The Enterprise Chamber of the Amsterdam Court of Appeal was recently asked to give a ruling on the reference date used in determining the buy-out price after a tender offer. Until this ruling, the Enterprise Chamber’s approach was that the reference date was equal to the date of the final court ruling. This approach can no longer be relied on. From now on, the reference date of the shares will be the settlement date of the tender offer.

This judgment is of great importance to all those involved in buy-out proceedings, since the price of the shares on the date of the tender offer might considerably differ from the price of the shares on the date of the final court ruling.

In this case a buy-out procedure was initiated on the basis of article 2:92a Dutch Civil Code, which requires that the majority shareholder hold at least 95% of the issued share capital in the target company. The majority shareholder did meet this requirement and was therefore allowed to buy out the minority shareholder. The majority shareholder claimed that the price of the shares should be set at the offer price under the tender offer and argued that this offer price was fair and that the tender offer had recently been launched. This position differed from the usual method of the court.

According to the statutory provisions, the court has to determine the reference date. Since 2000, this date had been based on the date of the final court ruling allowing the buy-out. That was logical, because the minority shareholder is the provider of risk-bearing capital until the share transfer date. Moreover, the advantages and disadvantages related to the shares have to remain for the account and risk of the minority shareholder for as long as he remains a shareholder. The Enterprise Chamber ruled furthermore that this principle does not preclude that the price of the shares to be transferred is set at the offer price, as long as certain conditions are met. The conditions include that the offer was accepted on a large scale, only a short time passed between the offer and the date of the final ruling, and there were no reasons to assume that the value of the shares had increased since the offer.

In this recent decision, the Enterprise Chamber saw reason to reconsider its policy, especially because it leads to complications. For example, doubt could arise about the question of whether the time between the offer and the date of the final ruling is “short” enough to automatically stay in line with the offer. Also, if the reference date coincides with the date of the final ruling, one cannot assume that interim payments are deducted from the buy-out price. Lastly, such a policy requires that in cases where one cannot automatically follow the offer price, up-to-date information be available with regard to the target company, which can be used as a basis to determine the price of the shares. Here, the importance for the target company to keep its business information secret could conflict with the fundamental principle of adversarial proceedings. The Enterprise Chamber found that these three complications impede the conclusion of buy-out proceedings within a reasonable time and at a reasonably cost for parties.

The Enterprise Chamber also considered that a buy-out procedure is often mentioned in the offering circular. In that case, shareholders cannot retain their shares even if they want to. Also, the identity of the target company changes as a result of the takeover, and this invalidates the argument that the minority shareholders have to continue bearing the risk. Thirdly, in practice a certain amount of time passes between the date of the information that the price is based on and the date of the final ruling. Lastly, the claim filed with the court has to be increased if the value of the shares declines during the buy-out procedure. This will often lead to extra time and costs.

Based on these considerations, the Enterprise Chamber decided that in a buy-out procedure after a tender offer, the price of the shares should be set at the offer price. The reference date is thus brought forward. According to the Enterprise Chamber, this approach does justice to the interests of both parties, it strengthens the legal certainty and it speeds up the process. Unexpected circumstances could always occur in a case which justify another date being chosen as the reference date. For example: if there is a long period between the settlement date of the tender offer (or the 95% threshold being passed) and the day that the claim is filed with the court.