Dutch anti-takeover measures
Listed companies often resort to antitakeover schemes to prevent a takeover by a hostile bidder. A hostile bid is a nightmare for most executive directors and therefore (in their opinion) needs be stopped or at least delayed. There are many different measures to take in order to prevent or delay a hostile takeover. Dutch corporate lawyer Martijn Kesler explains the most common antitakeover measures in the Dutch jurisdiction.
Hostile takeover in The Netherlands
Normally, a party interested in acquiring a(n interest in) a company contacts the board of directors to try to reach an agreement on the public bid. If parties cannot come to an agreement it is possible that the bid will be pursued after all, albeit without the blessing of the managing board and/or the supervisory board of the company. Whether or not a bid is considered to be hostile therefore depends on the attitude of the managing board and/or supervisory board.
Limiting the control of shareholders
A hostile takeover bid always takes place via the shareholders. Therefore, the purpose of antitakeover measures is to structure in a way so the shareholders can be controlled.
Different antitakeover schemes
There are different takeover defence mechanisms to be considered. Roughly, we see three categories of antitakeover schemes:
- permanent antitakeover schemes that (e.g.) limit the power of shareholders by issuing depository receipts for shares and giving a Trust Office Foundation the possibility to exercise controle when deemed necessary;
- dormant schemes that only come into effect when the continuity of the company is at risk, and
- ‘Pandora’ schemes that can be applied in the thick of the battle.
Issuing depository receipts as defensive structure
Issuing depository receipts for shares is considered most protective. The shares are legally owned by a Trust Office Foundation who will issue depository receipts for shares. Although the status of a holder of depository receipts and a shareholder is basically the same, there is one crucial difference: in principle, a holder of depository receipts does not have a right to vote. This means that the Trust Office Foundation will retain a great extent of control – also during a potential takeover. Holders of depositary receipts do have the right to start inquiry proceedings before the Enterprise Chamber, though. This means that the policy of the board of the Trust Office can be subject to legal proceedings (provided enough holders of depositary receipts start inquiry proceedings).
Preference shares can be brought to bear in hostile situations. The underlying strategy is to place preference shares at a certain entity (often a foundation as well, which foundation is of course to be controlled by a company-friendly board) prior to a hostile bid. This way, the equity interest that a hostile party accrues will dilute. Often, this scheme will be triggered by giving the entity a call option which can be exercised during an imminent takeover. This defensive strategy was used in the battles between KPN and America Movill as well as the one between Mylan and TEVA. Only downside of this scheme are the costs: while the entity which has the call option is dormant, it still needs to be equipped with an executive board, accounts et cetera in the meantime.
Priority shares provide the holders with specific rights. This could be the right to veto certain decisions, the right to give binding nominations for the appointment of executive or supervisory directors but also limit these. The fact that the control will be centralised within one specific group leads to some erosion of the control of the remaining shareholders.
Furthermore it is possible to take ‘external’ antitakeover measures, also referred to as ‘Pandora’ schemes. These schemes are usually not related to the corporate structure and are often resorted to in the thick of the battle to frustrate a takeover. Examples of these kind of measures are the sale of the crown jewels of a company (the most profitable divisions of the concern) or the sale of ‘poison pills’ which means that certain divisions are (temporarily) transferred to another party than the hostile bidder. Finally the well-known scheme the ‘White Knight’ is worth mentioning. In this scheme the company is looking for an alternative for the hostile bidder. For example in the battle between Mylan and TEVA, Mylan tried to put forward competitor Perrigo as the white knight.
Case law on antitakeover schemes
In the Gucci-case, the Dutch Enterprise Chamber decided that a company who is subject of a takeover is in principle allowed to protect itself. The mere fact that a defensive measure was taken is not sufficient to doubt the correctness of the course of action. However, the specific circumstances need to be considered, e.g. the manner how the antitakeover scheme was set up.
In the RNA-decision from 2003, the Dutch Supreme Court formulated a few points of reference as to which circumstances are relevant for consideration. Following this ruling it is clear that i) a antitakeover measure needs to be necessary to retain the status quo; (ii) the measure has to be temporarily and used for further discussion; (iii) the measure needs to proportionate.
Antitakeover measures in the Netherlands
Taking everything into consideration, it can be concluded that the antitakeover schemes in the Netherlands, especially the one using a Trust Office Foundation, are quite unique. Although antitakeover measures do not provide absolute protection, they can, however, stall a hostile bid. This became clear from the takeover battle between TEVA and Mylan. The conditions laid out in case law need to be obeyed though. Otherwise the Enterprise Chamber could establish mismanagement (with all that this entails).