The year 2023 was a challenging one for the Italian M&A market, which witnessed a sharp drop in deal value alongside a more moderate decrease in deal numbers compared to 2022. However, overall figures remained higher than pre-pandemic levels. The decline, especially pronounced in large deals, contrasted with the continued prevalence of mid-market transactions, including domestic ones. Similar to other European countries, factors such as geopolitical concerns, high interest rates, scarce and costly debt financing, disparities in price expectations between buyers and sellers, and uncertainties regarding economic recovery hindered deal activity in 2023. Despite unresolved issues and lingering uncertainties, the first quarter of 2024 has shown promise, including in large-scale deals involving Italian entities. Practitioners anticipate a potential uptick in M&A activity in the coming months.

Energy transition and dealing with Italy’s significant infrastructure (especially digital) gap have been clear trends in the market (eg, KKR’s acquisition of NetCo, TIM’s fixed network business, and Energy Infrastructure Partners’ investment in Plenitude, Eni’s renewable energy business).

Government repositioning is also an important trend with the Italian government investing in NetCo (alongside KKR) and at the same time being expected to sell minority stakes in Poste Italiane (the Italian postal service) and Ferrovie dello Stato (the Italian railway group).

Banking consolidation is also widely expected, although it has not yet materialised. Aerospace and defence M&A is another clear trend across Europe.

Also, in the first quarter of 2024, volumes have picked up compared to the first quarter of 2023, mainly due to lower debt costs and the narrowing gap between sellers’ and buyers’ price expectations.

Sectors that have witnessed significant M&A activity in Italy over the past 12 months include energy and utilities, tech, healthcare, luxury and other consumer goods, and TMT (technology, media and telecommunications).

The main techniques for acquiring an Italian company are as follows:

• share deals – these involve the acquisition of shares of the target company;
• asset deals – these entail acquiring the target company’s business as a going concern;
• “mixed” deals – these refer to the acquisition of shares of a newly established entity to which the target company contributes its business as a going concern; and
• mergers – this method is less frequently used.

In the first three cases, consideration may be in cash or, less frequently, in securities issued or held by the acquirer (eg, exchange offers), or a combination of both. In the case of a merger, the consideration may only consist of shares, as Italian law does not provide for cash-out mergers.

Where the target company is listed, most acquisitions take the form of share deals, which are structured in one of two ways:

• two-step transaction – this involves the private acquisition of a controlling stake from the major shareholder(s) of the target company, governed by a sale and purchase agreement, followed by a mandatory tender offer (MTO) for all the remaining shares of the target company (see 6.2 Mandatory Offer Threshold); or
• one-step transaction – this involves a voluntary tender offer (VTO) for all the target’s shares, often supported by commitments from the target’s main shareholder(s) to tender their shares in the offer (see 6.11 Irrevocable Commitments).

In both cases, the transaction may also involve a rollover by selected selling shareholders of the listed target.

The primary regulator for M&A activity involving Italian listed companies is CONSOB (Commissione Nazionale per le Società e la Borsa), the Italian regulator for the stock market and listed companies. Among its responsibilities are overseeing tender or exchange offers, share issues, corporate governance rules, public disclosure, and compliance with market abuse regulations.

Other regulators that may be involved in an Italian public (or private) M&A transaction include the antitrust authority for merger control review (see 2.4 Antitrust Regulations), the Italian government for national security review (see 2.6 National Security Review) and sector-specific regulators if the target company operates in a regulated industry. Examples include the Bank of Italy (and/or the European Central Bank) for acquisitions of banks and other financial institutions, IVASS (Istituto per la Vigilanza sulle Assicurazioni) for acquisitions of insurance companies, and AGCOM (Autorità per le Garanzie nelle Comunicazioni) for acquisitions of telecommunications companies.

Foreign investment in Italy may be subject to restrictions in certain sectors deemed relevant for national security, such as defence, energy, transport, communications, finance, and others, based on the EU FDI Regulation. These restrictions vary depending on the nationality of the investor, the sector involved, and the percentage of shares or voting rights acquired by the foreign investor in the target company (see 2.6 National Security Review).

Regardless of the sector of investment, if a foreign country imposes restrictions on an Italian investor seeking to establish or acquire a company in that country, Italy applies reciprocal limitations to citizens or companies from that country wishing to invest in Italy.

Business combinations involving companies with turnover in Italy are subject to pre-closing notification requirements under Italian merger-control laws, specifically Italian Law No 287 of 10 October 1990, as amended. These requirements apply if (i) the business combination results in one or more companies acquiring lasting control over one or more other companies, and (ii) the applicable Italian turnover-based notification thresholds are met. However, no notification to the Italian Antitrust Authority is necessary if a business combination meets the thresholds for notification to the EU Commission.

Instead, under certain conditions, business combinations below the applicable Italian thresholds may also require notification to the Italian Antitrust Authority.

Once a business combination has been notified to the Italian Antitrust Authority, there is no obligation to wait for clearance before completing the transaction (ie, no standstill obligation). However, in practice, buyers often request that Italian antitrust clearance be made a condition precedent to closing, to avoid potential post-closing problems in case clearance is ultimately denied or is subject to certain conditions or undertakings.

Acquisitions of Italian companies through asset deals or mergers are subject to both EU and Italian legislation regarding the Transfer of Undertakings (Protection of Employment). This legislation includes certain information and consultation obligations in favour of trade unions if the business involved in the transaction has more than 15 employees.

Conversely, acquisitions conducted through share deals typically do not require prior consultation with trade unions. However, such a requirement may be mandated by the national collective bargaining agreements applicable to workers in a few specific sectors. For example, the national collective bargaining agreement in the banking sector stipulates consultation with unions in the event of a change of control transaction.

Additionally, collective bargaining agreements applicable to the executives or employees of the target company may contain other provisions relevant to the acquisition or subsequent management of the target group. For instance, according to national collective bargaining agreements for executives in certain sectors, executives of target companies subject to a change of control acquisition, whose positions are materially affected by the transaction, have the right to resign as good leavers within a certain timeframe after the closing.

Investments in Italian companies operating in certain industries or holding certain strategic assets, mainly (but not exclusively) by foreign investors, are subject to prior review and approval by the Italian government for reasons of national security. Depending on the sector and nationality of the investor, a filing may be necessary not only for acquisitions of controlling stakes but also for stakes as low as 3% (in defence) or 10% (in other sectors, if the investor is non-EU). The Italian government has the authority to impose restrictions, conditions or undertakings upon the acquirer or the target company. The government may even prohibit the acquisition altogether, but this has only happened in a few cases so far.

Significant M&A-related court decisions or legal developments in Italy in the last three years include the following.

• A ruling by the Italian Supreme Court (Corte di Cassazione) in October 2021 confirmed the enforceability in principle of put options entitling a shareholder who has invested in a company to sell its equity interest to another shareholder at a fixed strike price that allows the put option holder to recover its entire investment. This issue, which is particularly relevant for minority acquisitions and shareholders’ agreements, had been the subject of debate among lower courts.
• The use of buyer-side warranty and indemnity insurance policies in Italian M&A transactions has increased significantly, mainly, but not only, in transactions involving financial investors as sellers. There is also a more frequent use of management warranty deeds signed by the target’s senior management when the seller is unable or unwilling to provide the buyer with the business representations and warranties to be insured.
• In July 2022, the new Italian Insolvency and Restructuring Code (Codice della Crisi) came into force, including with a view to implementing in Italy an EU directive on restructuring proceedings. The new code has brought about a significant overhaul of the Italian insolvency and restructuring framework, with an impact on distressed M&A, which may now take place in the context of multiple restructuring frameworks.

The main Italian rules on takeovers have not undergone recent amendments or updates. However, the recent enactment of the so-called Capital Markets Bill (DDL Capitali) introduced several changes affecting Italian listed companies, potentially impacting public M&A transactions. These changes include the following.

• There has been an increase in the number of votes for loyalty shares of listed (or soon to be listed) companies and multiple voting shares (prior to listing), allowing up to ten votes per share in each case. Over time, this change may facilitate stock-for-stock M&A deals, as controlling shareholders of the acquirer will no longer fear dilution of their governance rights. Additionally, this change may raise pricing issues in the case of mandatory tender offers on ordinary shares triggered by the acquisition of multiple voting shares, which typically lack a market price as they are not listed.
• There has been an expansion of the number of listed companies eligible to benefit from the rules applicable to small and medium-sized companies (SMEs) issuing listed shares. This expansion is achieved by raising the maximum capitalisation threshold for SMEs to EUR1 billion from EUR500 million. Consequently, these companies can now enjoy less stringent regulations regarding transparency in takeover bids and ownership structures.
• The obligation to disclose in detail all transactions on shares of a listed company carried out by shareholders holding at least 10% of the voting rights and by shareholders with a controlling interest has been abolished. This previously applied even if the threshold for the disclosure of significant shareholdings (see 4.2 Material Shareholding Disclosure Threshold) was not met.

It is uncommon for a bidder to accumulate a stake in an Italian listed target prior to launching a tender offer, primarily due to several hurdles (see 4.3 Hurdles to Stakebuilding).

The main strategies for building a stake involve acquiring shares in the market or utilising derivative instruments related to the listed shares, such as call options or total return equity swaps. Both approaches are subject to disclosure requirements if the bidder reaches certain actual or potential shareholding thresholds in the target company (see 4.2 Material Shareholding Disclosure Threshold and 4.5 Filing/Reporting Obligations).

Any person who crosses, upwards or downwards, one of the following thresholds in an Italian listed company must disclose it within four trading days: 3% (applicable only to companies with a market capitalisation of at least EUR1 billion), 5%, 10%, 15%, 20%, 25%, 30%, 50%, 66.6%, and 90%. Disclosure is made through a form submitted to the listed company and to CONSOB, which then publishes a summary.

These disclosure thresholds:

• are calculated as a percentage of the total number of voting shares of the listed company (or, if the listed company has loyalty shares or multiple voting shares granting more than one voting right, of the total number of voting rights outstanding from time to time); and
• apply not only to actual holdings (ie, the listed target company’s voting shares), but also (excluding the 3% and 90% thresholds) to –
1. potential holdings held through call options or other physically or cash-settled derivatives or other long positions on the target company’s shares; and
2. the aggregate of actual and potential holdings.

The main hurdles to stakebuilding in Italy include:

• the relatively low disclosure thresholds applicable to the acquisition of both actual holdings (ie, voting shares) and potential holdings (ie, call options and other physically-settled or cash-settled derivatives or other long positions) – see 4.2 Material Shareholding Disclosure Threshold – which thresholds cannot be lowered or raised by the listed company itself;

• the requirement for a national security review, to the extent applicable to the acquisition of minority stakes in certain sectors (see 2.6 National Security Review);
• the standstill obligations often imposed on a potential bidder by the main shareholders or the board of directors of the target company once the potential bidder has entered into discussions with them about a possible bid;
• the prohibition – stemming from the EU Market Abuse Regulation (Regulation (EU) No 596/2014 of 16 April 2014, as amended) and its implementing EU and Italian laws and regulations – to carry out transactions while in possession of “inside information” (eg, price-sensitive non-public information) concerning the listed target company or its financial instruments (this may be relevant, for example, in a scenario where, as is often the case in Italian public M&A transactions, the bidder is already negotiating a potential takeover bid/control transaction with selected shareholders of the target – or possibly the board of directors of the target – or, in some cases, is carrying out a limited due diligence on the target); and
• stakebuilding purchases may impact the price to be paid for the target shares in a subsequent mandatory offer, as the price offered in a mandatory offer cannot be lower than the highest price paid by a bidder during the 12 months preceding the official announcement of the offer.

Dealings in derivatives as a means to carry out stakebuilding are generally permitted, subject to the disclosure requirements outlined in 4.5 Filing/Reporting Obligations. Additionally, potential specific and temporary restrictions on short-selling may be set by market authorities.

As indicated in 4.2 Material Shareholding Disclosure Threshold, the obligation to disclose the crossing of certain shareholding thresholds in an Italian listed company applies not only to actual shareholdings (shares with voting rights) but also to potential shareholdings held through call options or other physically or cash-settled derivatives, or other long positions on the company’s shares, and to the combination of actual and potential shareholdings. Disclosure is made by submitting a form to the listed company and to CONSOB, which publishes a summary thereof.

The thresholds triggering disclosure obligations for potential or combined shareholdings are 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 66.6%. These thresholds are calculated as a percentage of the total voting shares of the listed company (or, if the listed company has loyalty shares or multiple voting shares granting more than one voting right, the total number of voting rights outstanding from time to time).

In principle, and subject to possible exceptions in particular situations, the acquisition of a potential shareholding through derivatives does not trigger merger control notification obligations under Italian competition law. Such obligations typically arise only with respect to the actual acquisition of the underlying shares, provided that the notification conditions set forth in 2.4 Antitrust Regulations are met.

Any shareholder who acquires at least 10%, 20% or 25% of the total voting shares of a company listed on the Italian main stock market (or, if the listed company has loyalty shares or multiple voting shares granting more than one voting right, the total number of voting rights) must disclose their intentions for the following six months. This disclosure must be made within four trading days and sent to the listed company and to CONSOB, which publishes it. The disclosure should include the following points:

• how the acquisition was financed;
• whether the shareholder is acting alone or in concert with other persons, including intentions regarding any shareholders’ agreements concerning the target to which the shareholder is already a party;
• whether the shareholder intends to continue acquiring shares and/or to acquire control or exercise a dominant influence over the management of the company, along with the strategy to achieve this result; and
• whether the shareholder intends to change the composition of the board of directors or the board of statutory auditors (collegio sindacale) of the company.

If any of the above intentions change during the six-month period, the disclosure must be updated accordingly.

However, disclosure is not required if the acquisition of a 25% or greater holding triggers a mandatory tender offer, as in this case the bidder’s intentions will be announced in a separate disclosure relating to the tender offer.

Pursuant to the EU’s Market Abuse Regulation (Regulation (EU) No 596/2014 of 16 April 2014, as amended), Italian listed target companies are obliged to immediately disclose any “inside information” to the public via a press release. Inside information refers to information that is:

• precise in nature;
• not publicly available;
• price-sensitive; and
• directly or indirectly related to the listed target company.

In protracted processes like the preparation and negotiation of a public M&A deal, any intermediate step, as well as the future end result (or even a future intermediate step), may  qualify as precise enough to trigger a disclosure obligation of the listed target that is involved or aware of the process. This includes situations where a potential bidder approaches the target’s board for permission to conduct due diligence. While there are no hard and fast rules and the assessment must be made by the target on a case-by-case basis considering a number of elements (including the extent to which the consideration to be offered to the target’s shareholders has been determined and the degree of likelihood of the offer being completed), inside information may arise as soon as a potential bidder sends a non-binding offer letter to the target’s board or enters into a non-binding letter of intent with the target’s major shareholders.

However, the listed target company may opt to delay the disclosure of inside information under the following conditions:

• immediate disclosure would likely prejudice the legitimate interests of the target, such as, arguably, pursuing and possibly completing an M&A transaction in the interest of the target and its shareholders;
• delaying disclosure is not likely to mislead the public; and
• the target can ensure and maintain confidentiality (ie, no leaks).

Listed targets frequently opt to postpone the disclosure of inside information regarding potential M&A transactions until the execution of binding agreements or the first public announcement by the bidder, as long as the conditions for deferral outlined in 5.1 Requirement to Disclose a Deal, including ensuring confidentiality, remain satisfied.

In the context of negotiated business combinations involving Italian listed companies, due diligence is typically limited compared to private transactions for several reasons. Firstly, a substantial amount of public information is already available on listed targets. Secondly, conducting a broader and more extensive due diligence increases the risk of leaks. Therefore, due diligence is usually limited to a “confirmatory” exercise focusing on a short list of selected relevant items. This is carried out through access to a restricted data room and one or more Q&A sessions or presentations with the target’s senior management.

The practices surrounding due diligence were not significantly impacted by the pandemic, as the trend towards virtual data rooms and remote meetings was already well established before the pandemic surged.

Before engaging in discussions or negotiations with a potential bidder, the main shareholder(s) or the board of the target company typically demand that the bidder agrees to standstill obligations concerning the target shares. These obligations are intended to prevent the bidder from making a hostile bid or engaging in share-building activities.

Conversely, bidders often seek exclusivity undertakings from the major shareholder(s) with whom they are negotiating. Exclusivity or no-shop undertakings by the target itself are less common, primarily due to legal constraints on the target’s board.

Most Italian listed companies have one or more controlling shareholders. Therefore, bidders typically negotiate the acquisition directly with these controlling shareholders rather than with the target board before launching a bid. If negotiations prove successful, the bidder and the controlling shareholder(s) usually enter into either (i) a sale and purchase agreement for the controlling stake held by the controlling shareholder(s), in the case of a two-step transaction (private acquisition followed by a mandatory tender offer for the remaining target shares), or (ii) undertakings by the selling shareholders to tender their shares in the case of a one-step transaction (voluntary tender offer for all of the target shares). Such agreements typically lack a detailed description of the terms and conditions of the tender offer, unless the transaction involves a rollover by the main shareholders of the target. In such cases, the co-investment/framework agreement between the bidder and the rollover investors is also likely to govern the mandatory or voluntary tender offer to be launched by the bidder.

As acquisitions are typically negotiated solely with the main shareholders of the target company, definitive agreements between the bidder and the target company governing the bid are rare. However, in negotiated transactions where the target company is directly involved as a party, such as in a merger, the scenario may vary.

The duration of the acquisition or sale process for an Italian private or listed company varies depending on several factors, such as:

• the length of negotiations with the selling/major shareholder(s) of the target;
• the time required to seek and obtain the regulatory approvals necessary to complete the transaction, such as merger control, foreign direct investment (FDI), or sector-specific regulatory approvals; and
• in the case of a public M&A deal involving a tender offer –
1. the time required to carry out the tender offer process, from the initial official announcement to the final settlement; and
2. the transaction structure chosen.

Typically, a two-step transaction involving private acquisition of control followed by a mandatory tender offer will take longer than a one-step transaction consisting of a voluntary tender offer only.

On average, a private M&A deal or a one-step public M&A deal could take between three and six months, whereas a two-step public M&A deal could take between seven and nine months.

A mandatory tender offer (MTO) is triggered by the acquisition of voting shares or voting rights in an Italian listed company which, when combined with the existing holdings of the acquiring person (and any persons acting in concert with them), surpasses certain thresholds based on the total number of voting shares or voting rights in the listed company:

• 25% if the company is considered large (ie, it has a market capitalisation of at least EUR1 billion) and no other shareholder holds a higher stake;
• 30% if no other shareholder possesses more than 50%; or
• for shareholders already holding between 30% and 50%, any increase in their holding exceeding 5% over a rolling 12-month period.

However, the MTO will not be triggered if these thresholds are exceeded due to a voluntary takeover bid for all the voting shares of the target company or in other exceptional circumstances (eg, temporary threshold crossing, mergers approved by independent minorities, intragroup transactions, or recapitalisation of distressed companies).

Cash Versus Shares

Cash tender offers are more prevalent than exchange offers in Italy due to several factors:

• exchange offers are legally more complex as they often involve a capital increase in kind by the bidder, necessitating approval by the bidder's shareholders;
• if the shares offered in the exchange offer are not listed on an EU regulated market, certain obligations arise –
1. if the exchange offer is an MTO, the bidder must also provide a cash alternative to target shareholders; and
2. if the exchange offer is voluntary, the bidder would not be exempt from the subsequent obligation to launch an MTO if it surpasses an MTO threshold during the voluntary offer; and
• core shareholders of the bidder may resist dilution caused by new shares issued as consideration.

Bridging the Value Gap Between Buyer and Seller

Various tools are employed in private acquisitions to bridge value gaps between the parties, including:

• partial rollover by the seller in the buyer’s shares, allowing the seller to share in any future value appreciation of the buyer’s group;
• earn-out mechanisms, where a portion of the purchase price is contingent upon the target’s future performance;
• pre-closing carve-outs, where specific businesses or parts of the target group are sold separately if undervalued by the buyer;
• vendor loans or deferred payment terms; and
• asset swap transactions.

While these instruments are, in principle, also available in public M&A transactions, they are less common in this context (except, probably, the rollover route), as they may introduce a number of complexities.

Voluntary takeover bids are irrevocable, but may include conditions that must be satisfied for the bid to complete. These conditions cannot be dependent on the bidder’s will.

Common conditions include:

• minimum acceptance threshold – the bid may be contingent upon a minimum percentage of shares being tendered by target shareholders (see 6.5 Minimum Acceptance Conditions);
• regulatory approvals – the bid may require approval from regulatory authorities, such as merger control, FDI, or sector-specific regulatory approvals; and
• absence of adverse events – conditions may include the absence of –
1. a material adverse effect;
2. actions by the target outside the ordinary course;
3. defensive actions by the target; or
4. decisions by government authorities prohibiting or complicating the transaction.

These conditions can typically be waived by the bidder, except for certain mandatory regulatory approvals.

Mandatory tender offers may not include any conditions.

The most common minimum acceptance conditions used in voluntary tender offers depend on the bidder’s intentions.

Acquiring Control of the Company

• 50% + 1 of the voting shares: this provides the bidder with mathematical certainty of controlling ordinary shareholder resolutions (eg, approval of the annual accounts and dividend distributions, and appointment of the board of directors).
• Two thirds of the voting shares: this provides the bidder with mathematical certainty to control not only ordinary shareholder resolutions but also extraordinary shareholder resolutions (eg, capital increases, mergers and demergers, and amendments to the by-laws).

Delisting and Taking the Company Private

• 90% + 1 of the voting shares: this allows the bidder to conduct a “sell-out” procedure leading to delisting and possibly a subsequent “squeeze-out” (see 6.10 Squeeze-Out Mechanisms).
• 95% of the voting shares: this allows the bidder to “squeeze-out” the remaining shareholders (see 6.10 Squeeze-Out Mechanisms).

Bidders often initiate the voluntary tender offer with a minimum acceptance condition but retain the right, with certain restrictions, to waive or reduce the threshold for such condition before the completion of the tender offer.

A tender offer cannot be contingent upon the bidder obtaining financing. The bidder must have all the necessary financing secured before the offer actually commences. Specifically:

• at the announcement of the decision to launch a voluntary tender offer or when the event triggering a mandatory tender offer occurs, the bidder must ensure it will have all the funds required to complete the offer when the time comes; and
• before the tender offer period begins, the bidder must obtain and provide CONSOB with a cash confirmation, typically in the form of a first demand bank guarantee, covering the total consideration for the tender offer.

As most Italian listed companies are controlled by one or more shareholders, bidders typically negotiate the acquisition, and seek deal protection measures, directly with and from these controlling shareholders, instead of the target’s board of directors, before launching a tender offer. From a deal protection standpoint, bidders often prefer a two-step transaction approach over a one-step transaction:

• in a two-step transaction, the bidder first privately acquires a controlling stake, followed by a mandatory tender offer for the remaining shares (this approach provides stronger deal protection because the sale and purchase agreement governing the private acquisition can fully bind the selling shareholder(s)); and
• on the other hand, in a one-step transaction, the bidder conducts a voluntary tender offer for 100% of the target’s shares, often supported by commitments from main shareholders to tender their shares (however, these commitments to tender are subject to statutory provisions that allow shareholders to withdraw from the tender offer (see 6.11 Irrevocable Commitments), providing less certainty for the bidder).

Deal protections granted by listed targets are rare. Listed targets typically only offer substantive undertakings, such as no-shop or exclusivity agreements, in negotiated transactions where the target is directly involved, such as mergers. In the context of a tender offer, it is uncommon for listed targets to provide deal protections. Break fees or reimbursement arrangements for a bidder’s expenses in the case of an unsuccessful tender offer are also unusual. Implementing such measures may raise fiduciary duty issues for the target’s directors.

A bidder aiming to establish control over a target listed company without pursuing 100% ownership or delisting would typically seek to attain an aggregate shareholding percentage that confers control over voting outcomes on both ordinary and extraordinary shareholder resolutions (refer to 6.5 Minimum Acceptance Conditions). This approach usually hinges on reaching a percentage that guarantees control, considering the average attendance rate of the target’s shareholders’ meetings.

To secure governance rights, the bidder may enter into shareholders’ agreements with other shareholders. These agreements have a maximum duration of three years (five years for non-listed companies) and may involve other shareholders committing to vote in alignment with the bidder’s instructions, often in exchange for certain minority governance rights.

As a general principle, shareholders of an Italian listed company can vote at shareholders’ meetings either directly or through a proxy. They have the option to grant their proxy to a person of their choosing or to a common representative appointed by the company.

However, under the recently enacted Capital Markets Bill, Italian listed companies now have the option to amend their by-laws to allow for closed shareholders’ meetings, where participation is limited to a representative designated by the company. In such cases, shareholders would grant their proxies exclusively to this designated representative. This amendment to the by-laws requires approval by a two-thirds majority of those attending the extraordinary shareholders’ meeting.

In Italy, the “squeeze-out” mechanism is the sole method for a bidder to acquire 100% ownership of a listed company. This mechanism becomes available under specific circumstances following the completion of a tender offer for the voting shares of the listed company.

Here’s how the squeeze-out mechanism operates:

• If a bidder acquires at least 95% of the company’s voting shares as a result of a tender offer for 100% of the shares, the bidder has the right to purchase all the remaining voting shares within three months. The intention to exercise this right must be declared in the tender offer document published before the offer period commences.
• If the bidder acquires (through a tender offer or otherwise) more than 90% of the voting shares, but fails to restore a sufficient free float, it must make an offer to all remaining shareholders to acquire their voting shares. This offer is conducted through a “sell-out” procedure, which results in the de-listing of the company’s shares. Often, this procedure also enables the bidder to reach the 95% threshold required for the squeeze-out right to be exercised.

It is common for a bidder to seek, and often obtain, irrevocable tender commitments from major or selected shareholders of the target listed company. Negotiations for such undertakings are usually conducted shortly before the announcement of the voluntary tender offer for the target shares, as the bidder typically wishes to announce both the acquisition/tender offer and the undertakings received in connection therewith.

Commitments to tender, which must be fully and promptly disclosed, do not provide the bidder with complete certainty on the success of the transaction because – by operation of Italian law (and thus irrespective of any contractual provisions) - shareholders may unilaterally terminate their existing commitments to tender in case of a competing offer.

This is one of the reasons why bidders in Italy often prefer to structure the transaction not as a one-step voluntary offer supported by undertakings to tender given by the major shareholders, but rather as a two-step transaction consisting of the “private” acquisition of a controlling stake from the major shareholders pursuant to one or more sale and purchase agreements (which are not subject to any statutory out in the event of a competing offer), followed by a mandatory offer for all the remaining shares of the target company.

The bidder must formally announce the offer by means of a detailed press release, including all material terms of the offer, which must be published promptly after the bidder has decided to launch the offer in the case of a voluntary offer. In the case of a mandatory offer, the announcement must be made promptly after the occurrence of the transaction or other circumstance that causes the bidder to exceed a relevant MTO threshold in the target company.

If the mandatory offer follows a prior transaction, such as the acquisition of more than 25% (where applicable) or 30% of the voting rights in the target, the public announcement of the prior transaction will usually include a reference to the launch of a subsequent mandatory offer.

Under EU regulations, when new shares are offered to the public or admitted to trading on an Italian regulated market in connection with either (i) a takeover by means of an exchange offer, or (ii) a merger or demerger, a disclosure document (also known as an “exemption document”) must be prepared instead of a full prospectus to enable investors to make informed investment decisions. The exemption document should contain sufficient and comprehensible information about:

• the prospects of the issuer and, depending on the nature of the transaction, of the target company or the company being incorporated or demerged, including significant changes in their business and financial position since the end of the previous financial year;
• the rights associated with the equity securities; and
• the transaction itself and its impact on the issuer.

In addition, under Italian law, the shareholders of the relevant company (offeror, incorporating entity in the merger, demerging entity) must be provided with an information document on the transaction if the latter exceeds certain materiality thresholds and the company has not opted out of this disclosure obligation.

The exemption document referred to in 7.2 Type of Disclosure Required must incorporate the annual (and half-yearly) standalone and consolidated (if applicable) financial statements released within the 12 months prior to the publication of the exemption document. Additionally, depending on the nature of the transaction, financial statements may also be required from the company being acquired, the company being incorporated, or the company being demerged. These financial statements must be prepared in accordance with either International Financial Reporting Standards (IFRS) or local Generally Accepted Accounting Principles (GAAP) if the relevant company is not compelled to use IFRS. In the event of particularly significant changes, defined as variations of more than 25% in one or more indicators of the size of the issuer’s business, pro forma financial information must be included. Such pro forma financial information should be accompanied by a report prepared by an independent auditor.

In the case of an exchange offer, the offer document must include financial statements for the last two financial years for the bidder and the issuer, if the offeror is the controlling shareholder of the issuer.

In the context of public disclosures related to a transaction, such as the initial press release announcing the transaction or the detailed press release announcing the decision or obligation to launch a tender offer, it is customary for the relevant material terms of the transaction documents to be described or mentioned. However, the bidder is generally not obliged to provide a full copy of the transaction documents to the public.

There is an exception to this rule when the transaction documents contain provisions that constitute “shareholders’ agreements” involving a company listed on the main Italian stock market or one of its parent companies. Shareholders’ agreements comprise various arrangements, such as voting or consultation agreements, certain other governance provisions, share transfer restrictions, or commitments to tender shares in a takeover bid. In such cases, a full copy of the relevant provisions constituting the shareholders’ agreements must be provided to CONSOB and the listed company, and it must also be filed with the Companies Registry. Consequently, this document, in principle, becomes accessible to any person interested in reviewing it.

The main duties of directors in the context of a business combination consist of the duties of care and loyalty to pursue the interests of the company and its shareholders by maximising the value of their investment. This includes tasks such as determining the exchange ratio in a merger, negotiating the terms of an acquisition, or facilitating the successful conclusion of a tender offer that is deemed beneficial for the generality of the shareholders. While these duties primarily benefit the company and its shareholders, directors must also consider the positions of other stakeholders, particularly the company’s creditors.

It is uncommon for boards to establish special or ad hoc committees in business combinations involving unaffiliated counterparties.

However, a board committee consisting of independent directors plays a significant role in two scenarios:

• transactions, including business combinations, undertaken by listed companies with related parties – material related-party transactions require, among other things, a favourable opinion from a committee comprising independent and unrelated directors regarding the company’s interest in pursuing the transaction and the adequacy and fairness of its terms; and
• tender offers initiated by insiders – the board’s opinion of the offer must be preceded by a separate opinion from a committee of independent directors.

Over the years, Italian courts have grown more hesitant to question directors’ decisions or to intervene to assess their merits. Consequently, Italian courts typically refrain from analysing the substance of decisions made by directors in takeover situations. Instead, they focus on reviewing the directors’ conduct and scrutinising the decision-making process to determine if the directors acted diligently in the interest of the company and its shareholders (as discussed in 8.1 Principal Directors’ Duties) and based on sufficient information.

In the case of a tender offer, the board of directors of the target company is required to provide a comprehensive and well-reasoned opinion regarding the offer and the fairness of the offer consideration. If the offer is made by an insider, such as the controlling shareholder, a director, or an executive officer of the target company, or individuals acting in concert with them, the board’s opinion must be preceded by a similarly well-reasoned opinion from the target company’s independent directors who have no affiliations with the bidder. Both the full board and the independent directors typically engage independent financial advisers to obtain one or more fairness opinions and seek legal counsel. Additionally, in related party transactions (as discussed in 8.2 Special or Ad Hoc Committees), the committee of independent and unrelated directors typically seeks support from independent experts and legal counsel when issuing opinions on the transaction’s terms.

Any director with a vested interest in a transaction (including an M&A transaction) must promptly disclose this interest to the other directors and the board of statutory auditors. An interested director holding the position of chief executive officer (amministratore delegato) must abstain from executing the transaction and refer it to the entire board. In such cases, upon disclosing the interest, the board resolution must clearly state the reasons why the transaction is still beneficial to the company. Other directors (and the statutory auditors) have the right to challenge the resolution if the interested director(s) failed to disclose their interest or if the resolution, approved with the decisive vote of the interested director, was detrimental to the company. Breaches of these duties may render the director personally liable for any resulting losses suffered by the company.

Shareholders’ resolutions passed with the decisive vote of conflicted shareholders can also be legally challenged if they are detrimental to the company.

In cases of conflict of interest or lack of independence by advisers, they may be disqualified, and their opinions rendered irrelevant. Additionally, depending on the circumstances, such advisers could be exposed to liability.

Given that most Italian listed companies are controlled by a single shareholder or group of shareholders, a bidder intending to acquire control of a listed company usually begins negotiations with the target’s controlling shareholder(s) before engaging the target’s board of directors to potentially gain access to selected due diligence materials. Should the negotiations (and the due diligence exercise, if any) yield favourable outcomes, the bidder can proceed to launch a friendly tender offer.

Under the “passivity rule”, any defensive measure adopted by the target company necessitates shareholder approval. While the target company’s by-laws may grant the board of directors the authority to implement defensive measures without shareholder approval, this practice is highly uncommon for Italian listed companies.

Exceptions to this rule include actions carried out in accordance with pre-existing decisions that were already partially or entirely implemented prior to the bid announcement, as well as activities conducted in the ordinary course of business. Additionally, efforts to explore alternative bids are not classified as defensive measures requiring shareholder approval.

Because of the “passivity rule” outlined in 9.2 Directors’ Use of Defensive Measures, defensive strategies such as poison pills, dilutive share issuances, or the selling of valuable assets (often referred to as “crown jewels”) are not prevalent in Italian takeover bids.

As mentioned in 9.2 Directors’ Use of Defensive Measures, according to the “passivity rule”, the authority to approve defensive measures lies with the shareholders of the target company rather than with the board of directors. This means that the board of directors cannot implement such measures without obtaining prior approval from the target company’s shareholders’ meeting.

When a tender offer is launched, the board of directors of the target company is required to provide its opinion on the fairness of the offer consideration and other terms of the offer. However, the decision as to whether or not to tender shares is ultimately left to the discretion of the company’s shareholders.

As mentioned earlier, it is important to note that directors are not permitted to enact defensive measures against an announced takeover offer without first obtaining approval from the target company’s shareholders.

Conversely, when the board is directly approached (eg, with proposals of business combinations through mergers or asset deals), directors may “just say no” if they deem that the proposed transaction is not in the interest of the company.

M&A-related disputes in Italy have traditionally been frequent. However, over the past three years, there seems to have been a decrease in the number of new disputes. Most cases involve small and medium-sized M&A deals, possibly because transaction documents in smaller deals are often less sophisticated. The overall decreasing trend in M&A-related disputes may also be attributed to the declining volume of M&A deals (see 1.1 M&A Market).

Pre-closing litigation often revolves around liability arising from interim arrangements like letters of intent, memoranda of understanding, or term sheets. Determining the binding nature of such documents typically involves a detailed analysis of the facts. Express statements declaring their non-binding nature may not definitively influence the case’s outcome, particularly if the parties have progressed significantly in negotiations, justifying pre-contractual or even contractual liability, provided that the transaction’s essential elements had been agreed upon.

Post-closing disputes commonly stem from breaches of representations and warranties or special indemnities provided by the seller to safeguard the buyer against specific events. Breaches of representations and warranties constitute the most frequent source of M&A litigation.

In public M&A deals, shareholders may bring claims against the bidder after the transaction’s completion, such as regarding the determination of the minimum price of the mandatory tender offer, or less commonly, against directors for breaching their duties.

Under Italian law, several grounds could be invoked to avoid or delay the performance of pending transactions or excuse non-performance due to the pandemic outbreak in early 2020. These include:

• statutory force majeure;
• termination for supervening impossibility;
• the right to obtain a revision of obligations or to withdraw from the agreement for partial impossibility;
• termination of the agreement for supervening hardship; and
• the application of contractual clauses conditioning the buyer’s obligation to complete the transaction in the absence of a “material adverse change” (MAC) occurring between signing and satisfaction of all the other conditions precedent to closing.

While Italian courts have not shown a clear and consistent trend in these matters, the buyer’s ability to invoke a MAC condition largely depends on the specific language of these provisions. For instance, some clauses may exclude changes affecting “general market conditions” unless disproportionately impacting the target. This suggests the importance of careful negotiation and precise drafting of such clauses in future agreements.

Shareholder activism plays a significant role in Italy, as several corporate governance rules grant substantial powers of intervention to activists. For instance, the appointment of one or more directors is relatively simple through the statutory slate voting system applicable to Italian companies listed on the Italian main regulated market, which may also allow the appointment of the chairman of the internal control body (collegio sindacale). Another instrument is the request to convene an ad hoc shareholders’ meeting or to supplement the agenda of an already convened meeting with a relatively small percentage of shares. Activists may also take minority positions with the aim of blocking transactions that require an extraordinary resolution with a two-thirds supermajority or to prevent the bidder from reaching the delisting or squeeze-out thresholds (see 6.10 Squeeze-Out Mechanisms).

Classic shareholders’ activism campaigns targeting companies’ strategies have been less common in Italy in comparison with other key European jurisdictions.

Aims of activists include:

• influencing the target company’s strategy, such as pushing for the sale of certain business units, modification of the business plan, or change in management, without necessarily gaining control of the board;
• gaining control of the board in companies without a controlling shareholder or in cases of de facto control, with relatively low shareholdings; and
• blocking de-listing or other extraordinary transactions.

These typical objectives do not appear to have been significantly affected by the pandemic and appear to be pursued less frequently in Italy than in other comparable jurisdictions.

In addition to blocking de-listings or transactions requiring an extraordinary shareholder resolution, activist funds may also aim to interfere with take-private transactions launched by controlling shareholders when they deem the offer price too low. This interference can take various forms, such as writing to the board or promoting public campaigns to advocate for higher offer prices or better terms for minority shareholders.