After a record-breaking year in 2018, with an impressive volume of deals (despite a drop in the final trimester), the Belgian M&A market has remained active and strong in 2019. The first quarter of 2020 has also started strongly, but the fall-out of the COVID-19 virus will have a significant negative impact. perhaps the most important one in peacetime, on economic growth and deal activity in the coming quarters of 2020. This being said, the COVID-19 crisis will also create opportunities for companies and private equity firms with sufficient cash and leverage positions. It is also expected that restructuring and refinancing activities will be exploding in the year to come as a direct result of the COVID-19 crisis, across many sectors (and retail and travel in particular).
Other international events, such as Brexit and international trade disputes, continue to cause turbulence at a global level but do not appear to have had a significant impact on the M&A industry in Belgium so far. It remains to be seen what impact the actual trade negotiations between the EU and the UK will have on deal activity, as well as the US presidential elections in November 2020.
The National Bank of Belgium announced an expected growth rate of 1.3% in 2019, which was expected to edge down gradually to 1% by 2022. However, this was before the COVID-19 crisis came into play.
As is usual in Belgium, the smaller and medium-sized enterprises segment of the market accounted for the majority of deals. There has been continued interest from international private equity players in the Belgian market, and buy-and-build strategies continue to be many investors’ preferred route. In addition, a number of high calibre transactions have taken place in 2019, involving foreign acquirers, showing the continued traction of Belgium as a target country for M&A. Total deal value in 2019 involving Belgian companies (in and outbound) was EUR40 billion, with four deals having a deal value above EUR1 billion and nine more deals having a deal value above EUR500 million. Only one company obtained a listing on the Brussels stock exchange in 2019. There were no takeover bids on the Brussels stock exchange in 2019.
Furthermore, in line with the global trend towards online shopping, the retail sector noted a large number of judicial reorganisations. Large retail chains such as Orchestra-Prémaman and Blokker had to seek protection against their creditors which resulted in transfers under judicial authority.
As mentioned above, the Belgian M&A landscape is marked by a majority of smaller and medium-sized transactions, in relation to which publicly available information is rather limited.
Overall, the pharmaceutical, (bio)technology, (renewable) energy and healthcare industries remain highly valued in Belgium. US-based listed biopharmaceutical, Gilead Sciences, increased its equity stake in Belgian listed biopharmaceutical, Galapagos, for EUR1.1 billion and paid EUR3.9 billion to access Galapagos’ portfolio of drug compounds; this is arguably one of the highest-profile transactions in the biopharmaceutical sector.
The acquisition of a company may be structured as a share deal or an asset deal. Tax considerations play an important role when considering the acquisition of a business through a transfer of shares or a transfer of assets.
A share deal is the most straightforward structure used to acquire a business. Formalities for transferring shares are fairly limited and, in most cases, no or very limited stamp duties are due on a share transfer. However, a share deal implies that all the underlying assets and liabilities of the acquired business are also (indirectly) transferred. The acquirer cannot pick and choose certain assets and liabilities of the business, unless those assets and liabilities were to be transferred from the target company prior to closing of the transfer of shares (through an asset deal, a demerger, a transfer of a branch of activities or any other similar operation).
By contrast, an asset deal does allow the acquirer to pick and choose the assets and liabilities it deems useful or necessary. The other assets and liabilities remain with the business. This is often the preferred route in case of deals involving distressed companies, where potential tax and bankruptcy liability issues may be at stake.
In the case of an asset deal, the assets may be purchased individually (ut singuli), or as a universality of goods (ut universali) or as a branch of activities.
In case of a transfer of individual assets and liabilities, all legal formalities required to transfer such individual assets and liabilities must be complied with. For example, the transfer of an agreement requires the consent of the other contracting party. In addition, specific, rather onerous and time-consuming formalities apply to the transfer of intellectual property rights and real property.
In the case of a transfer of a universality of goods or a branch of activities in accordance with the procedure set out in the Belgian Companies and Associations’ Code (the BCAC), all assets and liabilities that are part of the universality of goods or branch of activities are automatically transferred by operation of law, provided that the specific requirements for these procedures have been fulfilled. As a result, the acquirer has less flexibility to cherry pick the assets and liabilities of the business.
In addition, the BCAC contains a regime for mergers through the acquisition of an existing company or the incorporation of a new company. The BCAC also contains provisions on demergers into an existing company or a newly incorporated company, as well as mixed demergers.
Private M&A transactions typically do not require the involvement of a primary regulator. Public M&A transactions (such as public takeovers, IPOs, secondary offerings and bond issues) require the involvement of the Financial Services and Markets Authority (FSMA).
For more information, see 2.3 Restrictions on Foreign Investments, 2.4 Antitrust Regulations and 2.6 National Security Review.
Belgium’s open economy usually welcomes foreign investors and is typically considered to be one of the most flexible countries for foreign investment in Europe. However, in certain regulated industries (such as financial institutions and insurance, energy, pharmaceuticals, broadcasting, telecoms and postal services), a notification to, or the authorisation of, the relevant regulator may be required.
Provided that the business combination is not subject to EU merger control and the turnover thresholds in Belgium are reached, mergers, acquisitions and joint ventures that result in a sustainable change in the control over the companies concerned must be notified to, and approved by, the Belgian Competition Authority before implementation.
Business combinations are subject to Belgian merger control if they meet the following two turnover thresholds:
Whether any involved company has its registered office or own assets in Belgium is irrelevant. As a result, foreign-to-foreign combinations of companies that have substantial sales in Belgium and that do not exceed the EU thresholds may be subject to Belgian merger control.
The approval must be obtained before the implementation of the proposed combination. So-called “gun jumping” must be avoided, especially in view of the fact that competition authorities throughout Europe have made this a focal point of attention. As a result, merger approval is typically construed as a condition precedent to closing, and no business combination may be implemented before then (which may raise questions in relation to pre-closing covenants or anti-leakage provisions, which are typically included in acquisition agreements). Upon notification, the Belgian Competition Authority will assess whether the transaction could significantly impede effective competition on the relevant market. This may be the case when the proposed concentration could create or strengthen a dominant position in the market for the company involved.
Transactions between companies active on an EU or worldwide scale are likely to meet the European turnover thresholds. In that case, the parties must notify the proposed concentration to, and obtain approval from, the European Commission, which is exclusively competent to deal with concentrations with an EU dimension.
Information and Consultation
The employer must inform (and under certain circumstances also consult) the works council or, in its absence, the trade union delegation, or in its absence, the committee for prevention and protection at work, prior to any publication of the decision regarding a merger, demerger, transfer or acquisition of all shares in the company or its assets. Failing the presence of an employee representative body, the employees should be directly informed about most transactions (for example a merger or demerger). In case of a transfer of a minority of shares, an information obligation may apply towards the employee representative body if that decision has an important impact on the company.
However, the consent of the employees’ representatives is not required. The employees' representatives cannot change the employer's decision or obstruct the negotiations or the transaction.
The information (and consultation) must relate to the economic, financial or technical factors of the proposed transaction and the economic, financial and social implications thereof for the company and its employees and the envisaged measures in relation to the employees (ie, repercussions on their employment), the organisation of the employment, and the employment in general. A consultation involves an exchange of views between the management and the employees’ representatives, on the occasion of which the representatives may ask questions and voice any criticism, suggestion or objections.
Violation of these information and consultation rights may lead to administrative or criminal sanctions.
Protection of Employees Against Dismissal
In the case of a share deal, the employees' situation is not affected since the employer remains unchanged. Consequently, the general employment termination rules should be complied with, in case of a dismissal of one or more employees.
However, this is different in the case of an asset deal which qualifies as a transfer of a going concern. Pursuant to the Collective Bargaining Agreement (CBA) No 32bis, the rights and obligations of the transferred employees arising from the employment agreements or arrangements entered into by the employer are automatically transferred to the transferee. This implies that, on the date of the transfer of a business, all employees of the target will be automatically transferred from the transferring employer to the acquiring company, with preservation of all rights (except for pension rights) and obligations resulting from the employment contract.
In principle, all employees belonging to the transferred business will automatically transfer to the acquiring company. The acquirer cannot choose which employees will be transferred and the transfer of a business as such does not constitute justified grounds for dismissal. However, a dismissal remains permitted for serious cause; or for economic, technical or organisational reasons entailing changes in the employment in general.
In addition, the acquiring company may not alter the working conditions to the detriment of the transferred employees. If the working conditions are amended, the employee can, amongst other things, claim that the acquiring company has terminated the employment contract. In such cases, the acquiring company will be liable for the termination. The acquiring company and the transferred employees are however free to negotiate a new employment agreement or new terms of employment (as long as these are in line with the terms of employment resulting from applicable collective bargaining agreements).
The transferring employer and the acquiring company are jointly and severally liable, vis-à-vis the employees concerned, for the payment of any debts resulting from the employment relationship and existing at the time of the transfer.
The specific interests of certain foreign investors in companies and infrastructure that are of strategical importance, have recently encouraged the Flemish Government to introduce a supervisory mechanism for foreign investments. The Decree of 7 December 2018 grants the Flemish Government the possibility to pull the emergency brake and set an act aside or declare it null and void, in case:
In the same vein, the European Commission has recently adopted Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investment into the European Union. This Regulation will become applicable as from 11 October 2020. The European Commission has announced that this regulation aims at ensuring that the European Union is better equipped to identify, assess and mitigate potential risks to security or public order, while remaining among the world’s most open investment areas.
In terms of policymaking, the Belgian federal government has undertaken several changes to increase the attractiveness of the Belgian investment climate. The most noteworthy legal reform, from an M&A perspective, is the introduction of the BCAC, aimed at simplifying company law and making it more flexible. The BCAC introduced several innovations, including a reduction of the number of company types and the acceptance of the incorporation theory. In addition, the Belgian legislator has reinvented the private limited liability company (now a besloten vennootschap/société à responsabilité limitée) as a more modern flexible company type, in line with foreign examples such as the Dutch "Flex-BV" and the English “Limited”, but with the particularity that the concept of capital has been abolished.
On 1 May 2019, the BCAC entered into force and applied to all new companies and associations, as well as to existing companies and associations that decided to opt in. As from 1 January 2020, the mandatory provisions of the BCAC apply to all companies and associations. In addition, the supplementary provisions apply, unless the articles of association contain contradictory provisions. By 1 January 2024, all companies and associations should bring their articles of association in line with the BCAC.
Below are a few examples of how the BCAC will have an impact for M&A transactions under Belgian law:
No significant court decisions regarding the BCAC have been published.
The introduction of the new BCAC resulted in rather minor changes to the Belgian Law of 1 April 2007 on public takeovers (Public Takeover Law). One of the changes was the neutralisation of the multiple voting rights attached to shares when calculating whether a certain threshold is met under the Public Takeover Law. This neutralisation is done by only considering the number of shares with attached voting rights, rather than the number of voting rights.
The Law of 11 July 2018 on the public offer of financial instruments and the admission of financial instruments to trading on a regulated market, which entered into force on 21 July 2019 and implements EU Regulations 2017/1129 and 2017/1131, introduced some changes to the Public Takeover Law as well. These changes modernised the rules regarding public takeover offers, added the possibility of setting out specific rules for public takeover bids for the issuers of debt instruments and added nuances regarding the documents to be approved by the FSMA. Once again, those changes were more of a technical nature.
Prospective acquirers will typically try to build a stake in the target prior to the announcement of a public offer. The main goal of stakebuilding is to deter a third party from launching a competitive counter-bid. One textbook example is Gilead Sciences’ gradual stakebuilding in Galapagos, which increased from about 10% to almost 30%.
Pursuant to Section 6 of the Law of 2 May 2007 on public disclosure of important participations of the issuer of which the shares are admitted to trading on a regulated market (the Law on public disclosure of important participations), the FSMA and the issuer must be notified every time:
With regard to this final point, pursuant to the Law on public disclosure of important participations, private individuals and legal entities act in concert when they co-operate with an offeror, the offeree company or with other persons on the basis of an agreement, aimed either at obtaining control over the offeree company, frustrating the successful outcome of a bid or maintaining control over the offeree company. The BCAC did not impact this regime.
Companies can also introduce additional hurdles to stakebuilding. One of the more common hurdles is the inclusion of a provision in the target’s articles of association for additional reporting thresholds. Pursuant to Section 18 of the Law on public disclosure of important participations, such thresholds can only be set at 1%, 2%, 3%, 4% and 7.5% of the voting rights.
In addition, the articles of association may permit the board to take various defensive measures making takeovers more difficult; for example, to increase the capital of the company or purchase shares in the company without prior shareholders' approval.
Dealings in derivatives are allowed under Belgian law. Regulation No 648/2012 on over-the-counter (OTC) derivatives, central counterparties and trade repositories, which is directly applicable in Belgium, is the most relevant source in relation to these dealings. This Regulation includes provisions on exchange traded derivatives, but mainly provides a legal framework for OTC derivatives, which account for almost 95% of the derivatives markets within the EU.
Pursuant to Section 6, paragraph 6 of the Law on public disclosure of important participations , financial instruments linked to securities conferring voting rights, where the exercise of those instruments might lead to the acquisition of voting rights, are subject to the same reporting regime as the voting securities themselves (see 4.2 Material Shareholding Disclosure Threshold). A few common examples of financial instruments that could meet these requirements are warrants, futures and swaps.
If such financial instruments are exercised, resulting in the acquisition of the shares the financial instrument was linked to, the same rules apply once again.
When bidders acquire shares, they are generally not under an obligation to disclose the purpose of their acquisition, nor their intention regarding control of the company, if they were to have such an intention.
There is, however, an exception to this rule, which applies if a bidder intends to acquire portfolio management and investment advice companies, management companies of undertakings for collective investment and management companies of public alternative investment funds.
The bidder shall have an obligation to notify the FSMA of a decision to acquire shares or shareholder rights in the entity if the bidder would, as a result of the intended acquisition:
The Public Takeover Law also contains a "put up or shut up" rule, allowing the FSMA to require a potential bidder to disclose its intention to launch a bid following market rumours. If no intention to launch a bid is announced, this person will be precluded from making a bid on the same target company for six months (save in exceptional circumstances).
In the case of an acquisition of a private company, there is no obligation to disclose the deal. As parties are frequently bound by non-disclosure agreements, the acquisition is often only announced as soon as signing or closing has taken place (assuming the parties wish to disclose the deal).
In case a company intends to acquire a listed company, the Public Takeover Law provides for several notification and publication requirements (see also 6.1 Length of Process for Acquisition/Sale). Companies that are submitting a public takeover bid must notify this to the FSMA, who will release a public announcement before the bidder does so. In view of this, bidders are encouraged to reach out to the FSMA early in the process to discuss the envisaged timeline. The FSMA may also require the parties involved in a potential takeover bid to issue a press release.
In the case of a public takeover bid, the Royal Decree of 27 April 2007 on public takeovers (the Takeover Decree) requires that the same information be provided to all competing bidders. The bidder must also avoid receiving insider information. If the bidder nevertheless obtains insider information, it must disclose this in the prospectus. Regulation 596/2014 on market abuse defines insider information as “all information that relates, directly or indirectly, to particular instruments or issuers, is of a precise nature, has not been made public, and if it were made public, would be likely to have a significant effect on the price of those instruments”.
Finally, there are some employee information and consultation obligations (see 2.5 Labour Law Regulations).
Market practice on the timing of disclosure does not typically differ from legal requirements. In general, the acquirer and the target often prepare a common announcement and agree in advance on the content and timing of announcements. The most common market practices are to disclosure the deal after signing or after closing (or both).
However, the timing of the announcement may vary depending on the factual circumstances of the deal. The parties may sometimes consider it more useful or appropriate to already communicate information of a potential forthcoming deal during the due diligence process.
The scope of due diligences depends on the activities of the target and the timeframe within which the due diligence has to be conducted.
Although conducting due diligence is not compulsory, prospective buyers typically conduct operational, legal, financial and tax (including pensions and social security) due diligence over the target. Sometimes, technical and environmental due diligence may be undertaken, as well as an insurance audit. At the outset and throughout the due diligence process, management presentations and specific documents and information are made available to the potential acquirer, and its advisors, through a (typically virtual) data room.
Standstill provisions are frequently included in non-disclosure agreements and are fairly common in hostile takeovers. In private M&A transactions, standstill provisions are rather rare.
It is common for potential buyers to request exclusivity for a relatively short period of one to three months. Such exclusivity clauses are typically inserted in the offer letter or letter of intent, but parties may also enter into separate agreements on exclusivity. In public M&A, exclusivity is, however, not often granted (also in view of the target’s statutory obligations in case of competing bids).
In principle, the completion of a transaction in breach of an exclusivity clause or agreement will only result in the unwinding of the transaction if it has been established that the third-party acquirer acted in bad faith, ie, that party was aware that the transfer would be a breach of the exclusivity agreement. In that case, the third-party acquirer may also be held liable for damages. In all other cases of a transaction in breach of an exclusivity clause or agreement, the seller will, in principle, be exposed to damages incurred by the potential acquirer that had obtained exclusivity.
While allowed, tender offer terms and conditions are rarely documented in a definitive agreement. Such agreements would potentially risk being qualified as behaviour of different potential acquirers acting in concert and therefore be subject to sanctions (for the definition of acting in concert, see 4.2 Material Shareholding Disclosure Threshold).
The time taken to acquire/sell a business in Belgium may vary from a few weeks to several months.
With respect to private M&A transactions, the length of the transactional process will depend on the specific circumstances of the case. For instance, prior consents from regulatory authorities or the duration of the due diligence process may impact the flow of a transaction. The transaction process may also take longer when it is structured by way of an auction process, instead of a bilateral negotiation process (although it is not uncommon to pre-empt the auction process by requesting bilateral negotiations). The higher the deal value, the more likely it is that the transaction will be organised through an auction.
For public M&A transactions, the timing of the takeover process is strictly regulated. The overall procedure of a voluntary takeover bid is similar to a mandatory takeover bid:
Because of the limited size of the Belgian stock market, the number of private M&A transactions outweighs the number and total value of public M&A transactions by far.
Belgium has a mandatory offer threshold in the case of an acquisition of securities with voting rights in a Belgian listed company on the one hand and a sell-out right for remaining securities holders following a public takeover bid on the other.
A mandatory takeover bid for all remaining shares of the company must be launched when a person, as a result of its own acquisition or the acquisition by persons acting in concert with it, holds directly or indirectly more than 30% of the securities with voting rights in a Belgian company whose securities are admitted to trading on a regulated market.
A mandatory bid is not required when the 30% threshold is exceeded within the context of a voluntary takeover bid, a transfer between affiliated companies, or a share capital increase with preferential subscription right.
Furthermore, the obligation to launch a mandatory offer does not apply where a third party controls the target or owns a larger stake than the person(s) acquiring 30% of the voting rights securities. This exception is subject to a standstill period of three years after the acquisition.
Finally, it is allowed to temporarily exceed the threshold by a maximum of 2%, provided that the buyer: (i) sells the excess within twelve months; and (ii) does not exercise its voting power relating to the excess.
In relation to squeeze-out thresholds, see 6.10 Squeeze-Out Mechanisms.
In principle and subject to certain exceptions, consideration offered within the framework of both private and public acquisitions can consist of cash, securities, or a combination of both. Consideration in cash is almost exclusively used for both private and public M&A transactions in Belgium. Exchange bids are extremely rare on the Belgian market, and are more common in private M&A transactions. In the case of mandatory takeover bids, a cash alternative must, in some circumstances, be offered to the security holders. Indeed, if the consideration offered by the bidder does not consist of liquid securities listed on a regulated market or if the bidder, alone or acting in concert, has acquired securities of the target in cash during the twelve months prior to the announcement of the bid or during the offer period, the bidder must foresee a consideration in cash as an alternative.
A mandatory takeover bid must be unconditional, whereas a voluntary takeover bid can be subject to certain specific conditions, which need to be pre-approved by the FSMA.
If the conditions of the voluntary takeover bid are not met, the bidder may modify the offer or notify the FSMA of an intention to withdraw the offer. An offer may, for instance, be subject to:
In any case, the bid should normally allow the offeror to achieve the intended result. In practice, the FSMA is reluctant to approve any specific conditions that are likely to limit the success of the bid.
Furthermore, a bidder may withdraw its voluntary offer if the European Commission and/or of the relevant national competition authority decide that the takeover would constitute a concentration which is incompatible with applicable competition law.
A voluntary tender offer can be subject to conditions (see 6.4 Common Conditions for a Takeover Offer). One of the most common conditions included by the bidder in its offer, is a minimum level of acceptance in order to ensure that the bidder can control the target company after the bidding process. Thresholds have varied between 50% and 95%, but the FSMA requires sound arguments to accept thresholds lower than 75%.
In public M&A transactions, a bid cannot be conditional on obtaining the necessary financing. The funding must be entirely committed before the bid is announced. The bidder must provide evidence to the FSMA that it has the necessary funding to pay in full the bid price, either in the form of an unconditional and irrevocable bank credit facility concluded with a Belgian credit institution, or in a special bank account opened with a Belgian credit institution. In exchange offers, the bidder must provide evidence to the FSMA that the securities to be offered in exchange are available to it, or that it has the power to issue or acquire these securities from another person (for example, an affiliate).
In private M&A transactions, it is possible to include the obtaining of financing as a condition precedent in the acquisition agreement. While it is not uncommon, the seller will always try to avoid a financing condition precedent. If unavoidable (including, for instance, when the purchaser is a private equity player, the seller may sometimes try to negotiate thresholds for obtaining the financing (ie, a sufficiently high interest rate and leverage ratio).
A non-solicitation clause pursuant to which the company undertakes not to solicit any additional offers from other bidders is, in principle, valid. However, the validity of (other) deal security measures is debated under Belgian law as it could be argued that they are not in the corporate interest of either the bidder or the target company. Therefore, deal protection measures such as match rights, force-the-vote provisions or break-up fees are rare, and it may be delicate to enforce such measures under Belgian law.
However, break-up fees are included from time to time in documentation regarding M&A transactions, in particular in competitive auction processes or in larger transactions, where the parties are already committed, or will commit, to each other between signing and closing.
Where a bidder does not seek to acquire 100% ownership of a target company, it may choose to strengthen its governance rights by entering, for instance, into a shareholders’ agreement with the remaining principal shareholder(s) of the target. Shareholders’ agreements will typically include clauses regarding governance at the level of the board of directors and the shareholders’ meeting (including quorum, majority and/or voting requirements, or providing veto rights for certain essential decisions). They also typically include share transfer restrictions (pre-emption rights, tag-along rights, drag-along rights, call and put options).
For listed companies, a shareholders’ agreement concluded between shareholders may qualify as a concerted action within the meaning of Belgian takeover legislation, and therefore trigger the obligation to launch a mandatory takeover offer if the mandatory offer threshold of 30% would be met.
Shareholders may vote by proxy. The shareholder may specify precise voting instructions or leave the voting up to the discretion of the proxyholder. The articles of association may not suppress a shareholder’s right to appoint a proxyholder, but it is possible to modulate this right (eg, one proxy per shareholder). Furthermore, the articles of association may impose a registration procedure on shareholders represented by proxy. This will, in particular, be the case for listed companies.
Within the framework of a takeover bid, if the bidder holds at least 95% of the share capital conferring voting rights and 95% of the voting securities in the target as a result of the tender offer (and provided that the bidder acquired 90% of the share capital conferring voting rights of the target in the course of the bid), the bidder can squeeze out the remaining security holders under the same conditions as the initial bid. The bidder must reopen the bid within three months as from the closing of the acceptance period. The offer period must be a minimum of 15 business days. Any securities not tendered to the reopened bid are considered transferred to the bidder by operation of law.
Furthermore, the BCAC also provides for a squeeze-out mechanism outside the framework of a public takeover bid. The security holders of listed limited liability companies which, acting alone or in concert, hold 95% of the securities conferring voting rights are, subject to certain conditions, entitled to require that all the remaining minority security holders sell their securities at an equitable price. The securities not offered at the end of the acceptance period of the offer are transferred automatically to the offeror.
Finally, the BCAC provides for a squeeze-out mechanism for non-listed companies. Both the majority security holders of limited liability companies which are not listed on a regulated market, as well as the majority security holders of private limited liability companies, have a similar squeeze-out right. However, as opposed to the minority security holders of listed liability companies, the minority security holders who have explicitly confirmed in writing their refusal to sell their securities to the offeror, will not be squeezed out at the end of the acceptance period of the offer.
The validity of other freeze-out mechanisms under Belgian law, such as an asset sale to a special purpose vehicle, will be subject to scrutiny and may result in director’s liability.
Many Belgian companies (both private and listed companies) are characterised by a concentrated (family) shareholder structure. Consequently, a tender offer for a Belgian listed company is often only successful if the majority/significant shareholders of the company have committed to tender their shares to the bidder. In practice, a bidder will therefore negotiate with the principal shareholders of the target company before submitting its offer. In this respect, it is not uncommon to obtain the irrevocable commitment of the principal shareholder(s) to tender their shares within the context of the offer. However, the validity of such a commitment cannot be fully guaranteed, as a security holder who has accepted within the context of the offer may always withdraw its acceptance at any time during the acceptance period of the offer.
Unlike public takeover bids, bids in the context of negotiated business combinations are not subject to specific disclosure requirements.
Takeover bids on shares of listed companies are subject to strict disclosure requirements. In this case, only the FSMA is allowed to publicly announce a bid following the notification thereof by the bidder. Upon notification of the bid, the bidder should submit the following information to the FSMA:
The FSMA will subsequently publish the notification the following working day. No public announcements regarding the bid are allowed prior to such publication.
If the target has voting shares listed on a regulated market in a different EU member state, the bidder must also notify its bid in that EU member state in accordance with local regulations.
Should there be rumours and speculation in the market, the FSMA can instruct a party to make a public announcement clarifying its intentions. Should the party confirm its intentions to launch a bid, it must proceed to notify that bid to the FSMA. If the party rejects the rumours, it is prohibited from launching a bid during the following six months (“put up or shut up” rule).
Non-listed companies must prepare a board report and statutory auditor’s report in order to issue new shares in a business combination. In addition to submitting these reports to the shareholders, they should be filed with the Commercial Court, together with the decision of the shareholders, an extract of which will be subject to publication.
If shares are issued within the context of a statutory procedure (ie, a (de)merger or contribution of a branch or universality of assets) the companies involved should prepare a proposal, a board report and a (statutory) auditor’s report. These documents should be submitted to the shareholders and filed with the Commercial Court, together with the final decision of the shareholders, an extract of which (and for (de)mergers, also the proposals) will be published. In addition, the shareholders in (de)merger operations must have access to the annual accounts, board reports and statutory auditor’s reports of the (de)merging companies of the past three years, possibly together with recent financial statements should the annual accounts be outdated.
If a listed company envisages issuing shares, it should in principle, save for certain exceptions, publish a prospectus. Alternatively, the publication of a more limited information memorandum may suffice, should the total value of the issued shares not exceed EUR5 million over a period of twelve months.
In negotiated business combinations, it is unusual for the bidder to produce its financial statements. However, should the business combination be structured as a (de)merger, the bidder should avail its annual accounts, or more recent financial statements, to the shareholders (see 7.2 Type of Disclosure Required).
Bidders launching a public takeover bid are required to submit the latest annual accounts and/or consolidated annual accounts of the bidder and the target as part of the prospectus. Should the annual accounts be older than nine months or should the company have undergone material changes in the meantime, more recent financial statements must be added to the prospectus. If the annual accounts are not in line with EU law and do not represent a true and fair view, additional information must be submitted.
Belgian listed consolidating companies must prepare International Financial Reporting Standards (IFRS) consolidated annual accounts. Other Belgian companies should prepare their annual accounts in accordance with Belgian generally accepted accounting principles (GAAP).
In the context of negotiated business combinations, no transaction documents must be published. However, business combinations structured against the background of a statutory procedure (merger, demerger, etc) are subject to certain disclosure and publication requirements (see 7.2 Type of Disclosure Required).
Within the context of public takeover bids, certain transactional documents should be disclosed and published in full. The prospectus will be published upon its approval by the FSMA. If the bidder controls the target, an independent expert’s report will also be published as an annexe to the prospectus. The target’s board of directors then has five working days following the approval of the prospectus to submit a draft response memorandum to the FSMA. The target should publish the response memorandum upon approval by the FSMA. Finally, the bidder should publish the results of the public takeover bid upon expiry of the acceptance period, together with the amount of the securities it holds following the completion of the bid.
As a general rule, directors are required to act in the best interest of the company. The interest of the company is determined by the collective profit interest of the current and future shareholders of the company. This remains, however, a highly factual (rather than purely legal) assessment and may include (or better, overlap with) the interests of other stakeholders (such as employees or creditors).
However, within the context of a takeover bid on listed shares, the target’s board of directors should take into account the (broader) overall interests of the target and its security holders, as well as its creditors and employees, when explaining the board of directors’ position with regard to the bid in the response memorandum and its possible consequences regarding employment.
The Belgian (soft law) Corporate Governance Codes for listed companies (2020) and non-listed companies (Code Buysse III) provide that the board of directors may create specialised committees to advise on specific matters and strategic decisions, without delegating such decisions. In addition, the articles of association or internal rules of the board of directors could explicitly provide for the creation of specialised committees.
It is, however, rather uncommon for a board of directors to formally create a special or ad hoc committee to advise on business combinations. It is more common to set up informal specific ad hoc working groups tasked with advising and monitoring business combinations. The composition and functioning of these groups is flexible and will depend on the specific needs of the business combination. Other committees, such as an audit committee, may also be involved to perform their specific role vis-à-vis the business combination.
While it could be recommended to create a special committee in the event of certain conflicts of interest, this is not required under Belgian law. Mandatory statutory conflict of interest procedures require the conflicted directors to disclose their conflict and to abstain from the decision-making process (both the deliberation and the vote). The remaining directors can subsequently proceed with the deliberation and decision. Should all directors be conflicted, they are required to submit the envisaged decision or transaction to the general meeting of the shareholders for their approval. However, the board of directors of a listed company is required to create a special committee for every decision or transaction of the company or its non-listed subsidiaries relating to an affiliated individual or company that is not a subsidiary. This special committee, composed of three independent directors and one or more independent experts, prepares a written and motivated report to advise the board of directors on the envisaged decision or transaction.
Belgian Courts may not substitute directors’ decisions with their own personal judgment when it relates to decisions that lie within the discretionary powers of the directors. Courts can only review such decisions under a marginal test, ie, whether the decision falls outside of the margin of possible decisions that a careful, diligent and reasonable director placed in similar circumstances would take.
Depending on the size and scope of the business combination, directors will often appoint independent outside advisers to consult on financial, legal and tax aspects of the business combination and assist with the due diligence and valuation of the target.
Independent expert advice may be required in certain circumstances; for example, within the context of (de)mergers or the takeover bid of a controlling bidder on shares of a listed company.
As a preliminary remark, relatively few judgments of Belgian courts are published and as a result, many judicial decisions are not publicly available.
That being said, conflicts of interest of directors of a target company in a public takeover context have been the subject of judicial scrutiny in two notable cases before the Brussels Commercial Court and Brussels Court of Appeal. The case law has established that the mandatory statutory conflict of interest procedure is not applicable in the mere context of a public takeover bid whereby conflicted directors of the target do not abstain themselves from the preparation of the response memorandum, even where those directors are also directors in the bidder.
Within the context of a public takeover bid, the prospectus should mention the intention of the bidder regarding the (mandate of the) directors of the target. This should allow the target’s shareholders to accordingly weigh the response memorandum, should it be overwhelmingly positive or negative.
Hostile tender offers are allowed, yet sporadic, in Belgium. Recommended takeovers are by far the most frequently occurring type of takeover. This is mainly due to the landscape of Belgian listed companies, which are often family-owned companies or companies controlled by one or several shareholders. Consequently, in such cases, irrevocable commitments by the controlling shareholders will typically be required. This, in turn, makes hostile tender offers rather unusual.
Directors can take defensive measures as long as these are in the interest of the company as a whole. Specifically, for public takeovers, Section 9, 3° of the Public Takeover Law reflects this principle. Generally, directors must always exercise their powers in the company’s best interest.
Shareholders can, however, include restrictions in the articles of association on the directors’ possibilities to frustrate a hostile takeover. For instance, the articles of association may include: (i) a requirement for the prior authorisation of the shareholders’ meeting before the directors can take any action susceptible to frustrate a bid; or (ii) a provision making restrictions on the transfer of securities with voting rights unenforceable during the bid. In addition, the shareholders could also make certain voting and other rights, provided for in the articles of association or in contractual agreements between the target and the target's shareholders, unenforceable during the bid (the “breakthrough rule”).
Companies can also link the above to a reciprocity condition, meaning that the implementation of these restrictions can be subject to the same rules being applied by the bidder.
The most common defensive measures taken by the board to frustrate takeovers are the increase of the share capital under the authorised capital procedure (ie, the delegation of the powers needed to increase the share capital by the shareholders’ meeting to the board of directors), the issuance of warrants or bonds that become convertible in the case of a hostile takeover, and the buy-back of shares without the prior approval of the shareholders’ meeting. For all these measures, however, the prior approval of the shareholders’ meeting is needed, and such approval may only be granted for a renewable period of, at most, five years.
Shareholders frequently protect their interests from a hostile takeover by including restrictions on the transfer of shares in the articles of association and shareholders' agreements. Common examples are the inclusion of a pre-emption right, a right of first refusal or approval, standstill provisions and tag-along rights. Under the BCAC, shareholders can also protect their interests by granting multiple voting rights to certain shares in the articles of association. Besides the above, shareholders can also adopt a disposal-of-assets measure prior to the offer period and make this conditional upon an offer being launched.
Additionally, the inclusion of change-of-control clauses in important agreements is another possible common measure. While it is not a measure specific to tackling a potential hostile takeover, it could have a dissuasive effect for any potential buyer. In the case of a private company, the board of directors needs to approve such change-of-control clause. For listed companies, the shareholders’ meeting needs to approve these as well.
At the risk of being held personally liable, directors should always act in the best interest of the company. This also applies when taking defensive measures.
Directors can combine a refusal to negotiate with an unwillingness to waive defensive measures, but only if this in the best interest of the company. As this is usually hard to assess upon receipt of a first offer, it is recommended for directors to have at least initial talks regarding the offer to avoid any personal liability.
The directors of the target do, however, need to draft a memorandum in reply on the takeover offer. If directors take a different position in this memorandum than the shareholders, this could influence the shareholders’ positions. Regardless of the position of the directors, the shareholders make their own assessment of the offer and decide on the offer independently.
As court judgments in Belgium are not published, it is hard to assess the frequency of litigation in connection with M&A deals. The trend, however, seems to be that litigation is becoming increasingly common. If the deal concerns a hostile takeover (which does not occur often), litigation is a common strategy to frustrate or delay the bid.
Pre-closing litigation is rather common in the event of a hostile takeover (see also 10.1 Frequency of Litigation).
In case of private M&A deals, the vast majority of litigation proceedings occur in the post-closing stage. In such cases, purchasers often seek damages for breaches of representations, warranties or specific indemnities.
Shareholder activism in Belgium is a rather limited occurrence as minority shareholders within large Belgian companies often lack an incentive to take such action. Large shareholders usually own sufficient shares to control the company and can, therefore, often significantly impact the appointment of directors and the strategy of the company. In view of this, it is very difficult for minority shareholders to have any influence on the corporate decision-making process given the existence of larger shareholders. However, with respect to certain topics, such as director remuneration, shareholder activism has increased.
Generally, shareholders in Belgian companies tend to limit their activism to reacting to the behaviour of the company to protect their own interests. It is unusual for a shareholder in a Belgian company to try to actively impact the corporate policies pursued by the company.
Reactive (and, less commonly, proactive) activism can be aimed at both financial and non-financial aspects. In particular in relation to M&A, activist shareholders have questioned the financial and strategic motivation of certain boards.
Activist shareholders in Belgian companies have, on occasion, tried to interfere with the completion of announced transactions. A failed example of such interference was the exercise of the right to ask questions during the annual general meeting, in relation to a proposed merger, and the questioning of the independence of the independent directors by the minority shareholders of Immobel. An example of successful interference was the shareholder activism in relation to the proposed merger between Picanol and Tessenderlo.
The M&A market in Belgium is generally stable and in good shape. The number of M&A transactions and investors continues to grow annually despite a decrease in foreign acquisitions by Belgian players and in acquisition prices. Another highlight is the shift in motivations driving Belgian M&A transactions: the acquisition of technology and attraction of talent are gaining importance. As to the size of transactions, mid-market deals are trendy, but large-scale transactions remain present in terms of financial volume. When it comes to financing and deal structure, it appears that bank loans are still popular, especially thanks to the historically low interest rates in Belgium, but that equity contribution generally increases with the deal’s size or risks. Earn-outs and payment instalments or deferrals are also practised.
No 2020 M&A Monitor (an annual report produced by the Vlerick Business School on mergers, acquisitions and buyouts in Belgium) is available yet, but data-suppliers and Belgian business newspapers have already reported that Belgian M&A represented around EUR40 billion in 2019, which is 75% more than in 2018. This increase is mainly due to two major operations performed last year, representing together almost EUR15 billion (the sale by AB Inbev of its Australian subsidiary CUB to Asahi and the sale by AB Inbev of its 13% stake in its Asian subsidiary Budweiser Brewing Company APAC Limited in the framework of a stock market listing in Hong Kong). Apart from these figures, the general results and trends set out above should remain relevant today, although a minority of experts predict a decrease in the number of M&A transactions due to political and economic uncertainties.
Some of these uncertainties, however, are global in nature and therefore detrimental to the M&A market in general and not necessarily to the Belgian M&A market in particular. Examples include Brexit, the “yellow vests” (gilets jaunes) movement in France, the (trade) tensions between China and the US, the Italian government clashing with the EU and the COVID-19 epidemic.
Finally, a few recent developments are influencing, and will influence, Belgian M&A, such as the entry into force of the new Belgian Code of Companies and Associations and of the new Belgian Code on Corporate Governance.
We will set out hereafter the impact of some of the above events and developments on Belgian M&A transactions. With regard to legal aspects, the focus will be on Belgian federal corporate law as applicable to Belgian companies, but the practitioner should remain alert to any additional legislation possibly impacting M&A in Belgium. For instance, there are some regional law requirements, such as the Flemish Decree of 7 December 2018 controlling foreign investment in some Flemish public authorities and institutions.
UK and Belgian entities are often involved in M&A transactions together. For instance, Belgium swarms with UK companies and funds investing in Belgian entities, whether or not through non-Belgian intermediary vehicles. However, since February of this year, the UK is no longer a member state of the EU but will still be treated as such during a transition period lasting until the end of the year at the latest, in principle.
As a matter of fact, the M&A practitioner will carefully need to review standard practices and contracts in deals having a link with the UK and continuing after 2020. Indeed, all references therein to the EU territory, to EU legislation, to changes in the regulatory regime, to trade barriers, or to events considered as shaking the economic balance of the contract, may be impacted by Brexit (for instance, the scope of non-compete and non-solicitation clauses, material adverse change (MAC) clauses and consumer and data protection regulations).
Also, specific legal issues might arise, some of which are discussed below.
Regarding merger control, the EU one-stop-shop clearance process might eventually not apply to the UK, after the transition period, depending on the outcome of the ongoing negotiations for a UK-EU deal, which might therefore result in parallel processes, one before the European Commission and one before the UK merger control authorities.
As to jurisdiction clauses in agreements such as share purchase agreements (SPAs) and the enforcement of judgments on SPA-related disputes, some significant changes are anticipated.
The Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters currently (the Brussels Regulation) rules these matters: in general, clauses agreed by the parties giving jurisdiction to a particular court are upheld and the formalities for recognition of judgments rendered by an EU court are abolished. But once the post-Brexit transition period ends, this Regulation will no longer apply to the UK regarding proceedings started after 2020, even if based on jurisdiction clauses concluded before.
The UK’s fate in this respect will thus depend on the post-Brexit negotiations. The UK might adhere, on its own, to the Lugano Convention, which is the preferred option because this convention is broadly similar to the Brussels Regulation. Such adhesion however requires the consent of all contracting states, including the EU. Alternatively, in a no-deal scenario, the UK will likely adhere, on its own, to the Hague Convention of 30 June 2005 on Choice of Court Agreements, which can be done unilaterally without the EU’s consent. The Hague Convention requires that the court designated by the parties according to an exclusive jurisdiction clause hears the case and that any judgment granted by the court specified in an exclusive jurisdiction clause is recognised and enforced in other contracting states. However, this convention only covers “exclusive” jurisdiction clauses.
If, or to the extent that, the Lugano Convention and the Hague Convention are not applicable, jurisdiction clauses and the enforcement of judgments will be governed by the national private international law of each (member) state. The treatment of jurisdiction clauses should not be significantly affected though: in Belgium for instance, English jurisdiction clauses should generally be recognised and enforced, subject to some specific refusal grounds related, for instance,to public order or to the rights of defence. The main potential downside relates to English judgments, as they will have to obtain the exequatur of a Belgian court in order to be enforced in Belgium, not to mention any other national laws’ hurdles or issues if enforcement in other countries is envisaged too.
As a consequence, arbitration clauses might become more attractive post-Brexit since they are governed by an international convention, the New-York Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, which is independent of EU law and provides for international enforcement of awards, amongst other things.
On an encouraging note, thanks to favourable Belgian legislation, cross-border mergers between Belgian and UK companies should still be possible even post-Brexit, provided that it is also permitted by UK national law. However, no tax neutrality will apply to such cross-border mergers with non-EU entities.
The Reform of Belgian Company Law
Another key topical issue is the entry into force of the new Belgian Code of Companies and Associations, which has been fully applicable since 1 January 2020, making Belgian company law more flexible and attractive. Existing companies have to modify their articles of association to reflect the new Code on the occasion of the first modification of their articles of association and, in any case, by 1 January 2024.
The Belgian Code on Corporate Governance has also been revised, in line with the new Code of Companies and Associations. The revised version, applicable to listed companies, was published on 9 May 2019.
The changes discussed below have been brought about by the new Belgian Code of Companies and Associations and might impact on M&A practice, generally in a positive way:
First, the real seat of the company, meaning its effective place of management and control, no longer determines which law governs that company (lex societatis). The registered office, meaning the place of incorporation, is the new criterion. This brings clarity and enhances legal certainty. Indeed, Belgian companies will now be able, for example, to easily move their headquarters abroad with no need to relocate their corporate address. They may also convert into a foreign company form, or convert foreign companies into Belgian ones, without having to create, wind-up or involve other companies; such conversion must be done in front of a notary public. However, for corporate income tax purposes, the place of effective management remains a criterion for determining qualification as a Belgian tax resident.
The change of control clauses contained in credit or commercial agreements no longer require special shareholders’ approval, except in listed companies.
Furthermore, the structure and functioning of the Belgian companies has been simplified and made more flexible so that there is now ample room for contractual arrangements. For instance, Belgium now has a limited liability company where, subject to financial requirements, no capital is required, ie, the limited liability company without capital (société à responsabilité limitée orSRL). Also, the minimum number of shareholders and of directors has been reduced to one in the most commonly used Belgian company forms, ie, in the above-mentioned SRL and in the limited liability company with capital (société anonyme orSA). This simplifies group structures and housekeeping. Moreover, shares with multiple votes are now possible in both the SA and the SRL, as well as interim dividends with no waiting period. It is also now possible to set up a two-tier governance structure for an SA consisting of two separate governance bodies, the supervisory board and the management board. And when it comes to internal communication, modern and quicker channels have been taken into account, such as emails between the company and its shareholders, or directors being authorised not to meet anymore and to take written resolutions instead, even when there is no particular urgency.
Directors’ liability rules have been amended too. In the new Belgian Code of Companies and Associations, imprisonment has been generally abolished as well as many (other) specific criminal penalties, for instance those applying when directors do not comply with their obligations regarding share buy-back or regarding the convening of a special general meeting. In addition, a civil liability cap has been introduced in case of minor random errors: the financial risk to which the directors are exposed is thus more assessable and insurable.
As a new trend is to invest in long-term-oriented companies with a sustainable, social and/or environmental impact, it is worth noting that Belgium has taken inspiration from the US “benefit corporation” by enabling companies to provide, in their articles of association, for corporate purposes other than shareholder profit. As a consequence, long-term action involving no direct enrichment of shareholders, or distribution of (parts of) benefits to charities or to non-profit organisations, will be less subject to challenge or criticism by shareholders or investors. In parallel, Belgian non-profit organisations are now allowed to pursue profit-making activities, provided that their benefits are not distributed to their members or directors.
It is also worth mentioning, in brief and without further deep analysis, a few recent changes to Belgian tax law which are likely to attract investment to Belgium.
First, the Belgian corporate income tax rate has dropped from 29.58% in 2019 to 25% in 2020. Secondly, the tax on securities accounts with a value of more than EUR500,000, and which applied to companies in 2018 and 2019, no longer applies. Finally, capital gains on share sales are, in principle, exempted from tax provided that the company meets a subject-to-tax test, that the seller held a participation in the company of at least 10% or with an acquisition value of EUR2.5 million, and that the shares have been held in full ownership for at least one year.
This is only a selection of tax incentives. There were a few less encouraging tax changes in 2020, such as the interest deduction limitation rule, which foresees that the “exceeding borrowing costs” (ie, the amount by which the deductible borrowing costs of a corporate taxpayer exceed taxable interest revenues and other economically equivalent taxable revenues) will in principle be deductible only up to the higher of 30% of the taxpayer’s EBITDA or EUR3 million. This rule does not apply in certain circumstances, for instance to financial or non-group companies.