Foundation Mylan sets up its takeover defence against takeover by TEVA
Yesterday it became known that the Dutch Foundation Preferred Shares Mylan has set up its takeover defence to protect itself against the hostile takeover by TEVA. Dutch corporate law offers listed companies the possibility to defend themselves against such takeovers. In the following, corporate lawyer in The Netherlands Martijn Kesler explains the basis: when are such antitakeover measures allowed and how do they work?
Why are antitakeover measures necessary?
Antitakeover measures are set up to prevent a hostile takeover. A takeover is considered hostile when there is a bid on the shares, without such a bid having the consent of the board of management and/or the supervisory board of the company. This situation is often a nightmare for the managing directors. A takeover bid is always done through the shareholders. The purpose of antitakeover measures is therefore to organize the company structure in such a way that the shareholders can be controlled.
Several forms of antitakeover measures
There are several forms of antitakeover measures. For example, ‘possessory constructions’ regulate that shareholders can only have indirect control. This is arranged, for example, by only giving the shareholders control of another entity than the company itself. Another measure is to establish foundations to prevent takeovers, which can, for example, issue shares with additional controls. These foundations are often ‘dormant’, but if these foundations are activated this often means that a hostile bid is pending. The Netherlands is fairly unique in such antitakeover measures.
Additional measures that Mylan can take
It is also possible to take ‘external’ antitakeover measures, also called Pandora constructions. These measures often have nothing to do with the company structure and are often used in the heat of the battle to frustrate a takeover. These measures are called, for example, ‘crown jewels’, whereby the profitable components of the group company are sold, or ‘poison pills’, whereby an attempt is made to (temporarily) transfer certain components to another party than the hostile bidder. Finally, there is the well-known ‘white knight’ construction where an alternative party to the hostile bidder is being sought. The question is whether all of this is allowed. The authority that can verify this promptly is the Enterprise Division.
Antitakeover construction sometimes justified
One of the most authoritative rulings in this respect is the RNA/Westfield ruling from 2003. In this ruling the Supreme Court assessed several antitakeover constructions. The Supreme Court ruled that setting up antitakeover constructions can be justified if these constructions are intended to ensure the continuity of the company and the interests linked to the company.
It will therefore have to be assessed whether setting up these measures was reasonable, considering the negotiations with the party intending to take over the company, and whether these measures are permanent or only temporary. If the measure is permanent, this means that, in principle, the antitakeover measure cannot so easily be considered justified.
Activating the antitakeover measures: dilution
Just by ‘pressing a button’, the Foundation Preferred Shares Mylan activated the call option and acquired 50% of the Mylan shares. This means that the voting rights of the current shareholders are diluted. These shares often also have special control rights, which means that the current shareholders have significantly less control. In light of a potential takeover, applying a ‘poison pill’, selling the ‘crown jewels’, or searching for a ‘white knight’, this can a very welcome development.