I. Dutch corporate takeover arena
In 2016 and 2017, the Dutch corporate takeover arena was characterized by the unsolicited bids on PostNL, Unilever and AkzoNobel. The unsolicited bids from BPost, KraftHeinz and PPG, respectively, did not lead to a takeover. It did lead to discussions in the political arena whether Dutch listed companies are sufficiently protected against unsolicited takeovers and shareholder activism. These discussions resulted in a draft legislative proposal, published on 7 December 2018, on the right of the board of management of a Dutch listed company to invoke a cooling-off period of up to 250 days (Proposal). The public was invited to submit comments on the Proposal through an online consultation which ended on 7 February 2019.
This legal insight sets out the background and key characteristics of the Proposal, the reactions following the online consultation and our observations.
II. Background and rationale
Prior to the Proposal, Dutch listed companies were already familiar with the concept of a 'response time', as reflected in the first Dutch Corporate Governance Code (2008). The Corporate Governance Code (Code) provides the board of management with the possibility of invoking a response time (cooling-off period) of up to 180 days from the moment the board of management is informed by one or more shareholders of their intention to put an item on the agenda to the day of the general meeting at which the item is to be dealt with. In such case, the requested agenda items may result in a change to the company's strategy (e.g., a dismissal of one or several (supervisory) board members). The Code is considered to be part of the general principle of reasonableness and fairness which needs to be observed by all stakeholders involved and the compliance with the Code is based on the 'comply or explain' principle.
As a result of the aforementioned attempted takeovers in the last couple of years in the Netherlands, the government published a coalition agreement on 10 October 2017, which describes measures that are intended to shift power away from activist shareholders who are mainly focusing on short-term gains to shareholders and other stakeholders who have an interest in long-term value creation. The statutory cooling-off period of 250 days is first introduced in the coalition agreement.
The Proposal seeks to provide the board of management of a Dutch company listed on a regulated market or multilateral trading facility operating in the European Economic Area, or on any similar stock exchange operating outside the European Economic Area (e.g., Nasdaq and NYSE) with time and peace to consider and weigh the interests of the several stakeholders of the company in the situations as set out below.
III. Key characteristics of the Proposal
The cooling-off period can be invoked by the board of management of a Dutch listed company if:
a) a shareholder requests the board of management to convene a shareholders' meeting to propose the appointment, suspension or dismissal of one or more (supervisory) board members; or b) a shareholder requests the board of management to convene a shareholders' meeting to propose an amendment to the provisions of the articles of association of the company that relate to the appointment, suspension or dismissal of (supervisory) board members; c) a public offer on the shares (or depositary receipts for shares) of the company is made or announced without the Company's support (i.e., hostile offer);
and any of the above is, according to the board of management, in material conflict with the interests of the company and its affiliated business.
During the cooling-off period, the shareholders' meeting cannot validly resolve any of the matters set out under (a) and (b) above, unless proposed by the board itself.
The Proposal furthermore sets out a number of safeguards to prevent the cooling-off period from being invoked arbitrarily:
a) invoking the cooling-off period by the board of management requires supervisory board approval; b) invoking the cooling-off period brings obligatory procedural steps (such as publishing a record of the pursued policy and general course of the business since the cooling-off period is invoked); c) the board of management has to gather all information necessary for a careful decision-making process, as such a dialogue should take place between the board of management and its stakeholders during the cooling-off period. According to the Proposal, stakeholders are, in any case, the shareholders representing 3% or more of the issued share capital of the company, the supervisory board and the works council (if any); and d) shareholders with an interest of at least 3% of the issued share capital may request the Enterprise Chamber of the Amsterdam Court of Appeal for early termination of the cooling-off period.
The cooling-off period ends at the earliest of: (i) the expiration of 250 days; (ii) the hostile offer being declared unconditional (after the expiration of the initial acceptance period); or (iii) the board of management having terminated the cooling-off period prior to completion of the 250 day period.
IV. Reactions on the Proposal
The online consultation predominantly shows submissions not convinced that a statutory cooling-off period should be implemented. Shareholder advisors, such as the Dutch Investors' Association (VEB) and Eumedion, are of the opinion that the board of management could rely on the rights provided in the Code and corporate case law. A statutory cooling-off period, in addition to the existing safeguards, in their view is unnecessary, disproportionate, in conflict with European Law and not in line with the Dutch coalition agreement. The VEB also believes that the Proposal shall lead to unwanted market disruption.
The Dutch Authority for the Financial Markets (AFM) focuses its concerns on the Proposal around the increased risk on insider dealing and market manipulation as a consequence of the statutory cooling-off period. Furthermore, the AFM is of the opinion that the current public offer process and its supervision of this process are reliable, mainly due to the open attitude and the legal predictability of the Dutch market. The AFM is also of the opinion that a cooling-off period could provide (supervisory) board members with disproportionate protection, potentially even when non-performance occurs.
The submissions in favor of the Proposal, such as the Netherlands Confederation of Industry and Employers (VNO-NCV), believe that: (i) the cooling-off period safeguards the interests of the shareholders; (ii) it is an instrument that the board of management can opt to use, i.e., it is not an obligation; and (iii) it is in line with the long-term value creation of the company. Other parties in favor of the Proposals argue that the cooling-off period can provide the board of management with time and peace to identify and weigh the several interests of the stakeholders involved and that the Proposal is in line with the statutory tasks and duties of the board of management.
V. Next steps
Taking into account the various reactions to the Proposal that have been provided during the online consultation process, the Proposal may be subject to further amendments. It is expected that the Proposal shall be submitted to Dutch parliament later this year. There is as yet no exact timeline for when a final draft Proposal will be published and when the Proposal will enter into force.
VI. Our observations
The legislator will need to take the various reactions to the Proposal into due consideration in order to determine whether the scope of the Proposal requires any further amendments prior to submitting the final Proposal to the Dutch parliament. Following the reactions to the Proposal, the legislator will need to weigh the arguments in favor and against the Proposal, such as: (i) the negative impact the Proposal may have on the attractiveness of Dutch companies as a listing vehicle; (ii) whether the Proposal will cause a disruption in the market and the supervision thereof; and most importantly (iii) the necessity of implementing a statutory cooling-off period, taking into account the existing protective measures that are available under Dutch law and the Code. More specifically, the differences between the response time under the Code and the proposed statutory cooling-off period. The notable differences are: (i) the legal effect of the response time under the Code is postponement of a proposal made by a shareholder, while the legal effect of the cooling-off period is suspension of decision-making powers of the shareholders’ meeting; and (ii) the maximum term of the response time under the Code is 180 days while the maximum term of the cooling-off period is 250 days. In our view, the reactions on the Proposal and the differences with the Code give the legislator food for thought.