In 2020, the COVID-19 pandemic heavily impacted the M&A market. Most M&A activity in the Netherlands came to a halt in the first half of 2020, shortly after the “first wave” and the subsequent lockdown imposed by the Dutch government. As the Netherlands was slowly and steadily moving out of the strict lockdown, the M&A market started to slowly adjust to the “new normal”. Deal activity picked up in the second half of 2020 and remained strong through to year-end, with the largest deal being the EUR17.2 billion acquisition of the Thyssenkrupp’s Elevator Technology Business by a consortium led by Advent and Cinven.
The geopolitical issues such as Brexit have had a great impact on European markets, although the focus has mainly shifted to the ongoing COVID-19 pandemic, ensuing lockdowns and the effects thereof. Despite the foregoing, the Netherlands can still be considered an increasingly important investment destination, given its geographic location, its internationally oriented infrastructure, and its supportive fiscal climate for international companies and independent courts.
Since 2019, the Netherlands has had a commercial court that specialises in hearing complex (international) commercial issues that offers parties to business and trade disputes a forum where they can litigate in English before neutral, specialist commercial judges. Lastly, the Netherlands has picked up in capital markets activity with its stock exchange Euronext growing at pace.
The impact of the COVID-19 pandemic on businesses has been seen in the form of an increase in businesses teetering on the brink of insolvency or administration processes. Some of these businesses, have been able to survive with the stimulus measures of the Dutch government, among which the Temporary Emergency Measure for Job Retention (the "NOW") has been the most important and relevant one for many businesses. A rise of distressed M&A is expected for the second half of 2021.
Many companies applied for the NOW, the state aid measure offered by the Dutch government to companies in distress that fulfilled certain criteria. The eligibility criteria and the further terms and conditions of the NOW-measure depends on the version applied for by the company, among which the prohibition to pay out bonuses and dividends and to buy-back shares in the company have been the most relevant. Advanced payments made under the NOW may be reclaimed (in part or in full) under certain conditions or if the criteria under the NOW are not or no longer met.
The global trend of countries becoming increasingly protective of their national security and strategic economic interests, has become even more prominent and pressing with the COVID-19 pandemic and the fear of governments for “corona bargain hunters” eyeing their “national treasures” and/or distressed target (listed) companies. This has had an effect on the international M&A market. The Foreign Investment Framework Regulation that was introduced by the European Commission in 2019, became fully operational on 11 October 2020 (see 2.3 Restrictions on Foreign Investments).
Furthermore, in the Netherlands specifically there has been a rise of protectionist political sentiments as well. Following the takeover battle for KPN, the Dutch government adopted the Act against undesired control in the telecom sector which enables the Dutch government to prevent takeovers of telecommunication companies of vital importance to national security and started a public consultation for an act introducing a screening mechanism for investments into Dutch critical infrastructure and high-end sensitive technologies (see 2.6 National Security Review). Additionally, the legislative proposal to introduce a 250-day statutory response time for Dutch listed companies in case of an unsolicited public bid is currently pending in the Senate (see 3.2 Significant Changes to Takeover Law).
Activity was positive in a variety of sectors with industrials and chemicals, telecom, business services, financial services, technology, and energy and utilities all taking a place in the top sector breakdown of the year. Overall, technology took the largest share, showing that this has become 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.
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. It 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.
Sector-specific supervision is conducted by:
At this time, there are no national restrictions on foreign direct investments (FDIs) 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 11 October 2020 the EU regulation establishing a European screening mechanism for FDIs in the EU (FDI Regulation) and the co-operation mechanism envisaged by the FDI Regulation became fully operational.
This means that EU member states and the EC will be able to exchange information and raise concerns related to specific FDIs and can intervene in relation to FDIs which affect the EU member states’ security or public order. 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:
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.
EU Merger Control Regulations
According to the EU Merger Control Regulation, the EC is the competent regulator for (larger) business combinations that meet the following thresholds:
The personnel perspective in mergers and takeovers is regulated by the Works Councils Act, the Merger Code and, potentially, in a certain collective labour agreement (CLA), pursuant to which Works Council advice has to be sought respectively relevant trade unions should be consulted.
Works Council Advice
The prior advice of the Works Councils from both sides of the transaction must be requested timely and within a reasonable timeframe, to allow the Works Councils’ advice to be of meaningful influence on the intended transaction. If there is only a Works Council at a lower or higher level in the respective group, it may not be necessary to obtain any Works Council advice in relation to the transaction.
Works Council advice is typically requested shortly prior to signing the SPA, APA or Merger Agreement. The Works Council 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 Works Council must render its advice.
If the decision to enter into the transaction ("Decision") deviates from the Works Council’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 Works Council. During this period, the Works Council 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 Works Council.
Labour Union Consultation
Labour Union consultation pursuant to the Merger Code is with respect to timing and procedure broadly similar to the Works Council 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 adopted, on 19 May 2020, the Act Against Undesired Control in the Telecom Sector that protects important Dutch telecom companies against takeovers that risk Dutch national security or public order. Pursuant to this, 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 their controlling interest in the telecom company to under 30%, or by prohibiting a shareholder from exercising its voting rights, amongst other means.
With regard to the national security review regimes referred to above, these fall within scope of the FDI Regulation (see 2.3 Restrictions on Foreign Investments). Notifications pursuant to the aforementioned national security review regimes will need to be notified by the Minister of Economic Affairs and Climate Policy to the EC and the EU member states, if the investing party is from outside of the EU.
The Introduction of Screening Mechanisms
In September 2020, the Dutch government proposed and started a public consultation for an act introducing a screening mechanism, meant to prevent unsolicited investments of Dutch critical infrastructure (this will most likely encompass the following (non-exhaustive) sectors: energy, transport, water supply and network sectors) and high-end sensitive technologies (this will at a minimum encompass goods and services subject to export control, including manufacturing of goods with military or dual use application).
Although the adoption of such act has been postponed due to the COVID-19 pandemic, the Dutch government announced that part of the proposed investment screening will enter into force with retroactive effect as of 2 June 2020. As a result thereof, investments in Dutch critical infrastructure or high-end sensitive technology made after 2 June 2020 that are imposing or are expected to impose a serious threat to national security may be subjected to retroactive screening and measures.
In response of the COVID-19 pandemic, an Emergency Act came into force, which, inter alia:
A public register of Ultimate Beneficial Owners (UBOs) was introduced on 27 September 2020. Pursuant thereto, all newly established legal entities must submit specific information of their UBO(s) for public registration with the Dutch Trade Register, and existing legal entities will be required to submit such information no later than 27 March 2022.
Furthermore, the Act on the confirmation of private restructuring plans came into force on 1 January 2021, which functions as a new global restructuring tool to support business continuity and recovery. With the WHOA a Dutch court can approve a private agreement between a company and its creditors and/or shareholders regarding the restructuring of debts. Court approval will make the scheme binding on all creditors and shareholders that are a party to the scheme. Creditors/shareholders that had not agreed to the scheme can also be bound to the scheme by the court, provided that the decision-making on and the content of the composition meets certain legal requirements.
Bankruptcy, Viability and the Pandemic
With respect to the COVID-19 pandemic, the Dutch courts have agreed to exercise restraint in declaring bankruptcies and when deciding on requests for leave for (prejudgment) attachments, taking the pandemic and the economic consequences into account as relevant circumstances. For companies that would have been viable without the COVID-19 pandemic, Dutch courts have expressed that they will not allow strategic bankruptcy requests that serve the only purpose of forcing a company to pay debts of certain forceful creditors.
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 House of Representatives adopted the legislative proposal on 8 September 2020 and the proposal is currently pending in the Senate.
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.
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. 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 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, target company boards may be unwilling 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.
The COVID-19 pandemic has given rise to a unique set of issues for businesses, especially in private M&A transactions. Parties will need to consider how the pandemic has affected the target and its business, and whether the valuations of the target requires adjustments. With the pandemic accelerating the realisation of the need for more sustainability, the continued focus on ESG will likely result in companies expanding their customary scope of due diligence to also cover ESG-related matters.
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 "merger protocol", as discussed in 5.1 Requirement to Disclose a Deal, where 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 they will proceed with the bid or announce that they do 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 they have 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 their 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, they 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.
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.
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 will proceed with its bid and when the draft offer memorandum is expected to be filed with the AFM, before which they 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 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. 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.
Bidder Transparency and Choices
For the bidder, it is important to ensure sufficient transparency about their 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.
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, 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 their 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 they intend to proceed with the bid. If so, they are 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:
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 (see 2.5 Labour Law Regulations), the parties will have to provide the Works Council with all information that the Works Council deems necessary to perform its duties. This could mean that the Works Council will have to be provided with transaction documents (or for example a summary thereof). The request for information from the Works Council 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 their 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. An internal organisation must be established 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. 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, 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 their duties to the best of their 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 they 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.
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. 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 they have to deal with interests that are so incompatible with those of the company that it can be reasonably doubted whether they were 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 they will exercise their options or sell their 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.
"Material" Transactions with "Related Parties"
Listed companies are now obliged to make a public announcement when entering into a "material" transaction with a "related party" that is either not in the ordinary course of business or not concluded on normal market terms. A related party is defined as:
"Material" transactions with related parties are subject to approval by the supervisory board (in case of a two-tier board), the management board (in case of a one-tier board) or, in the event there is neither a supervisory board nor a one-tier board, the general meeting, whereby the related party is not allowed to partake in the decision-making for the approval of such "material" transaction. No approval is required when subsidiaries of listed companies enter into a material transaction with a related party of the listed company, although such transaction still requires a public announcement to be made. Conflict of interest rules, the related party transactions rules and best practice provisions of the Dutch Corporate Governance Code on related party transactions can overlap and apply alongside each other in cases of transaction with "related parties" (as defined in such rules and (best practice) provisions).
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 is a 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.
he 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.
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. 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.
The NCC ruled in a summary proceedings on whether parties came to a final agreement and whether there are any compelling reasons to modify or mitigate a contractual break-up fee in an aborted acquisition of an equestrian show-jumping business due to "unforeseen circumstances". In that case, parties entered into a letter of intent (LoI) pursuant to which parties should either close the deal by the agreed date or pay a EUR30 million break-fee. The buyer neither wanted to close the deal, nor pay the break-fee, arguing that the break-fee should be annulled or mitigated by the NCC due to the COVID-19 pandemic, as it qualified as an "unforeseen circumstance". In its judgement, the NCC did not dismiss the unforeseen circumstances argument in general, but considered that the break-fee implicitly provided for a risk allocation between parties if a circumstance such as the COVID-19 pandemic occurs.
In a similar case before the District Court of Amsterdam, the court ordered Nordian Capital to proceed with the signing of a SPA with the owners of J-Club. The parties entered into a signing protocol, to which an "agreed form" SPA was attached. The signing of the SPA was only made subject to Nordian Capital taking out W&I insurance.
Nordian Capital wanted to abort the deal, claiming that they could not obtain W&I insurance and that they wished to postpone the transaction pending further assessment of the effects of the COVID pandemic and governmental measures on J-Club and the transaction, the owners of J-Club lodged summary proceedings against Nordian Capital. The court ruled that Nordian Capital, by signing the signing protocol, had committed to the share purchase transaction, and that Nordian Capital had not honoured its best efforts obligation to obtain W&I insurance. In addition, as the possible consequences of the COVID-19 pandemic were discussed but no MAC-clause or specific COVID-19 related clauses were included in the SPA, the court further ruled that the COVID-19 pandemic did not qualify as an "unforeseen circumstance".
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. 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.