In recent years, the Italian law rules (set forth in Legislative Decree 58/1998 and its implementing regulations) governing takeover bids have undergone several changes affecting, inter alia, passivity rule, concerted conducts and derivative instruments in the context of takeover transactions.
On April 5, 2011, after two rounds of public consultation with the market participants carried out in October 2010 and February 2011 respectively, Consob (the Italian Financial Regulator) approved Resolution no. 17731 (the Resolution) that contains several provisions which amend the provisions on takeover bids set forth in CONSOB regulation 11971/99 (Regulation 11971) and complete the implementation in Italy of the EU Takeover Directive (Directive 2004/25/EC) started in 2007. The new provisions came into force on May 2, 2011 except for certain provisions which came into force on April 9, 2011.
The new regulatory framework on takeover bids as amended by the Resolution aims at strengthening minority shareholders’ protection and transparency as well as simplifying requirements and procedures in cases of takeover bids and ensuring equal treatment to foreign and domestic investors. Among the most significant amendments resulting from the Resolution we emphasize the following.
- Concerted Action. With a view to reducing uncertainty as to whether a specific conduct may trigger the joint obligation to launch mandatory takeover bids, the Resolution clarifies the definition of acting in concert. On the one hand, the new provisions contemplated by the Resolution amending the Regulation 11971 identify certain situations which are deemed to constitute concerted action subject to rebuttal. These situations include the existence of family relations or of financial consultancy relations among the persons involved. On the other hand, with the aim to support shareholder activism, the new provisions of the Regulation 11971 introduced by the Resolution expressly exclude from the definition of acting in concert certain situations, such as the cooperation among shareholders for the exercise of minority rights and active participation to governance.
- Equal Treatment to Foreign and Domestic Investors. Certain provisions set forth in Regulation 11971, as amended by the Resolution, simplify the procedures applicable to cross border tender offers of debt instruments by introducing new exemptions from the application of tender offer rules and regulating recognition procedures of offering documents approved by the competent authorities of EU Member States and non-EU states. This aims to align the Italian rules to international practices on liability management and applying the Prospectus Directive rules to exchange public offers of debt instruments, thus reducing transactions costs.
- Derivatives. With a view to reducing the risk of indirect violation of takeover rules, purchases of listed shares carried out through equity derivatives granting a long position over listed shares (including cash settled ones) are to be disclosed and counted towards the thresholds (30 percent and 5 percent) triggering mandatory takeover bids and the relevant offer price. Moreover, the rules on disclosure and fairness to be complied with during the offer period are extended to transactions in equity derivatives granting long positions on the shares of the target.
- Remedies to Pressure to Tender. Where the offer is made by insiders (such as, inter alia, shareholders holding at least 30 percent of the voting capital, directors of the listed company and persons acting in concert with the above mentioned insiders) the new provisions of Regulation 11971 introduced by the Resolution state that in case of success of the offer, the offer period must be re-opened for an additional 5 trading days, thus allowing shareholders who initially decided not to tender their securities to the offer to adhere to such offer. Further, under the new rules, the issuer’s statement on the convenience of the offer shall include separate advice by the independent directors not related to the bidder providing shareholders with an objective evaluation of the offer.
- Protection of Minority Shareholders. The new provisions of Regulation 11971, introduced by the Resolution, better specify the circumstances when a restructuring plan for a distressed company is exempted from the obligation to launch a mandatory tender and also provides for the possibility to benefit from the exemption if such specific circumstances do not occur (subject to approval by shareholders approved without the contrary vote of a majority of minority shareholders).
- Best Price Rule. The best price rule (i.e. the obligation to pay to all shareholders the highest price paid or offered from the announcement relating to the offer launched at a lower price) is extended to the sixmonth period following the end of the offer should the purchase of the financial instruments which are the subject of the tender offer exceed 0.1 percent of such outstanding financial instruments. The best price rule is also extended to equity derivatives.
- Enhancing the Market for Corporate Control. The minimum period during which a voluntary tender offer aimed at acquiring control shall be open has been reduced (from 25 days to 15 days) in order to mitigate the disadvantage of the initial bidder, who bears all the costs connected to the launch of the tender offer. In connection with competing bids, the new provisions of Regulation 11971, as amended by the Resolution, introduce an obligation on the target to disclose to all bidders, upon their request, the same information that it has provided to any one of them, so as to reduce information asymmetries. Constraints on the requirements for the launch of competing bids have also been loosened, by removing the obligation to offer a consideration higher than that of the original offer.
- Price Determination. Eventually, certain new provisions of Regulation 11971, introduced by the Resolution, provide for detailed and specific procedures to determine the offer price, distinguishing cases where the price can be either reduced or increased and restricting Consob’s discretion in amending the price of a mandatory takeover bid and in determining the price in sell-out and squeeze-out procedures.