Stock Exchange (Commissione Nazionale per le Società e la Borsa - CONSOB)

Takeover Bids

The legal framework governing takeover bids is particularly complex and elaborate as it comprises several provisions and technical requirements, which apply differently depending on the specific cases. Takeover bids can be either voluntary or mandatory. Except for certain aspects (for example, price determination and the possibility to provide for conditions precedent), the procedure and information requirements are quite similar in both cases.

Relevant Thresholds

Under the Takeover Directive, EU Member States can decide on the thresholds that trigger mandatory takeover bids (MTOs). Italy opted for a "bright-line rule", which provides that any of the following must launch a global takeover bid (that is, an offer to purchase addressed to all shareholders and for all the issuer's shares):

  • any party that, as a result of purchases or an increase in voting rights, comes to hold a shareholding exceeding 30% of the voting share capital of a listed company;
  • any party that, as a result of purchases and in relation to listed companies that do not qualify as small-medium enterprises, comes to hold a shareholding exceeding 25% of the voting share capital, provided that no other shareholders hold a higher threshold;
  • any party that already holds a shareholding exceeding 30%, but less than 50%  + one share of the target's capital (that is, the majority of voting rights which can be exercised at a general meeting, also known as de jure control), if it acquires or increases its voting rights by more than 5% of the issuer's capital in a 12-month period.

Issuers qualifying as small-medium enterprises can set different MTO thresholds (between 25% and 40%) in their articles of association.

In light of the above, in Italy, the mere de facto control (that is, a situation where a party holds enough voting rights to exercise a so-called dominant influence, for instance by appointing the majority of the directors) through a stake not exceeding the above thresholds does not trigger per se the obligation to launch a takeover bid.

The Italian Consolidated Financial Act and the Issuers Regulation provide for specific exemptions from the obligation to launch a takeover bid when the relevant thresholds are triggered.

For the purpose of calculating whether the MTO thresholds have been exceeded, Italian law also includes derivatives, both physically settled and cash-settled (including, without limitation, swap, repos, futures, put and call options), which grant a long position on the securities, unless certain conditions, provided in the Issuers Regulation, occur.

Persons Acting in Concert

The obligation to launch a takeover bid is also triggered if one or more parties acting in concert acquire a percentage of voting rights in the target which is sufficient to reach in aggregate the thresholds referred to above. The Italian Consolidated Financial Act provides a broad definition of "persons acting in concert", according to which persons are presumed to be acting in concert when they co-operate by means of an agreement, either expressed or tacit, verbal or in writing, even invalid or without effect, for any of the following purposes:

  • acquiring, maintaining or strengthening control over the issuer; or
  • counteracting the achievement of the aims of a takeover bid or of an exchanging tender offer.

Under Italian law, the following persons are presumed to be acting in concert in four cases:

  • parties to a shareholders' agreement, even if void;
  • an entity, its parent company and its subsidiaries;
  • companies that are subject to joint control by another company;
  • a company and its directors, the members of its management board or supervisory board or senior managers.

The above presumptions are not rebuttable.

Additionally, the Issuers Regulation provides for the following:

  • further cases in which action in concert is presumed (for example, family or advisory relationships), unless the absence of co-operation is proved; 
  • the co-operation does not qualify as acting in concert (safe harbours).

Under Italian law, persons acting in concert are jointly obliged to launch an MTO when, as a result of purchases made by any one of those persons, they come to hold an interest that exceeds in aggregate the thresholds for MTOs.

Price Determination

The price of an MTO must correspond to either:

  • the highest price paid for the target's shares by the offeror (and any person acting in concert with it) over a period of 12 months before the offer is announced;
  • if no purchases were carried out, the average weighted market price of the issuer's shares in the 12-month period before the announcement or the shorter available period.

In particular cases, CONSOB can determine a price that is higher or lower than the price referred to above, in accordance with certain criteria set out in the Issuers Regulation.

Additionally, an offeror can offer securities, cash, or a combination of both as consideration for the takeover bid. However, the offeror must offer cash consideration as an alternative if either:

  • the consideration offered does not consist of securities admitted to trading on an EU regulated market; or
  • the offeror, or persons acting in concert with the offeror, have purchased for cash a number of shares representing 5% or more of the voting rights in the target, over a period of 12 months before the offer was announced and until the offer was settled.

Funding

An offeror can launch a takeover bid only if it can comply fully with its payment obligations under the offer. Consistently, offers in exchange for financial products can only be launched if the corporate body responsible for the issuance of financial products has already been convened to authorise the issuance. Additionally, a cash confirmation (or a copy of the resolution concerning the issuance of the financial products to be offered in exchange) must be filed with CONSOB immediately before the offer is launched.

Squeeze-out Procedures

Sell-out

A party that comes to hold a shareholding corresponding to more than 90% of an Italian listed company's voting capital (whether following a public tender offer or otherwise) must purchase the residual shares from any holder so requesting, unless the 90% shareholder restores, within 90 days, a float sufficient to ensure regular trading of the shares.

After the sell-out procedure is completed, the issuer's shares will be de-listed by means of a resolution adopted by Borsa Italiana SpA, regardless of the shares acquired under the sell-out procedure.

Squeeze-out

The right of squeeze-out applies whenever a party comes to hold a number of shares corresponding to at least 95% of the issuer's share capital exclusively following a public tender offer for all of the issuer's shares (either an MTO or a voluntary offer). In this case, the offeror has the right to purchase, and the remaining shareholders have an obligation to sell, all the remaining shares if the offeror declared its intention to exercise this right in the offer document that was published in relation to the previous tender offer. Sell-out also applies in this scenario.

BonelliErede

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Italy
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+39 02 77 1131

+39 02 77 1132 60

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Law and Practice

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BonelliErede is one of the largest independent law firms in Italy, with offices in Milan, Rome, Genoa, Brussels, London, Cairo (in co-operation with Bahaa-Eldin Law Office), Addis Ababa (in co-operation with Tameru Wondm Agegnehu Law Office), Dubai, Frankfurt (in co-operation with Hengeler Mueller) and Beirut (as part of the integration of the law firm Tribonian Law Advisors). It offers a full range of commercial legal and tax services, combining business acumen with academic excellence. BonelliErede comprises 82 partners, five local partners, 21 of counsels, and more than 400 associates supported by over 220 staff employees. The firm's banking and finance expertise encompasses acquisition finance, corporate finance, property finance, restructuring, financial services and related regulatory issues. BonelliErede is one of the leading practices in Italian banking law for leveraged buy-outs, financing public bids and takeovers. The team regularly assists lenders and borrowers in syndicated loans, bilateral loans, large-scale corporate loans and on all aspects of corporate and property financing.

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