On 1 October 2015 the revised Dutch Merger Code entered into force. It includes several amendments which are relevant to the M&A practice. The scope of application has been extended to the non-profit sector, liberal professions, and government agencies organised as businesses and operating in the open market. In addition, the assumption of “control” where a majority interest is acquired in a private or public limited company has been made refutable. If a majority shareholder can prove that he has not gained actual control of the company, the Merger Code will not apply. Confidentiality requirements for trade unions have also been made more stringent. And if trade unions choose not to commit to strict confidentiality, the Merger Code will not apply to those unions. All in all, market parties will have to apply the Merger Code more often, but they will also have more ways to ensure that the co-determination process is carried out in an orderly fashion and only applied to situations where an actual change of control occurs.
Merger Code extended to the non-profit sector, liberal professions and government
According to the explanatory notes to the new Merger Code, it may now apply to mergers and acquisitions involving organisations active in the non-profit sector – for example, arts and culture, politics, development aid, health care, child care and education, public housing, and employment services. The Merger Code may also apply to organisations of doctors, lawyers, civil law notaries and what are known as “liberal professions”. Most notably, it may also apply to government organisations. The decisive criteria in determining if these organisations are subject to the Merger CodeDMC are:
- is the entity organised as a business, and
- is it operating on the open market?
“Change of control” assumption in certain takeover situations now refutable
Until now, acquisition or transfer of more than 50% of the shares in a private or public limited company was automatically assumed to constitute a change of control and therefore triggered applicability of the Merger Code. However, a majority shareholder may not always be able to exercise control over the company.
According to the explanatory notes to the new Merger Code, examples include:
- acquisition of a company subject to the Dutch large company regime (“structure regime”) and whose managing directors are therefore appointed and dismissed by the supervisory board;
- acquisition of a private limited company which has issued non-voting shares, or has issued shares with enhanced voting rights to other shareholders;
- acquisition of listed depositary receipts in a public limited company without being granted a voting proxy by the administration office which holds the underlying shares.
Under the new Merger Code, the majority shareholder can refute the assumption of change of control in these situations and prevent the transaction from being governed by the Merger Code.
In addition, two new refutable assumptions of “change of control” have been introduced:
- acquiring the power to appoint the majority of the company’s managing directors or supervisory directors (or the executive directors or non-executive directors in the case of a one-tier board structure);
- acquiring more than 50% of the voting rights in the company’s general meeting.
The explanatory notes to the new Merger Code do not elaborate on why these two assumptions have been added and what situations were envisaged for their application.
The Merger Code and explanatory notes also do not contain rules of procedure or other guidance on how to invoke a transaction being exempt from applicability of the Merger Code by refuting the assumptions. Nevertheless, the option to exempt a transaction from applicability is useful as it avoids having to follow the Merger Code’s notification procedure in cases where there is no actual change of control.
Stricter confidentiality requirements for trade unions
The new Merger Code further details the confidentiality requirements regarding notifications of a contemplated merger or acquisition. Trade unions have to observe strict confidentiality regarding any notification of a contemplated merger or acquisition unless they receive a written statement to the contrary from the parties involved. Trade unions can refuse to observe confidentiality but if they do, the Merger Code will no longer apply to those unions. Trade unions which do not explicitly refuse to observe confidentiality within three business days after receiving notice of a contemplated merger or acquisition are assumed to adhere to the confidentiality requirements.
All in all, the scope of the DMC has been broadened but, more than before, its applicability is limited to situations where there is an actual change of control. The parties involved have more ways to ensure that the co-determination process is carried out in an orderly fashion without disrupting the preparatory phase of a transaction where confidentiality is essential.