Mergers & Acquisitions Q&A Country Guide
This country guide discusses mergers and acquisition (M&A) in the Netherlands, with a focus on private M&A.
The two most common means of a private acquisition are by a share purchase and asset purchase. The big advantage of a share purchase over an asset purchase is that all assets of the target company are acquired. Provided that there are no change of control stipulations, there is generally no need to request approval from third parties. In a share purchase, shares are transferred to the buyer by means of a notarial deed, while in an asset purchase, assets need to be identified and transferred separately in accordance with varying requirements applicable to each asset or liability.
What laws, rules and regulations govern mergers and acquisitions in the Netherlands?
For private acquisition the most important rules can be found in Books 2, 3, 6 and 7of the Dutch Civil Code (DCC). Book 2 deals with corporate and company law and stipulates amongst others that shareholder approval is required for certain significant transactions. Book 2 also contains rules regarding (cross-border) (de)mergers. Book 3 deals with general private law and sets out the most important regulations regarding the entering into binding agreements. Books 6 and 7 specifically deal with entering into contracts and stipulate certain statutory rules which could influence a transaction. Since the rules of Dutch contract law derive from the principle of freedom of contract and consensualism, many statutory rules (contained in Book 6 and 7) are excluded in standard documentation.
Other regulations can be found in the Dutch Corporate Governance Code and (in the context of a public offer) the Competition Act, Works Council Act, Merger Code and certain EU regulations. The Financial Supervision Act and the Public Takeover Bid Decree contain rules for Dutch listed companies that are the subject of a public offer.
Which governmental or regulatory authorities, bodies and/or agencies oversee merger and acquisition transactions in the Netherlands?
Apart from regulatory approvals from the competent competition authorities (both European and Dutch) private M&A transactions are in principle not subject to any form of governmental or regulatory review, unless the transaction takes place in a ‘sensitive’ industry (such as energy, financial sector, health care, etc.). The Netherlands Authority for Consumers and Markets and the European Commission both monitor compliance with competition regulations.
The Authority for the Financial Markets (AFM) is the main body to oversee (public) mergers and acquisitions in the Netherlands.
Are hostile takeovers of a target company common in the Netherlands?
Hostile takeovers do take place in the Netherlands. However, they are almost never successful. Although there is no law that prohibits making a public offer without having the target company’s support, there are many ways in which the target company can protect itself.
Without being complete the most common ways of protecting against a hostile takeover are: (i) set-up of a special foundation which has a call option for cumprefs, (ii) issuance of priority shares, and (iii) limitation of voting rights. In case law it is confirmed that these protective measures are allowed, if and to the extent the target company can reasonably resolve that the measures preserve the status quo and prevent that a takeover will be effected without any consultation and is deemed not to be in the best interest of the company.
Also, Dutch company law provides for some protective measures against an unwanted hostile takeover, such as the recently adopted rules on a response time, when a shareholder meeting is called by a hostile bidder.
In practice the bidder tries to get the board of directors of the target company on board before making an offer. There are some famous recent examples of cases where the board of directors of the target company did not provide the desired support, most notably the failed acquisition of Unilever by Kraft Heinz in 2017, and the bid of PPG on AkzoNobel.
Are there any restrictions placed on mergers and acquisitions in the Netherlands? If so, what are such restrictions and on what types of mergers and acquisitions?
With regard to a private M&A the most predominant restrictions can be found in articles of association and shareholders’ agreements, which may contain clauses that restrict a party from transferring its shares freely.
There are no specific restrictions with regard to foreign ownership under the Dutch law.
In a merger and acquisition transaction, what documentation is required to be prepared and executed?
In the process of negotiating the terms for an asset purchase (APA) or a share purchase (SPA) parties often enter into the following agreements, of which the first draft is often prepared by the seller:
- Non-disclosure agreement;
- Letter of intent;
- Term sheet;
- Sale and purchase agreement;
- Notarial deeds;
In a share purchase, shares are transferred to the buyer by means of a notarial deed, whilst with an asset purchase, assets need to be identified and transferred separately in accordance with varying requirements applicable to each asset or liability.
Are there any charges or fees payable to the relevant authorities, bodies and/or agencies in a mergers and acquisitions transaction? If so, what are the authorities, bodies and/or agencies to which such charges or fees are payable?
There are no charges payable to authorities other than the taxes due, if any.
In an acquisition transaction, what are the roles of the shareholders of the acquiring company and the shareholders of the target company?
Shareholders of the target company often have certain rights deriving from the articles of association or a shareholder agreement, that aim to protect the interest of shareholders. Examples of such rights are the requirement of prior (written) approval by the shareholders’ meeting, pre-emptive rights, tag-along and drag-along rights and anti-dilution rights.
Shareholders of the acquiring company often have to provide prior consent for the transaction. If the new shareholder possesses at least 95% of the shares, the rest of the shareholders can be squeezed out without their consent. The final decision that will lead to the merger or acquisition should be taken by the shareholders. The decision is taken with the same requirements as a change of the articles of association.
In an acquisition transaction, what are the roles of the directors of the acquiring company and the directors of the target company?
The board of directors is the body representing the company. The board is responsible for the daily management of the company. It is confirmed in case law that the board is also responsible for the strategy of the company.
In private transactions the board of the target company will have an active or passive role, depending on the nature of the transaction (MBO, transaction where the board is also the seller, etc.). In public deals the management board (and the supervisory board) have a pivotal role, given the predominant position within the company and the specific power conferred on them by law.
During the course of the due diligence process, what documents are required to be investigated by the appointed professionals of the acquiring company?
During the due diligence all documents that have commercial, legal, financial relevance are reviewed. More specifically, a potential buyer reviews all the (owned and leased) real estate, employment and pension documentation, IP rights, regulatory law, environmental obligations and pending litigation. During a share purchase also corporate matters will be a focus of the due diligence. Subjects as privacy, bribery, corruption, money laundering and competition law are furthermore subject of the due diligence.
If the shares are sold via an auction process, it is common for the seller to provide a vendor due diligence report to the (potential) bidders.
What must be set out in a due diligence report?
The due diligence report will contain the results of the due diligence mentioned in Q9 and lists the summarized and explained findings. Usually, the due diligence report contains a list of red flags that can be used for the contract negotiation.
Possible liabilities and other risks involved with the merger or acquisition are highlighted. This due diligence report serves as evidence for fulfilling the duty of investigation. Negative outcomes of the due diligence can be resolved in different ways. They can be rectified by the seller before the deal is closed, or there can be specific indemnities or general warranties regarding the risks which are identified from the due diligence report. Of course, the identified risks can also give cause for renegotiations about the price of sale.
Is an acquiring company required to disclose the due diligence report to the target company?
In a private merger or acquisition parties can agree to do so, but there is no obligation under the Dutch law. Sharing the report can weaken the position of the buyer during a claim in a later stadium. The seller can easily prove that the buyer was aware of some risks, but still took the risk to go on with the deal. This is the reason that a due diligence report can also be given in the form of an advice. The buyer will never be able to hand this report over to the seller.
It is customary that in the contract documentation clauses are included in respect of the due diligence, such as knowledge qualifiers and disclosure rules.
How are minority shareholders protected in a mergers and acquisitions transaction?
All shareholders, including minority shareholders have certain rights based on Dutch law and the articles of association. Individual shareholders have (limited) rights to information. They should receive all the relevant information to make a considered decision about the merger. The board is obligated to provide all the relevant information regarding the merger and acquisition transaction. When the board fails to provide all the relevant information, especially about the acquisition price, the shareholders can (temporarily) prevent a transaction from proceeding.
Minority shareholders that solely or jointly represent more that 10% of the share capital can address the Enterprise Chamber at the Amsterdam Court of Appeal. The Enterprise Chamber is a specialized court for corporate disputes and has broad powers to intervene in the company. Such powers include the suspension of board directors, temporary transfer of shares, etc.
Are there any industry-specific rules and regulations that apply to a target company?
In public M&A there are some industry specific rules for the financial sector (Dutch Central Bank), the energy sector (the Minister of Economic Affairs), and the healthcare sector (the Healthcare Authority).
How do cross-border mergers and acquisitions transactions operate?
In principle, if a foreign company acquires a Dutch company via a private share transaction no specific changes (as to a strict national transaction) occur.
In the event of a cross-border legal (de)merger, the acquiring company must announce the merger or acquisition in De Staatscourant. Furthermore, a written elaboration on the merger or acquisition should be available for the works council or, in the absence of this body, for the employees, until the transaction is completed. The law of the country where the acquiring company is established, determines when and how the merger or acquisition will be operative.
The merger or acquisition, where the acquiring company is a company under the law of another country within the European Union or the European Economic Area, will be operative in the manner and at the time according to the law of that other country.
Are there any relevant rules and regulations to be observed in cross-border mergers and acquisitions transactions?
With respect to cross border legal (de)mergers there is a special section in de Dutch Civil Code regarding cross-border mergers and acquisitions (article 2:333b and further DCC). In addition, Directive (EU) 2019/2121, is to be implemented before 31 January 2023 in Dutch law.
How does a private merger and acquisition transaction differ from a public mergers and acquisitions transaction?
Private acquisitions and disposals are not governed by a single code or statute as such.
Under Dutch law, the parties are to a large degree free to agree the terms and conditions of the purchase. The DCC sets outs the legal framework for the purchase of shares, a business or assets. Parties often exclude the applicability of certain general provisions regarding remedies, warranties, performance, damages, nullification and termination to avoid these provisions interfering with the contractually agreed regime, for example with respect to a seller’s liability in relation to a purchaser in the case of a warranty breach.
On the other hand, public transactions are much more regulated in the Dutch Civil Code, in article 2:308 and further DCC. The law sets out the formalities which has to be followed during the merger or acquisition. The law also outlines in which situations a merger or acquisition can be annulled.
In light of the COVID-19 pandemic, has the mergers & acquisitions market in the Netherlands been affected?
In March 2020, just after COVID-19 set foot in the Netherlands, the mergers and acquisitions market came to a halt. In the second half of 2020 the market recovered: there was never so much merger and acquisition activity in the Netherlands in a period of six months. An investigation by KPMG shows that the amount of mergers and acquisitions in the Netherlands in 2020 decreased with approximately 15% compared to 2019 (874 => 741). On the other hand, the total value of the mergers and acquisitions in 2020 increased with 8% compared to 2019 (€80 billion => €86 billion).
There has been some interesting post-M&A litigation regarding the question whether the COVID-19 pandemic qualifies as a ‘material adverse change’. Notably is the litigation/arbitration around the GrandVision/ EssilorLuxottica-deal.