Following the announcement made by three shareholders representing 99.24% of the share capital of the listed company Utopia S.A. (the “Majority Shareholders”) to exercise their right of squeeze-out of the remaining shares held by the minority shareholders (the “Minority Shareholders”), judicial proceedings have arisen as the Minority Shareholders sought to block the squeeze-out procedure.
Luxembourg legal framework for squeeze-out procedures
Under Article 4 of the law of 21 July 2012 on squeeze-out and sell-out of securities of companies admitted or formerly admitted to trading on a regulated market or which have been subject to a public offer (the “Squeeze-Out Law”), shareholders holding at least 95% of the securities with voting rights (the “Securities”) of a company whose registered office is in Luxembourg and whose securities are listed on a regulated market or offered to the public (a “Listed Company”) may require all remaining holders to sell them their Securities. Such majority shareholders shall however notify the Luxembourg Financial Sector Authority (“CSSF”) prior to exercising their squeeze-out right, then the Listed Company and finally, inform the public without delay, including the remaining holders of the Securities and relevant markets where the Securities are traded.
As part of the squeeze-out procedure, the Majority Shareholders shall, at their own costs, appoint an expert for the valuation of the Securities and the determination of their fair price, according to objective and adequate methods of valuation. The CSSF shall accept the price as fair price and inform of its decision the majority shareholder, the Listed Company and the public, only when no other shareholder has opposed to the price.
Despite the squeeze-out to be mandatorily applicable to the Minority Shareholders, the latter shall have the right to oppose to the squeeze-out project, within one month following the date on which the proposed price of securities was made public. Such opposition shall be made to the CSSF and needs to be submitted together with information regarding the reasons for which the Minority Shareholders consider that the price is unfair, and shall be equally conveyed to the Majority Shareholders and the Listed Company as well.
The CSSF having received such opposition may require the Listed Company to propose five eligible experts for the valuation of the Securities and appoint one of them for a second valuation of the Securities, as of the date of publication of the initial ‘fair’ price. The CSSF shall, in case of opposition, decide of the price to be paid by the MajorityShareholders for the remaining Securities, within a certain delay and publish its decision on its website.
The Utopia S.A. ongoing squeeze-out procedure
In the Utopia case, the Minority Shareholders raised an opposition to the price offered following the announcement by the Majority Shareholders of their intention to exercise their squeeze-out rights. In a decision dated 22 January 2014, the CSSF accepted the opposition formed and requested the company to suggest a list of five experts for a second valuation of the Securities (the "CSSF Decision").
As the CSSF is a public institution subject to administrative laws and procedures, the Majority Shareholders acting before the Luxembourg Administrative Court (the “Court”) (i) filed a motion for summary proceedings to block the CSSF Decision and resume squeeze-out proceedings, and (ii) filed a request to have the CSSF Decision amended or reversed. To back its request for summary proceedings, the Majority Shareholders invoked, among other reasons, the fact that the CSSF decision was disproportionate and would cause them a serious and irreversible prejudice, as they would have to bear the costs of the second valuation of Securities.
On 26 February 2014, the Court acting on summary proceedings rejected the Majority Shareholders’ arguments to block the CSSF Decision and resume squeeze-out proceedings.
On 30 July 2014, the Court ruling on the merits of the case declared not to have subject matter jurisdiction to amend the CSSF Decision as it indicated that the Squeeze-Out Law did not provide for such right to the MajorityShareholders. Regarding the request to have the CSSF Decision reversed, the Court ruled that as the request to have a second valuation was not a final decision, it could not impact the rights of the Majority Shareholders.
The Court further indicated that the Majority Shareholders would be entitled to request the reversal of the CSSF decision determining the "fair price" (i.e. after the second valuation), as it would be final and may harm their interests. Such decision having not yet been taken by the CSSF, the Court rejected the Majority Shareholders' request for reversal.
The Utopia case is not over yet. Once the second valuation will be performed, the CSSF will have three months to publish its decision on what should be considered as the fair price for the Securities, allowing the MajorityShareholders to file a motion to have this decision reversed.
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The Utopia case may open the way for minority shareholders in listed companies to oppose to squeeze-out procedures more often as the CSSF’s scrutiny for squeeze-out procedures rises, while the squeeze-out right as introduced by the Squeeze-Out Law continues to be appealing for majority shareholders in listed companies. The latest example involves the majority shareholder of the listed company ArcelorMittal Luxembourg, who announced on 8 September 2014 its intention to exercise its squeeze-out right against minority shareholders of the listed company and appointed KPMG Luxembourg as its expert for the valuation of the listed company’s shares.