Corporate M&A 2020

Last Updated February 25, 2020

Netherlands

Law and Practice

Authors



Eversheds Sutherland is a global top 15 law practice and provides legal advice and solutions to a global client base which includes some of the world’s largest multinationals. The firm provides the full range of legal services. Its teams of lawyers deliver the legal know-how and strategic alignment that clients need, from their advisers to help further their business interests. Advice is tailored to the unique circumstances and challenges of each project - from the day-to-day to the most complex, multi-jurisdictional matters. The firm has an in-depth knowledge of clients’ businesses and the industries and markets they operate in.

M&A activity in the Netherlands in 2019 bucked global trends and put in a strong showing with both deal volume and value up from 2018. This was mainly due to a number of large deals, the largest deal being EssilorLuxottica’s EUR7.13 billion takeover of GrandVision. The increase in market share, and the fact that the Netherlands has witnessed at least 20 deals valued above EUR250 million, shows that the Netherlands is becoming increasingly popular with dealmakers; with geopolitical issues such as Brexit still having a significant impact in European markets, this looks set to continue in 2020.

The Netherlands has become an increasingly important investment destination, given its geographic location. In total, the Netherlands accounted for 10.9% of British investments into the rest of Europe, and saw an increase in overall inbound activity. From the first quarter to the third quarter of 2019, the share of Dutch inbound M&A saw a third successive YTD increase to 48.6% of total M&A, driven by bidders from the rest of Europe (143 deals).

Private equity (PE) firms continued to have an impact on M&A activity in the Netherlands, following on from strong showings in 2018. PE houses buyouts and exits reached their highest levels since 2017 and a more than 10% increase since 2018. PE houses are particularly interested in innovative investments which was shown with a large investment into Dutch biotech firm AM Pharma and the market is becoming increasingly competitive.

A more global trend is countries becoming increasingly protective of their national security and strategic economic interests. The most compelling example hereof is the trade war between China and the USA. Also, in the EU there has been a shift to a harder stance by the EU member states towards investments in the EU by non-member states. This naturally has an effect on the international M&A market. In 2019, the EU introduced a regulation providing for certain procedural safeguards, the Foreign Investment Framework Regulation (see 2.3 Restrictions on Foreign Investments).

Furthermore, in the Netherlands specifically there is a rise of protectionist political sentiments as well. Following the takeover battle for KPN, a draft legislative proposal was published which would enable the Dutch government to prevent takeovers of telecommunication companies of vital importance to national security. Additionally, the Dutch government intends to implement the possibility of a 250-day statutory response time for Dutch listed companies in case of an unsolicited public bid.

Activity was positive in a variety of sectors with consumer, business services and energy, technology and utilities all taking a place in the top five deals of the year. Overall, consumer and business services took the largest share, however, technology deals volume increased from 2018 showing that this is becoming an increasingly popular industry.

Companies that have shares (or depositary receipts for shares) admitted to trading on a regulated market are acquired by means of a public bid for such securities (and, potentially, any other outstanding classes of shares).

The acquisition of a privately owned company, however, is typically done through the entry into a share purchase agreement (SPA) with the company's shareholders or by entering into an asset purchase agreement (APA) with the company itself. Like in many other jurisdictions, an asset transaction in the Netherlands allows the purchaser to "pick and choose" the assets and liabilities that it intends to acquire, with the exception of the mandatory transfer of employees who are deemed to be part of the transferred business/assets. An asset transaction may, however, be less attractive for the target company's shareholders from a tax perspective.

Other than antitrust scrutiny by the European Commission (EC) and the Dutch Authority for Consumers and Markets (ACM) (see 2.4 Antitrust Regulations) and sector-specific supervision, the acquisition of privately owned companies is not a regulated activity in the Netherlands.

With regard to the acquisition of public companies, a bidder intending to launch a full or partial bid for a public company will need to prepare an offer memorandum and submit it to the Dutch Authority for the Financial Markets (the AFM) for review and approval.

In addition to the above cross-sector regulators, sector-specific supervision is conducted by the Dutch Central Bank (DCB) and the European Central Bank (ECB) for M&A activity involving financial institutions (eg, banks and insurers), the DCB for M&A transactions involving corporate services providers (trust firms), the Dutch Healthcare Authority for the healthcare industry, and the Minister of Economic Affairs and Climate Policy for certain large energy installations.

At this time, there are no national restrictions on foreign investments in the Netherlands. However, applicable international sanction regulations may restrict certain foreign investments. Countries are becoming increasingly protective of their national security and strategic economic interests. In this regard, on 10 April 2019, the new framework for the screening of foreign direct investments in the EU entered into force.

The new framework, applicable from 11 October 2020, will create a co-operation mechanism where EU member states and the EC will be able to exchange information and raise concerns related to specific investments. It will allow the EC to issue opinions when an investment poses a threat to the security or public order of more than one EU member state, or when an investment could undermine a project of interest to the whole EU, such as Horizon 2020. The final decision on whether a foreign investment is authorised, however, remains with the EU member state where the investment takes place.

Pursuant to the Dutch Competition Act, the ACM must be notified of a potential business combination if the following two (cumulative) thresholds are met:

  • the merging businesses have a combined global annual turnover of at least EUR150 million; and
  • at least two of the merging businesses each have an annual turnover of at least EUR30 million in the Netherlands.

Different thresholds apply for mergers in the healthcare and pension fund sectors. If the ACM is of the view that the combination will have a negative effect on competition, it must notify the merging businesses within four weeks that it does not consent to the business combination. In such cases, the merging businesses can then put forward proposed remedies to reduce the negative effect of the combination on competition. If the ACM does not approve those proposed remedies, the merging businesses must apply to the ACM for a permit.

According to the EU Merger Control Regulation, the EC is the competent regulator for (larger) business combinations that meet the following thresholds:

  • the merging businesses have a combined global annual turnover of at least EUR5 billion; and
  • at least two of the merging businesses each have an EU-wide annual turnover of at least EUR250 million, unless each of the merging businesses achieves more than two-thirds of its aggregate EU-wide turnover within one and the same EU member state, in which case the competent local regulator has jurisdiction. Note that alternative thresholds may apply.

The personnel perspective in mergers and takeovers is regulated by the Works Council Act respectively the Merger Code and potentially in a certain collective labour agreement (CLA), pursuant to which the Works Council advice (WoCo) has to be sought respectively relevant trade unions should be consulted.

The prior advice of the WoCos from both sides of the transaction must be requested timely and within a reasonable timeframe, to allow the WoCos’ advice to be of meaningful influence on the intended transaction. If there is only a WoCo at a lower or higher level in the respective group, it may not be necessary to obtain any WoCo advice in relation to the transaction. WoCo advice is typically requested shortly prior to signing the SPA, APA or Merger Agreement. The WoCo may not render its advice until there has been at least one consultative meeting on the subject. During this consultative meeting, a representative of the shareholder(s) must be present. There is no fixed period within which the WoCo must render its advice.

If the decision to enter into the transaction (“Decision”) deviates from the WoCo’s advice or no advice has been requested, any further execution of the transaction has to be put on hold for one month following notification of the Decision to the WoCo. During this period the WoCo may appeal to the Enterprise Chamber of the Amsterdam Court of Appeal. Whereas parties to a transaction should be careful not to make any procedural mistakes under the Works Councils Act, one can take comfort from the fact that, on the substantive issue, the test is generally a marginal one; entrepreneurs making reasonable commercial judgements should not find themselves unduly blocked by a WoCo.

Labour Union consultation pursuant to the Merger Code is with respect to timing and procedure broadly similar to the WoCo advice procedure. However, the rules of conduct set out in Merger Code are not mandatory, not even formal law, but a quasi-legislative code of conduct, the application of which is regarded as obligatory. Failure to comply is not sanctioned with penalties and as a principle no court proceedings apply. Severe failure to comply could be sanctioned with naming and shaming. This would be different if the consultation with Labour Unions follows from a CLA. In that event, Labour Unions may enforce their consultation rights in court and could claim damages on top.

Any acquisition of a controlling interest in large power plants and LNG facilities requires a prior notification to the Minister of Economic Affairs and Climate Policy by the parties involved. The Minister may, on the grounds of considerations of public safety or security of supply, prohibit the change of control or attach conditions to such change of control.

Furthermore, the Dutch Government is working on a legislative proposal that would protect important Dutch telecom companies against takeovers that risk Dutch national security or public order. Pursuant to the proposed legislation, the Minister of Economic Affairs and Climate Policy would have the power to intervene by prohibiting (fully or under suspensive conditions) the acquisition of a controlling interest in a Dutch telecom company (eg, by holding 30% of the voting rights in that company or the power to appoint more than half of its board members), by ordering a shareholder to reduce his or her controlling interest in the telecom company to under 30%, or by prohibiting a shareholder from exercising its voting rights, amongst other means.

In 2017, both Unilever and AkzoNobel received unsolicited takeover bids that were turned down by the target entities’ boards. After AkzoNobel's board refused to enter into negotiations with its bidder (while several large shareholders publicly called for such discussions to be held), legal proceedings were ultimately initiated before the Enterprise Chamber by a substantial group of AkzoNobel shareholders, among them hedge fund Elliott. 

The Enterprise Chamber's decision reiterated that there was no statutory obligation that required a target to allow hostile bidders to conduct due diligence or to provide them with any non-public information. In addition, the court considered that there was no statutory obligation for boards to enter into negotiations with unsolicited bidders, and that the primary responsibility for setting strategy rested with the board. As a whole, while telling AkzoNobel to improve its interactions with its shareholders (and while postponing its final judgment), the court, on a preliminary basis, did not find that there was a reasonable suspicion of potential mismanagement surrounding the board's conduct in the unsolicited bid situation. AkzoNobel ultimately entered into a standstill agreement with Elliott.

In an apparent response to the unsolicited takeover bids for Unilever and AkzoNobel, and following broader concern voiced by the representatives of some public company boards, the Dutch Government submitted a legislative proposal to parliament on 19 December 2019. The proposal introduces a statutory waiting period of up to 250 calendar days for listed Dutch companies that are facing either an unsolicited public bid or a shareholder request to make changes to their board composition or to the provisions in the articles of association relating to board composition. The waiting period can be invoked if in the opinion of the board such request or bid is substantially contrary to the interests of the company.

During this waiting period, the rights of all shareholders would be suspended to the extent that they relate to changes to board composition, unless the changes are proposed by the company itself. The intention of the legislator is to create a period for target boards to duly assess and weigh the interests of the company and all of its stakeholders, and in particular to assess the possible consequences of actions demanded by shareholders (whether or not in the context of a bid) and to prepare an appropriate response to such actions.

The legislative proposal has been criticised by several parties, as boards already have the possibility to invoke a 180-calendar day response time under the Dutch Corporate Governance Code if a shareholder requests to put an item on the agenda of a shareholders meeting that may lead to a change in the company’s strategy, including dismissal of board members. Case law set the principle that shareholders must respect this response time of 180 calendar days and not exercise their right to put an item on the agenda during the response time. The Dutch Government, however, prefers the codification of a waiting period and is of the opinion that a longer period is needed to give the board sufficient time and rest for careful policy-making.

The majority of the bidders launch their bids for a publicly traded Dutch company without holding any (equity) interest in that company. In most cases bidders are unwilling to take the risk that the final offer fails and the bidder’s investment loses value. There is, however, ample precedent of situations in which bidders built a stake in the target company prior to launching an offer. The benefits of stakebuilding are the strengthening of the negation position of the bidder, the increase of the bidder’s chances of success, reduction of the costs of the acquisition and possible protection against competing offers. The strategy of stakebuilding is typically combined with obtaining irrevocable tendering commitments from one or more of the target company's principal shareholders (see 6.11 Irrevocable Commitments).

As a rule, any person who (directly or indirectly) reaches, falls below or exceeds any of the statutory thresholds – either in terms of percentage of total share capital or voting rights of a listed company – must promptly notify the AFM. The AFM keeps a public register of substantial interest notifications on its website. The relevant thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. The Dutch government has published a legislative proposal for public consultation introducing 2% as an additional threshold. It is currently unclear whether and when this legislative proposal will be enacted.

A party building up its stake should be aware of the disclosure requirements (see 4.2 Material Shareholding Disclosure Threshold). A party may acquire up to 3% of the shares of a Dutch listed company without having to notify the AFM.

In any case, a bidder must be mindful not to acquire 30% or more of the voting rights in a Dutch listed company, which would trigger the requirement for the bidder to launch a mandatory bid for all classes of shares in the capital of the target company (subject to grandfathering exceptions for major shareholders who, acting alone or in concert, already had control at the time that the target company’s shares are admitted for the first time to trading on a regulated market). This voting rights interest is calculated on an aggregated basis with all with whom the bidder is deemed to act in concert. For the avoidance of doubt, a bidder is not deemed to act in concert with the target company's shareholders from whom it obtained irrevocable tender commitments.

In addition, no person may launch a public offer to acquire the shares of a Dutch listed company unless an offer document has been approved by the AFM. A public offer may only be launched by way of publication of an approved offer document.

Furthermore, additional disclosure rules apply to the bidder and the target company in the case of an announced public bid for that company. The bidder and the company must each promptly make a public announcement of any transaction executed, or agreement entered into, by the bidder or the company (as the case may be) relating to any class of securities that is the subject of the bid, or relating to any securities that are offered in exchange for such securities. The announcement by a bidder must state the number and relevant class of securities, the terms (including the price or exchange ratio), and the size of any direct or indirect capital interest.

Dealings in derivatives in the context of stakebuilding are allowed in the Netherlands. Examples are options, futures and swaps. Derivatives can be traded on the stock exchanges as well as privately.

The filing and reporting obligations for dealings in derivatives are equal to the notification requirements described in 4.2 Material Shareholding Disclosure Threshold. In the case of transactions in cash-settled instruments (such as contracts for difference or total return equity swaps), the holder of the instruments is deemed, by law, to possess the underlying shares and voting rights. Accordingly, such underlying share and voting rights interests must be reported to the AFM.

There is no statutory requirement for shareholders to make known the purpose of their acquisition or their intention regarding control of a company. A company can, however, request the AFM to force a person (eg, a shareholder) to disclose its intentions (whether or not to commence a public bid) if that person has publicly disclosed information that may give the impression that it is contemplating making a public bid for the company. If granted by the AFM, that person must make an announcement, within six weeks of being so instructed by the AFM, that it does or does not intend to make a public bid.

In the latter, the person (and any persons acting in concert) will be prohibited from announcing or launching a public bid for that company for a period of six months from the announcement. If no such announcement is made, a period of nine months applies (commencing at the end of the six-week response period). If a third party subsequently announces a public bid for the company during the six- or nine-month "put up or shut up" period, this restrictive period automatically ends.

The bidder and the target company are required to announce a public bid, in any case, no later than the time that (conditional or unconditional) agreement has been reached on the bid. This is typically the moment when the bidder and the target sign a "merger protocol", containing the terms and conditions of the bid (see 5.5 Definitive Agreements). In the announcement, the parties must disclose the names of the bidder and the target company and, to the extent applicable, the contemplated price or exchange ratio and any conditions agreed at that time for launching the bid or for declaring the bid unconditional.

The bidder and target company may be required to make disclosures at an earlier than anticipated stage as a result of leaked bid information, if the information qualifies as inside information (within the meaning of the EU Market Abuse Regulation).

In practice, friendly public bids are announced once the bidder and target company have reached agreement on the bid.

The scope and duration of due diligence conducted by a bidder is very much dependent on the type of bidder (eg, strategic or private equity) and the level of detail that the target board is willing to provide. It is typically more limited than due diligence on a private transaction. In its assessment of the level of detail to provide, the board will be guided by what it deems to be in the best interest of the company and its business, while at all times taking into account the potential risk of an unsuccessful bid.

Given the substantial amount of information that the target company will have already made publicly available to comply with its disclosure obligations as a listed company (eg, annual and semi-annual accounts, and press releases to publish inside information), target company boards may in some cases not be willing to provide more than a few days of due diligence. Elsewhere, in particular where material antitrust hurdles for the proposed combination need to be addressed, the target company's board may need to provide detailed information to allow the bidder to conduct detailed due diligence over a period of several months.

To the extent the bidder obtains inside information that the target company has not yet made public, the relevant provisions of the EU Market Abuse Regulation will prohibit the bidder from trading in the target company's securities.

In addition, the target may wish to bind the bidder by contractual restrictions from trading in its securities by demanding that the bidder enters into a standstill commitment. This would prevent the bidder from acquiring a controlling interest in the target company without its consent. This period will usually be between six to 12 months. A contracted standstill between the bidder and the target company may facilitate a level playing field between the parties, which could positively impact the possibility of the bidder conducting due diligence or the successful conclusion of a merger protocol. At the same time, the bidder may negatively influence the relationship between the bidder and the target company by declining a standstill. 

A bidder may typically seek to acquire exclusivity from the target in a stage prior to entering into a merger protocol.

It is common for public bid terms to be documented in a so called "merger protocol", as discussed in 5.1 Requirement to Disclose a Deal. In this agreement, the bidder and the target company document the main terms and conditions of the bid, such as the conditions for launching and completing the bid, no-shop provisions and, typically, regular and reverse break fees.

In a public M&A scenario, the process for acquiring/selling a business is generally regulated by statutory law once the bidder makes its (actual or deemed) initial announcement. In the period before the initial announcement, however, the timing depends on various circumstances, such as the duration of negotiations, the scope and duration of due diligence (see 5.3 Scope of Due Diligence) and whether the offer is friendly or hostile.

Within four weeks of the initial announcement, the bidder must either confirm that he or she will proceed with the bid or announce that he or she does not intend to make an offer. When confirmed, the draft offer memorandum must be filed for approval by the AFM within 12 weeks of the initial announcement. When filed with the AFM, the draft offer memorandum will not yet be made publicly available.

The bidder must publicly confirm that he or she has funding for the bid by the time of filing with the AFM (see 6.6 Requirement to Obtain Financing). In practice, the review period will typically take at least three to four weeks before the AFM notifies the bidder of its decision. Once approved, the bidder must publish his or her offer memorandum within six working days, triggering the tender period of eight to ten weeks, which begins within three working days of publication. After the expiry of the tender period, the bidder must either declare the bid unconditional or lapsed, or extend the tender period, within three working days. 

The tender period may be extended once for a period of two to ten weeks. If the bidder declares the bid unconditional, he or she may, within three working days, invoke a two-week post-acceptance period to give non-tendering shareholders a last chance to tender their shares.

In a private M&A scenario, the offer process can be completed within weeks or months, depending on circumstances such as the familiarity of the bidder with the acquisition process, the duration of any due diligence efforts, and the requirement of financing and antitrust approval.

Following on from 4.3 Hurdles to Stakebuilding, a mandatory bid for all the shares in the capital of a target company is triggered where a shareholder, acting alone or in concert with others, acquires an interest of 30% or more of the voting rights in the target company. A bidder who obtains irrevocable tender commitments from shareholders in anticipation of a voluntary bid is exempted from the mandatory bid rules and will not be deemed to "act in concert" with the shareholders concerned.

A public bid for all shares in the target company will often be in cash, but all or part of the consideration may also consist of transferable securities (including shares, bonds and convertible instruments). If the bid consists of transferable securities, additional and extensive disclosure pertaining to the issuer of the transferable securities, in the form of either a prospectus or an equivalent document in the offer memorandum itself, is required; see 7.3 Producing Final Statements and 7.4 Transaction Documents.

The consideration for offers qualifying as "tender offers" under Dutch law must be all-cash, and determined by a reversed book-building process (ie, the consideration will be specified by the tendering shareholder).

Apart from the conditions required by law (eg, merger control), negotiated offers are, in contrast with (unconditional) mandatory offers, typically made subject to extensive conditions. A negotiated bid may contain pre-offer conditions such as certainty of funding, antitrust approval and the non-occurrence of a material adverse change. Once the pre-offer conditions have been fulfilled, the conditions under which the offer (once commenced) will be declared unconditional are typically concluded in the merger protocol between the bidder and the target company. The most frequently negotiated conditions include minimum acceptance thresholds and the adoption of certain resolutions (ie, asset, sale and liquidation or (cross-border) statutory merger). 

The bidder will generally aim to purchase more than 95% of the shares in a target company to acquire full control through the statutory squeeze-out mechanism (see 6.10 Squeeze-Out Mechanisms). In recent years it has, however, become increasingly common to pre-wire alternative restructuring options to be able to acquire full control if the 95% threshold is not satisfied in the public bid. Such restructurings are normally pre-agreed between a target company and the bidder in the merger protocol. In these cases, the bidder is typically willing to lower the acceptance level to 75%-80% (see 6.10 Squeeze-Out Mechanisms).

Within four weeks of the initial announcement of a bid, the bidder must confirm whether it proceeds with its bid and, if so, when the draft offer memorandum is expected to be filed with the AFM. Before the bidder files its draft offer memorandum with the AFM, it must have obtained and publicly confirmed the certainty and sufficiency of its funding for the bid. This "certainty of funds" requirement means that the bidder must have received sufficient financing commitments that are, in principle, only subject to conditions that can be reasonably fulfilled by the bidder (eg, credit committee approval should have been obtained). No term sheets, etc, need to be publicly filed.

These conditions may include that resolutions are adopted by the bidders' extraordinary meeting with regard to the funding or consideration offered (eg, the issue of shares). However, the financing of the bid may not be conditional upon the absence of a material adverse effect (for the benefit of a prospective financer), unless the same condition is applicable to the bid itself (for the benefit of the bidder). The bidder’s financial advisers assist with this "certainty of funds" announcement.

The bidder and the target company are free to agree on any deal security measures (as long as the target company's board deems it to be in the best interest of the company). The deal security measures that a bidder seeks normally concern the possibilities of a fiduciary out by the target board in light of intervening events. In Dutch practice, a bidder mainly seeks to limit the possibilities of a target company to respond to a superior bid.

Dutch deal protection, therefore, mainly concerns the exclusivity obligation of the target company and that of the management and the supervisory board to continue to support and recommend the offer (ie, the limitation to examine and bind itself to a potential superior bid). Consequently, the conditions that constitute a superior bid are laid down, eg, the minimum price threshold for a competitive bid to be considered a superior bid (in practice the bid has to be between 7.5%-10% higher), a matching right of the bidder and a break fee (typically around 1% of the transaction value). 

In addition, other elements of the transaction may be classified as deal protection, such as support from major shareholders through irrevocable tendering commitments, whether information is provided to and due diligence is allowed by other potential bidders, whether a standstill agreement is concluded with the bidder and special agreements such as the provision of a convertible loan by the bidder or a top-up option. 

All potential deal security measures must be assessed by the board of the target company in light of the interests of the company and its business.

It is quite common for major shareholders in Dutch listed companies to obtain further governance rights, eg, additional information rights and the right to nominate one or more members of the supervisory board. Such rights are typically structured through a relationship agreement between the shareholder and the company. A bidder who does not seek 100% ownership of the target may seek to obtain such governance rights.

Voting by proxy is permitted under Dutch law. US-style proxy solicitation is rare.

A shareholder who holds at least 95% of the shares of a company may institute proceedings before the Enterprise Chamber at the Amsterdam Court of Appeals towards the other shareholders jointly for the transfer of their shares to the majority shareholder. The claim will be rejected if, notwithstanding compensation, one of the shareholders would suffer serious tangible loss by such a transfer (rarely deemed to be the case and, accordingly, squeeze-out claims are typically successful once the threshold is met). Further, such proceedings cannot be started if there are shares with special voting rights outstanding. The price offered for the shares in the proceedings is usually equal to the bid price (offered in a recently completed public bid).

A different squeeze out proceedings may be invoked when a shareholder holds 95% of the shares and voting rights in a public company as consequence of a public offer. In that case the price for the shares is set at the offer price (unless less than 90% of the shares were acquired through the offer). The shareholder must file such squeeze-out claim with the Enterprise Chamber within three months of the expiry of the term for acceptance of the public offer.

Alternative squeeze-out mechanisms (back-end restructurings) are normally also included in the merger protocol, such as a pre-wired asset sale, which entails that the bidder purchases all assets of the company shortly after declaring the public bid unconditional. The bidder in this scenario pays a part of the purchase price in cash and remains due for another part in the form of a loan that is equal to the stake of the bidder in the company. As a result of the asset sale, the target company will essentially become a "cash box" and all remaining shareholders will receive cash for their shares upon liquidation of the target company. An asset sale will only be permissible if certain conditions are met. 

For the bidder it is important to ensure sufficient transparency about his or her intentions in this respect during the bid process and to have a business motive (typically integration) for the post-bid asset sale and liquidation of the target. Further, the target executive board and (independent) supervisory board members may only approve an asset sale after careful consideration, especially where minority shareholders' interests are concerned. Finally, the asset sale may not lead to a disproportionate disadvantage of minority shareholders and the price should be fair (eg, based on a fairness opinion). 

Also, a bidder may choose to squeeze out remaining shareholders via a triangular merger. Here, a bidder will establish an acquisition vehicle that concludes an agreement with the target company to enter into a statutory merger. As a result of the statutory merger, the target company ceases to exist and the assets of the target company are transferred to the acquiring company. Under Dutch law, the shareholders of the target company may become shareholders of a group company of the acquisition vehicle. This will normally be a much larger company and will result in the remaining shareholders of the target company having an interest below 5% in this group company. As a consequence, the "regular" squeeze-out mechanism may then be exercised. Naturally, whether this latter mechanism works will be heavily dependent of the nature of the acquirer.

Before announcing the bid, during negotiations with the target company, it is common for a bidder to also enter negotiations with the target company's principal shareholders. These negotiations often lead to irrevocable tender commitments from one or more of the target’s principal shareholders, requiring them to tender their shares if the bid is launched (and subject to its completion) and to vote in favour of the bid at the (Extraordinary) General Meeting.

The existence of such irrevocable commitments, as well as their main terms, must be disclosed in the offer memorandum. Typically, but not necessarily, such commitments will contain an escape (out) for the committing shareholder in the event of a subsequent (financially) superior offer (usually subject to a minimum hurdle requiring the competing bid to be a minimum percentage higher to qualify as superior offer).

Irrevocable tendering commitments from shareholders are exempted from the mandatory bid rules (see 4.3 Hurdles to Stakebuilding).

As described in more detail in 5.1 Requirement to Disclose a Deal, 5.4 Standstills or Exclusivity and 5.5 Definitive Agreements, the manner and timing of the announcement of a public bid are regulated.

A voluntary bid is deemed to have been made public as soon as the bidder has disclosed concrete information regarding the intended bid, unless it is immediately followed by a public announcement from the target company that it has entered negotiations with the bidder.

A person acquiring a (30%) "controlling" interest in the target company who has not lost his or her controlling interest during the subsequent 30-day grace period is required to announce the mandatory bid no later than the moment this grace period expires.

If the Enterprise Chamber orders the announcement of a mandatory bid, but the person required to make the bid does not do so, the mandatory bid is deemed to have been announced at the moment the Enterprise Chamber's order becomes irrevocable.

A mandatory bid is also deemed to have been announced if such a bid is required by the rules of another EU member state, and the target company has made a public announcement in this regard in accordance with the EU Market Abuse Regulation.

After the bid is made public, any subsequent issue of shares by the target company during the bidding process must be accompanied by a public announcement.

Within four weeks of the bid being made public, the bidder must announce whether he or she intends to proceed with the bid. If so, he or she is required to file the draft offer memorandum with the AFM no later than 12 weeks of the initial announcement.

The offer memorandum must contain all information necessary for a reasonably informed and careful person to make an informed assessment of the bid. If the bid consideration (partly) consists of transferable securities, the bidder is generally required to make available either a prospectus (approved by the AFM or the competent regulatory authority of another EEA member state), or a document containing equivalent information.

The bidder is required to include information regarding the target company's financial position in the offer memorandum. The offer memorandum must include, among other things:

  • a comparative overview of the target’s last three annual accounts and the most recent published annual accounts;
  • an auditor’s statement with respect to these accounts;
  • the financial data for the current financial year (covering at least the first half-year of the current financial year if the bid document is published four months after the expiration of the half-year);
  • a review statement from an accountant covering the financial data for the current year; and
  • the main terms of a merger protocol or irrevocable tendering commitment, if any. If the bid consideration consists of transferable securities, the required prospectus or equivalent document must include sufficient information regarding the financial position of the issuer and the bidder (if different from the issuer).

Consolidated financial statements must be prepared in accordance with International Financial Reporting Standards (IFRS).

The approved offer memorandum must be disclosed in full, whereas only the main terms of the merger protocol have to be made public.

The bidder and the target company are generally allowed not to disclose information in case such disclosure would be detrimental to their vital interests, for instance in the event of business secrets or information that is heavily competition-sensitive.

However, when requesting the advice of the Works Councils (WoCo) (see 2.5 Labour Law Regulations), the parties will have to provide the WoCo with all information that the WoCo deems necessary to perform its duties. This could mean that the WoCo will have to be provided with transaction documents (or for example a summary thereof). The request for information from the WoCo can be rejected for justified reasons.

Most (large) companies in the Netherlands have a two-tier board system (although the possibility of a one-tier board is laid down by law) consisting of the management board, which manages the company, and the supervisory board, which supervises the actions of the management board. Each director is responsible towards the company for the proper performance of his or her duties and for the general course of affairs, which includes the day-to-day management, exclusively determining the strategy and outlining, preparing, adopting and executing the policy. The directors therefore have the freedom to structure the governance of a target company and have the possibility of taking protective measures. 

In fulfilling their tasks, directors must be guided by the interests of the company and its business, with due regard to the requirements of reasonableness and fairness. These corporate interests are not only given substance by the interests of shareholders; directors owe their duties to all stakeholders, including but not limited to employees, customers, creditors and suppliers. Directors have an autonomous role in this regard and do not have the duty to behave according to instructions given by the general meeting. Accordingly, shareholder value is relevant but clearly not the only measure driving board decision-making in connection with a business combination. Finally, when assessing a business combination, boards of listed companies have the obligation to create long-term value (when complying with the Corporate Governance Code).

The management board of private (and smaller) companies have similar duties. Dutch law, however, provides for more flexibility to structure the governance of a private limited company. Eg, more power can be given to the general meeting by obliging the board of directors to comply with its directions, unless it is contrary to the interest of the company and its business.

It has become more and more common for the board of directors to establish special or ad hoc committees in the context of a business combination. The board of directors must establish an internal organisation so that the process with regard to the business combination is as effective as possible. Therefore a transaction or negotiation team or steering group is typically established. The team often forms separate sub-teams for different work streams, such as financial/valuation, due diligence, transaction documentation, disclosures, PR, strategy, integration and synergy.

A special committee of independent non-executives will usually closely monitor and supervise the process. It is further relevant to note that in recent years establishing an executive committee has become a trend. It consists of the directors and the higher management and often plays an important role in establishing the strategy, managing the company on a day-to-day basis and assessing potential business combinations.

A director with a conflict of interest may not participate in the deliberation and adoption of resolutions and other directors will need to adopt the resolution. The conflicted director is in practice therefore excluded from any meeting on the matter concerned. If there are several conflicted directors and no management resolution can be adopted, the resolution will be adopted by the supervisory board, or, if there is no supervisory board, by the general meeting, unless the articles provide otherwise.

A director must perform his duties to the best of his abilities and does not have to guarantee a particular result. Courts are therefore hesitant to second-guess substantive management decisions and actions. Liability does not follow as a result of ordinary negligence, but only in the case of serious blame. A director can only be liable against the company in the event of improper performance of the directors' duties. Board duties are collective in nature, ie, each director is responsible for the proper performance of the company's management as a whole. 

In the case of improper management of the board, every director is wholly liable unless he or she cannot be attributed serious blame and was not negligent in acting to prevent the consequences of improper management. The external liability of the (de facto) directors may follow towards third parties, mainly creditors, for wrongful acts and is generally imposed on a director only if the director can personally and seriously be blamed for wrongful/tortuous conduct towards that party. Under this liability, it is required that a personal serious blame can be attributed to a director. In practice, the threshold for director liability is generally considered to be high and director liability rarely occurs outside of insolvency situations.

The directors of insolvent companies can be liable on the ground mentioned above, and the trustee may hold the director liable in bankruptcy if the director has significantly contributed to the bankruptcy through apparent improper administration of the company. This means that no reasonable and sensible director would have acted in the same manner under the same circumstances. It should be noted, however, that certain legal presumptions may apply. In particular, a company will be presumed to have been evidently mismanaged if it went bankrupt and, over the last three years, failed to keep proper financial records (such that its assets and liabilities could not be known at all times) or did not file one or more of its annual accounts within 12 months following the end of the relevant financial year.

In a business combination, companies usually have assistance from investment banks and lawyers, but sometimes also from consultants and other experts who can advise about the proposed transaction. As part of a due process, the board of directors and supervisory directors further receive fairness opinions from financial advisers about the reasonableness of the transaction price. Seeking advice does not affect the responsibility of the (supervisory) directors, but can be a mitigating circumstance in assessing their conduct later on in court.

Directors who have a conflict of interest vis-à-vis the company may not participate in the board's deliberations and decision-making process on the issue in question. In addition, the conflict should be timely disclosed to the director's fellow board members or – if there are no other board members – to the company's shareholders, allowing them to take appropriate action. A director's failure to observe this may result in liability on the part of that director, or even the entire board. It should be noted that a director's affiliation with a shareholder, even indirectly, might constitute a conflict if that shareholder's interests are not aligned with the interests of the company and its other stakeholders.

In case law, a clear assessment framework has been developed. A director is conflicted if he or she has to deal with interests that are so incompatible with those of the company that it can be reasonably doubted whether he or she was guided exclusively by the interests of the company. It is not required that the potential conflict will actually lead to the company being disadvantaged.

In the context of a business combination, it is not sufficient to show that the director of the target company may have a seat on the board of directors of the bidding entity or that he or she will exercise his or her options or sell his or her shares with a takeover premium. In cases where there has been an (apparent) conflict of interests (eg, detrimental to the interests of a minority shareholder), the Enterprise Chamber appointed an independent (supervisory) director with a decisive vote. Finally, special care should be taken in a private equity transaction in which the board member is offered to participate in the company after a successful bid.

Hostile offers are allowed in the Netherlands, but there is no track record of them being completed successfully. There have been several unsuccessful hostile approaches in recent years, such as for PostNL, Unilever and AkzoNobel. Generally there are no legal impediments to launching a hostile offer in the Netherlands. Dutch law does not make any distinction between hostile and friendly offers. However, the control over a target company is in the Netherlands generally acquired through friendly bids for all issued shares, as they typically enable the bidder to secure the recommendation of the management board and to conduct due diligence on the target company.

The vast majority of successful unsolicited takeovers started hostile, but turned friendly after an improvement of the terms of the offers. Hostile bids are rarely pursued as they run the risk of being delayed, discouraged or defeated by defensive measures (see 9.2 Directors' Use of Defensive Measures). Also, there is no statutory obligation for the management board to facilitate a level playing field among bidders.

The board is allowed to take protective measures in case of a hostile scenario, within the limitations set out in the RNA case (see 9.3 Common Defensive Measures and 9.4 Directors’ Duties).

A common defence measure would be the so-called protective foundation. This may be structured in various ways. For instance, a commonly used structure is the creation of a separate class of preference shares that can be called at nominal value by an independently managed, yet friendly foundation, pursuant to a call option agreement. The foundation would exercise the call option in case the continuity of the company concerned is threatened, typically in a hostile bid scenario. The presence of a protective foundation has a deterrent effect on a hostile bidder. One of the few examples in which a call option was actually exercised concerns the protective foundation of KPN, which exercised its call option as reaction to América Móvil’s announcement to launch a hostile bid.

Another type of anti-takeover foundation was put in place by ABN AMRO in 2015, in the context of its initial public offering on Euronext Amsterdam. In this structure, all ordinary shares in the company's capital are transferred to an independent foundation in exchange for depositary receipts. This structure splits the economic ownership of shares from the legal ownership, which will be held by the independent foundation. The popularity of such depositary receipts structures is however declining. For example, Unilever recently terminated its depositary receipts structure.

Other used defensive measures include for example KPN divesting its crown jewel E-Plus to Telefónica or a so-called poison pill which reduces the attractiveness of the company. When Belgium-based Bpost launched a bid on PostNL, the boards of PostNL (backed by statements made by the Dutch government) said that the bid could result in PostNL losing its position as designated postal provider in the Netherlands, which would significantly impact PostNL’s financial results. The launched bid then bounced off.

Defensive measures must be proportionate, adequate and allowing the management board to enter into discussions with the bidder, while maintaining the status quo. The defensive measures should be in the company's corporate (long-term) interest, which involves taking into account not only the interests of its shareholders but also of other stakeholders. The board should act in accordance with the requirements of reasonableness and fairness towards all stakeholders. The management board therefore does not owe an overriding fiduciary duty to the shareholders. Also, defensive measures should be of a temporary nature and should not be aimed at indefinitely closing out bidders or activist shareholders.

The management board has substantial freedom to develop the company's strategy and, when deemed appropriate given the circumstances of a takeover scenario, may take action against hostile bidders, within the limits as discussed above (see 9.4 Directors' Duties). The management board may decide to withhold its support of the offer and take substantial measures to delay or discourage the takeover.

However, the Dutch Supreme Court has held that the interests of "serious" potential bidders, both friendly and hostile, should be taken into account by the management board. Fully valued bids that address broad stakeholder interests will typically be successful as such an offer would be in the best interest of the company's stakeholders. Having said that, the management board's support is a major influence on the success of an acquisition, but will not necessarily prevent a takeover scenario.

Litigation related to public M&A deals is uncommon, especially between the bidder and target company. In recent years, only few disputes relating to high-profile public bids have been brought before the Enterprise Chamber by shareholders. The Enterprise Chamber has the jurisdiction to adjudicate certain corporate matters in the first instance, in addition to specific powers of enquiry, expertise and composition. Disputes before the Enterprise Chamber generally involve shareholders seeking a change in the composition of a company's board. Shareholders have done so in takeover situations, eg, on the grounds of the board’s failure to observe its duties.

Landmark cases are the Stork and ASMI cases, in which the shareholders challenged the takeover foundation exercising the call option it held before the Enterprise Chamber. In the Stork case, two activist shareholders of Stork, in an apparent effort to force Stork to divest its non-core businesses, challenged the composition of Stork's supervisory board. In the ASMI case, activist shareholders pursued the implementation of a new corporate strategy by seeking to change the company's board. Both the protective foundations of Stork and ASMI respectively responded by exercising the call option it held, which in both cases was challenged before the Enterprise Chamber by the activist shareholders concerned.

In the Stork case, the court held that the call option agreement between Stork and the stichting preference shares only permitted the exercise of the call option in a hostile bid scenario. Accordingly, the Enterprise Chamber ordered the cancellation of the preference shares. In the ASMI case, the legality of the exercise of the call option could not be reviewed as the Dutch Supreme Court held that the Enterprise Chamber had no jurisdiction to rule on such a legality. In both cases, the parties used the time created by the call option exercises, and subsequent litigation, to reach solutions satisfactory to the respective boards.

Litigation related to private M&A is more common, with the grounds for such disputes being diverse and ranging from pre-contractual liability to warranty claims and earn-out provisions.

Public M&A-related litigation is normally brought in the early stages of the bidding process, often as a response to the invoking of protective measures by the target company's management board.

In private M&A situations, litigation can occur at virtually every stage, at pre- and post-closing of the transaction, and will generally relate to financial contractual provisions or warranty claims.

Since 2010, the Netherlands has seen several publicly known activist shareholder campaigns. Various hedge funds have targeted listed companies in the Netherlands, such as AkzoNobel, Ahold and Philips.

Activist shareholders typically take a non-controlling share position in a company with a view to potentially seek to influence a company’s operations, strategy, capital allocation or corporate governance. Shareholder activism may also be a prelude to a takeover bid. Hedge funds and activist shareholders have been an important force in encouraging companies' boards to pursue business combinations, to sell certain divisions or to reassess long-term strategy. Examples are AkzoNobel (where hedge fund Elliott pressured AkzoNobel to engage with PPG after PPG’s unsolicited bids), ASMI (where Eminence Capital urged the management board to sell its stake in Asian subsidiary ASM PT) and NXP (where Elliott opposed the offer made by Qualcomm for NXP by arguing that Qualcomm had undervalued NXP). The support of major shareholders is one of the major influences on the success of an acquisition. Where the majority of the interest in a company is held by a (group of) shareholders, they will have to agree to the offer for it to be successful.

There are several tools that activist shareholders could use in pursuing their agenda. One of those is stakebuilding, see 4.1 Principal Stakebuilding Strategies. For example, in February 2020 Elliot revealed that it built a 3% stake in Dutch insurer NN Group. Stakebuilding may enable an activist shareholder to add weight to its opinions and to be taken as a serious threat by the company, especially when the activist shareholder reaches the threshold for placing items on the agenda of the general meeting. One example of an activist shareholder using its right to place items on the agenda concerns ASMI: hedge funds Fursa and Hermes put a proposal to replace the CEO and most of the supervisory members on the agenda.

Another tool is public engagement with the company. There have been numerous public campaigns by activist shareholders. Examples are the 2007 campaign of hedge fund Children’s Investment Fund against ABN Amro and, more recently, the campaign of Elliott against AkzoNobel.

As described in 11.1 Shareholder Activism, many instances of shareholder activism in the Netherlands have involved encouraging companies to enter into M&A transactions, most notably major divestitures.

In recent years there have been no notable occasions of shareholders seeking to interfere with the completion of an announced transaction. As mentioned previously, shareholder activism is mostly focused on encouraging the board to enter into transactions or to sell certain divisions. It is relevant to note that under Dutch law, the board of a public company needs approval from the general meeting if it seeks to sell assets or buy a participation worth at least one third of the assets of the company or if it wishes to establish a long-term co-operation. Failing to obtain approval does not, however, affect the authority of the board to represent the company, but can be reason to doubt the board's correct policy or proper course of action and may thus be a ground for a finding of mismanagement.

Eversheds Sutherland

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The Netherlands

+31 (0) 20 5600 600

+31 (0) 20 524 1204

info@eversheds-sutherland.com www.eversheds-sutherland.com
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Trends and Developments


Authors



Greenberg Traurig, LLP (GT) is an international law firm with approximately 2,200 attorneys serving clients from 41 locations in the United States, Latin America, Europe, Asia, and the Middle East. GT has been recognised for its philanthropic giving, diversity and innovation. The firm’s dedicated Global Corporate Practice comprises more than 450 attorneys who regularly advise public and privately held companies, entrepreneurs and investment funds on global M&A, corporate restructurings, private equity and venture capital, underwritten and syndicated offerings, commercial finance and syndicated lending, cross-border transactions, and general corporate matters. The group’s industry experience covers a wide range of fields, from the pharmaceutical, medical devices and life sciences fields, to representations involving clients in the aviation, banking, consumer products, energy, food and beverage, healthcare, manufacturing, media, technology and telecommunications sectors. The Amsterdam office of Greenberg Traurig has almost 50 fee earners whose key focus areas are M&A, ECM, tax, finance and private equity.

Public M&A and Certain Market Trends in the Netherlands

In this contribution, a number of deal trends, in respect of public offers on listed companies having their statutory seat in the Netherlands and whose shares are trading on an EU or US Stock Exchange (eg, Euronext, the NYSE or NASDAQ), will be highlighted.

In addition, current legislative proposals that may impact public Dutch M&A markets in the near future will be briefly addressed, in particular, the upcoming legislation providing for the screening of acquisitions of vital Dutch telecom companies, which follows on the EU framework for the screening of foreign direct investments.

Also touched upon will be the pending legislative proposal for a statutory response time of 250 days in the event a Dutch listed company is faced with an unsolicited takeover bid or shareholder activism.

However, this article shall begin with a high-level overview of the most pertinent aspects of the public offer process in the Netherlands.

Public Offer Process

Public offers for Dutch listed companies are governed by a set of rules, the most important of which are the Financial Supervision Act (FSA), the Public Takeover Decree (PTD), (EU) Market Abuse Regulation and, where applicable, the EU Prospectus Regulation. Alongside these are a number of ancillary regulations, including the Act on Disclosure of Major Holdings, the Competition Act, the Works Council Act, the Merger Code, the Corporate Governance Code.

Sector-specific public M&A, such as public offers for electricity providers, energy businesses or financial institutions such as banks or insurers, is generally governed by an additional regulatory framework, pursuant to which approval from governmental authorities respectively regulators will be required.

It is noteworthy that the FSA and the PTD do not apply to a public takeover offer of a Dutch company whose shares are listed on either the NYSE or NASDAQ. These stock exchanges do not qualify as a regulated market within the meaning of the FSA and, consequently, the rules in respect of the disclosure of price sensitive information and insider trading included in the Market Abuse Regulation do not apply to a Dutch company whose shares are (solely) listed in the USA, and neither does the Act on Disclosure of Major Holdings.

The guiding principle for a Dutch company whose shares are listed in the USA is that any public offer is governed by US securities laws and US offer rules, while all corporate law aspects, including the fiduciary duties of the board in relation to an offer, as well as any pre- or post-closing corporate reorganisation that may be required to allow a bidder to acquire 100% ownership of the Dutch company, will typically be governed by Dutch law. 

Pursuant to the FSA and PTD, a public offer on a Dutch company whose shares are listed on Euronext can be launched as a full, partial or tender offer. A full offer is a public offer for all shares of the listed company of a specific class. A partial offer is limited to the acquisition of shares representing less than 30% of the voting rights in the listed company.

In a tender offer, where the bidder’s goal is also to acquire less than 30% of the voting rights in a listed company, the shareholders of that listed company are invited to offer their shares to the bidder at a price determined by such shareholder.

Controlling interest

There is one further aspect to bear in mind in relation to a public offer process: under Dutch law, if 30% or more of the voting rights in a Dutch listed company are acquired, and this "controlling interest" or "predominant control" is not reduced to a percentage below 30% within a grace period of 30 days (calculated as from the day the 30% threshold was achieved), a mandatory offer for all outstanding shares of the listed company will have to be announced, upon the expiry of the grace period.

Again, it is important to note is that the mandatory offer rules do not apply to a Dutch company whose shares are listed in the USA (the NYSE or NASDAQ). These rules are set out in the FSA which does not apply to shares in a Dutch company listed in the US.

Friendly Offers

The majority of public offers in the Netherlands on shares of Dutch companies listed at Euronext Amsterdam are negotiated friendly offers. If a public offer is friendly, the bidder and the listed target company generally enter into a Merger Protocol. A Merger Protocol covers a number of topics, including but not limited to:

  • the recommendation of the target board to support the offer;
  • certain pre-offer conditions, such as positive works council advice on the contemplated transaction; and
  • offer conditions, most importantly the minimum tender threshold that needs to be achieved to consummate the offer.

The Merger Protocol will also contain provisions including the process for obtaining anti-trust clearance, the consequences of a material adverse effect, break fees (for example in case of an early termination of the Merger Protocol), the process for dealing with a competing offer that is superior to the original offer and certain non-financial covenants that may apply to the target company, post-closing.

The contemplated offer by the bidder must be publicly announced as soon as the bidder and the target company have reached an agreement on the terms of the offer. This would typically be when the Merger Protocol is entered into.

Once the offer is announced, a predetermined time line kicks in pursuant to the FSA and PTD. In short: within four weeks of the initial announcement that the target company and the bidder have reached a conditional agreement the bidder must publicly confirm whether it will pursue or abort the offer.

If the bidder proceeds with the offer, then it must file a draft Offering Memorandum with the Dutch Authority Financial Markets, (AFM) within 12 weeks as from the date of the initial announcement. By that time the bidder must also publicly confirm that it has certainty of funds. The bidder must make the Offering Memorandum publicly available within six days as from the day the AFM approves the Offering Memorandum.

The tender period shall be eight to ten weeks, which starts within three days from the day of publication of the Offering Memorandum. Upon expiry of the tender period, the bidder shall declare the offer unconditional or extend the offer period with a period that can be between two and ten weeks. Once the offer is declared unconditional, the bidder can open a post acceptance period of two weeks, allowing those shareholders that did not tender their shares to include their shares in the offer.

Deal Trends

Overview

To appreciate some of the recent market trends, we will first address some historical aspects. About a decade and a half ago the most important offer condition was that at least 95% of the shares would be tendered under the offer. The reason for achieving the 95% threshold was that the remaining shareholders can be squeezed out through statutory squeeze-out proceedings before the Enterprise Chamber of the Amsterdam Court of Appeals, the company could be delisted, and the company could, for tax purposes, be included in a fiscal unity.

The bidder was generally able to waive the 95% offer condition, however, for all intents and purposes not below 80% without the prior approval of the board of the target company. This being said, as deal mechanics developed over time, bidders and target companies wanted more and more deal certainty and, as a result, the bidder and the target agreed to a lower minimum tender condition than 95%, usually around 80% and this 80% percentage could sometimes be reduced even further, provided the target’s board would co-operate. The consequence of the lower threshold was that the bidder would have to consummate the offer, even if 95% was not achieved. 

Importantly, at a tender percentage of 80%, statutory squeeze-out proceedings were (and are) not available to the bidder. In order to get from 80% to 100% control over the target company, a market practice emerged whereby the bidder would implement certain post-closing reorganisations to acquire the remaining percentage of shares that were not tendered under the offer. In the event the bidder did not achieve the 95% threshold it would typically acquire 100% control over the business post-close through one of two main types of post-closing reorganisations: an asset sale or a (triangular) legal merger. 

Post-closing asset sale

The market practice in the Netherlands was that, as soon as the bidder achieved the minimum threshold (of 80%), the bidder would close the offer, accept the shares tendered and then (post-close) convene a shareholders meeting. In this shareholders’ meeting, the main agenda item would be the sale by the listed target company of the shares in all of its subsidiaries. Generally, the listed target company is a holding company with no other assets than shares in its subsidiaries, where the business is in fact carried out.

Therefore, practically speaking, the description assets refer to the shares in the subsidiaries of the listed target company. The target company would receive a purchase price for the sale of the assets from the entity controlled by the bidder, for example, Bidco. Consequently, the target company would just be holding the purchase price and otherwise be empty.

The purchase price for the assets (ie, the shares in the subsidiaries), paid by Bidco to the target company, would be the same as the offer price paid by the bidder for each share under the offer and, for technical purposes, comprise a loan note and cash. The target company would then be liquidated.

The bidder holding the majority of the shares in the target company (in this example 80%) would receive the loan note as liquidation distribution. Obviously, Bidco would first have transfer or distribute the loan note to the bidder, to ensure that the entitlement to the liquidation distribution and the loan note are in the same hands. Once that is the case the loan note disappears through amalgamation. The minority shareholders would receive cash. The cash distribution paid to the minority would generally be subject to dividend withholding tax.

Post-closing triangular legal merger

Similarly, as set out above, once the threshold of 80% was achieved and the bidder accepted the tendered shares, a shareholders’ meeting would be convened post close, at which a resolution on the triangular legal merger would be adopted. This type of post-closing reorganisation would look, in broad brush, as follows: the bidder incorporated as part of the offer process two companies, for example, Bidco and Opco.

The bidder owns Bidco and, in turn, Bidco is the parent company of Opco (holding 100% of the share capital of Opco). As soon as the threshold of 80% was achieved and the triangular merger resolution was adopted, post close, the target company would merge into Opco. The target company would be the disappearing and Opco the surviving entity.

In exchange for the target company disappearing into Opco, the non-tendering shareholders of the target company would receive shares in Bidco. Bidco then sells the shares in Opco to the bidder. As a result, the bidder acquired 100% of the target company.

The purchase price payable to Bidco for the shares in Opco would, similar to the post-closing asset sale scenario, consist of cash and a loan note. Bidco would be liquidated. The minority shareholders would receive cash, subject to dividend withholding tax, and the bidder would receive the loan note. The end result is the same as an asset sale, except that in the triangular legal merger the target company is retained, which could have various (tax or corporate law) advantages.

This is generally how it used to work in public take overs. However, subsequently, a couple of trends have developed.

First trend: pre-wired post-closing reorganisation

The post-closing reorganisation processes described above were time consuming. In addition, such process had the disadvantage that the minority shareholders could, at least in theory, argue that the bidder was (ab)using its majority shareholding power by forcing the Company to implement a post-closing reorganisation (asset sale or triangular legal merger). The time delay and litigation risk resulted in the first market trend: the market moved to a pre-wired structure. This concept is explained below. 

In any Dutch public offer, pursuant to the FSA and PTD, the target company is required to convene an extraordinary shareholders meeting (EGM) at least six days before the envisaged closing of the offer. At this meeting, the board(s) of the target company explain and recommend the offer to the shareholders. The meeting can also be used to put certain topics to a vote, and this may include the vote on the asset sale or the triangular legal merger.

The agenda item provides that if less than 95% of the shares are tendered under the offer but more than the minimum threshold is achieved, and the offer closes, the asset sale or triangular legal merger will immediately be implemented.

This pre-wired construct ensures that the bidder will acquire 100% of the shares upon or immediately after closing of the offer, through the implementation of the asset sale or the triangular legal merger as approved ("pre-wired") by the company EGM prior to closing. The bidder will not need to convene a separate shareholders’ meeting post-closing and will obtain immediate control over the target company.

Importantly, because the pre-closing shareholder base of the target company decides on the asset sale or triangular legal merger, there is little room for the minority shareholders to argue that the bidder would somehow abuse its majority shareholder power. 

Second trend: post-closing reorganisation in a more than 95% tender scenario

In addition to "pre-wiring" the post-closing reorganisation as described above, it has also become a trend to apply the post-closing reorganisation (asset sale or triangular legal merger) if more than 95% of the shareholders tender their shares under the offer. The reason is that the bidder wants to get 100% control over the target company’s business as soon as reasonably possible and not await the outcome of the squeeze-out proceedings before the Enterprise Chamber of the Amsterdam Court of Appeals.

However, if the route of the statutory squeeze-out proceedings would be followed, no dividend withholding becomes due on the amount they receive for their shares by the non-tendering shareholders. This supports the view that if the bidder has acquired 95% or more of the shares in the target following the closing of the tender offer, a statutory squeeze-out would provide a fair treatment of the minority shareholders.

Consequently, rather than liquidating the target company (in an asset sale scenario) or Bidco (in the legal triangular merger scenario) statutory squeeze-out proceedings are initiated on the company holding, the cash and the loan note following the asset sale or legal triangular merger (as the case may be).

Third and fourth trends: tender percentage drops further and post-closing reorganisation becomes key transaction

The most important trend in public offers seems the further reduction in tender threshold percentage to increase deal certainty. In the last couple of years, the tender threshold has dropped from 80% to, most recently, as low as 66.6% and even in one instance, as described below, to 0%. 

In line with this trend, in one of the most recent transactions, the post-closing reorganisation became the key or core transaction, rather than the public offer.

This happened in the acquisition by McDermott of Chicago Bridge & Iron Company NV (CB&I). CB&I was a Dutch company whose shares were listed on the NYSE in New York. The Panamanian company McDermott expressed an interest in acquiring CB&I, and the parties reached an agreement on the acquisition.

The deal would be principally structured as an asset deal pursuant to which McDermott would acquire all of the assets and liabilities of CB&I (mostly shares in the subsidiaries of CB&I). The transaction was subject to a simple majority vote (50% plus one) in the shareholders’ meeting of CB&I. In this instance no particular super majority or quorum requirements were applicable.

The CB&I shareholders voted in favour of the asset sale. The asset deal was however not implemented straight away but was rather preceded by a public offer for all shares in CB&I. Interestingly, no minimum tender condition was introduced in the offer documents, in other words a 0% tender condition. Even if not one share would be tendered under the offer, the asset deal would be implemented upon closing of the offer.

The offer was essentially introduced by McDermott and CB&I to allow the CB&I shareholders the ability to escape from the envisaged asset sale. Moreover, even though this may not have been the key driver, tendering the shares under the offer instead of becoming part of the asset sale also had the added benefit that dividend withholding tax would be avoided. This tax would otherwise become due on any liquidation distribution following the post-closing asset sale and the subsequent liquidation of CB&I (see also above).

The CB&I deal is very recent and quite novel, and if the transaction documents are carefully reviewed it is quite evident that CB&I was a company in financial distress and deal certainty was, therefore, of key importance in that transaction.

It remains to be seen whether, in any of the future public offers, the tender percentage will be lowered further, or whether the new deal technology will prevail where the post-closing reorganisation in fact becomes the core transaction and the public offer merely serves as an opportunity for the shareholders of the target company to escape from the contemplated transaction and as added benefit avoid any dividend withholding tax that would otherwise become due (in case of the asset sale or the triangular legal merger).

Draft Legislation for Screening of Acquisitions of Vital Telecommunications Companies

In March 2019, the Dutch government submitted to Parliament a draft of the Dutch Act on Undesired Control in Telecommunications (WOZT). This proposal follows on the EU framework for the screening of foreign direct investments, which has officially entered into force on 10 April 2019. If adopted, the WOZT will amend the Dutch Telecommunications Act to enable the Minister of Economic Affairs (Minister) to prohibit any acquisition that would result in a person obtaining predominant control (overwegende zeggenschap) over a Dutch telecommunications company if this would lead to significant influence over the Dutch telecom sector and compromise Dutch national security or public order.

The proposal provides that "predominant control" in a company can in any event be obtained through the acquisition of 30% or more of the voting rights, the ability to appoint a majority of board members or special governance rights.

Dutch "telecommunications companies" within the scope of the proposed legislation include internet, mobile and fixed telephone providers, and companies that offer other telecommunications services such as internet exchange points, data centres and hosting providers.

In December 2019, the Dutch government published a consultation document for a draft decree relating to the WOZT, which provides further details on thresholds that would give rise to companies having "significant influence over the Dutch telecom sector". Examples of companies that meet the relevant threshold in this draft decree include ISP’s or telephone providers that provide services to more than 100,000 end-users, hosting providers with more than 400,000 .nl-domain names and data centres with a capacity in excess of 40 megawatts.

Parties seeking to acquire predominant control over a telecommunications company that would result in it acquiring significant influence over the Dutch telecom sector are obliged to notify the Minister, who will then initiate an investigation. After the notice, the Minister must decide within eight weeks if he will prohibit the transaction. If required, this period can be extended by an additional six months, in which case parties can move forward with the transaction but with a risk that it may be reversed if the Minister concludes that there is, in fact, a threat to the public interest.

In practice, this means that any person seeking to acquire predominant control over a Dutch telecommunications company will want to condition the consummation of the acquisition upon receiving the consent of the Minister, similar to current practice in merger control clearance.

Draft Legislation for 250-day Statutory Response Time for Dutch Listed Companies When Confronted With a Hostile Takeover Bid or Shareholder Activism

In December 2019, the Dutch government submitted to Parliament a legislative proposal that would allow the boards of Dutch listed companies to invoke a statutory response time of 250 days (also referred to as a "cooling-off period") when confronted with a hostile takeover bid or shareholder activism.

The response time may be invoked in case a hostile takeover bid is announced or made, or a shareholder proposal is tabled for an ordinary or extraordinary general meeting for the appointment, suspension or dismissal of one or more members of the board of directors or an amendment of the company’s articles of association in relation thereto. During the statutory response time, the authority of the shareholders’ meeting to appoint, suspend or dismiss directors of the company is suspended.

The rationale of the draft bill is to allow the board time and composure to consider the merits of the bid or shareholder proposal, weigh these against the interests of the company and its stakeholders and to explore alternatives. The bill was prepared against the background of an ongoing public debate in the Netherlands on the protection of Dutch companies against shareholder activists and hostile takeover attempts, such as the unsolicited takeover attempts on AkzoNobel and Unilever in 2017.

The legislative proposal fits seamlessly in the call by society to restrict shareholder activism. Where a decade (or so) ago the rights of shareholders as providers of capital to the companies were reinforced, the pendulum now moves in the opposite direction. The role of the shareholders should rather be limited not only towards other stakeholders but also in relation to the board(s) of the company.

The key message is long term value creation, which often does not coincide with the typical short-term nature of hedge funds or other shareholder activists. However, the merit of the proposal is, nonetheless, highly contested in Dutch legal literature.

Even though much more can be said about this, a brief summary of the different elements of criticism that has been expressed in relation to the proposal are the following:

  • the current Corporate Governance Code already includes a 180-day cooling off period and even though the scope of the legislative proposal introducing the 250 days cooling off may be somewhat wider, the question is whether the bill has any added benefit;
  • there may in fact be an overlap with the Corporate Governance Code and there is a risk of differences in interpretation between the Code and the bill;
  • there could be tension between the bill and EU law (free traffic of capital);
  • the bill may possibly have an impact on the Dutch stock market as a whole (ie, it underpins the, so called, Dutch discount);
  • the board can invoke the 250 days cooling off, without any initial checks and balances; and
  • the bill potentially limits the dialogue between the company and its shareholders, which could be detrimental to principles of good governance of a company and conflict with the fiduciary duty of the board to entertain a permanent and transparent relationship with its shareholders base. 

Despite the criticism Dutch Parliament has approved the bill. However, the bill is still subject to a vote in the Dutch Senate.

Greenberg Traurig, LLP

Leidseplein 29
1017 PS Amsterdam
The Netherlands

+31 (0) 20 301 7300

+31 (0) 20 301 73 50

info@gtlaw.com www.gtlaw.com
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