In response to the recent increase of takeover attempts of European targets, and more specifically of Dutch companies, the Dutch government has proposed certain measures to protect Dutch companies against (potential) hostile takeovers. These measures are set out in a letter of the Minister of Economic Affairs (the Minister) to Dutch parliament dated 20 May 2017 and have been further explained during a parliamentary debate held on 28 June 2017 and a second letter to Dutch parliament dated 4 July 2017.
Dutch companies have recently been the subject of several (hostile) takeover attempts. The dust around TMG, PostNL, Unilever and AkzoNobel seems to have settled (for the moment), but speculations regarding new potential takeovers are already arising, like recent developments with an activist shareholder at Philips and the likely termination of the current anti-takeover structure of Ahold Delhaize in 2018. All takeover activities have led to a lively public debate about anti-takeover measures in the Netherlands.
Looking back over the last decade, a wave motion can be observed, during which the position of shareholders of Dutch (listed) companies was strengthened inter alia in order to be able to discipline the boards of Dutch companies. However, shortly thereafter questions were raised whether shareholders were not given too many rights. The breakup of ABN AMRO and unrest between the shareholders and the boards at Stork and ASMI triggered such discussions. This led to the introduction of a 180 day response time in the Dutch Corporate Governance Code, providing the board with an opportunity for deliberation and constructive consultation with one or more shareholders seeking a change in the company’s strategy.
In the abovementioned letters, the Dutch government endorses that takeovers are part of the Dutch economy and create opportunities, such as synergy and scale advantages as well as new investments, and keep boards of Dutch companies alert. At the same time the Dutch government stresses that hostile takeovers could also give rise to risks, such as the loss of R&D activities, employment and the ability to offer solutions for social challenges. It would therefore in their view be in the interest of all stakeholders and long-term value creation, if the board were to have sufficient time to carefully weigh up the interests of all stakeholders involved.
Currently, Dutch (listed) companies may implement anti-takeover structures (before their initial listing), inter alia in the form of preferred shares or priority shares, or invoke other measures, such as the abovementioned 180 day response time or the right of enquiry. However, the Dutch government has now provided Dutch parliament with an initial informal proposal discussing four possible measures of additional protection, which would not only apply to Dutch listed companies, but to privately held companies as well.
- One year response time A first proposed measure would be to provide for a statutory basis for the response time with a simultaneous increase of this period to a maximum of 1 year, which can be invoked by the board of a targeted company in the event of a hostile takeover bid or an activist shareholder requesting to convene an extraordinary general meeting of shareholders putting strategy related items on the agenda. In case of a hostile takeover bid, the board of the targeted company should be able to invoke the response time at the point in time when the bid is effected, however, it shall be reviewed whether the board could also invoke this right earlier in the bidding process.During the response time shareholders would not be able to request convocation of an extraordinary general meeting of shareholders against the wish of the company. As a result, (bidding) shareholders could not achieve any changes in the company’s strategy, for example by means of dismissing board members, the sale of a business division or the abolishment of an existing anti-takeover structure. Invoking a response time should, besides discouraging activist shareholders, give board members the opportunity to consider the interest of other stakeholders than just the shareholders’ interests, for example, employment, R&D and environment. It will be at the discretion of the board whether such response time is invoked.This alternative is supported by a group of (former) chairmen of Dutch listed companies (including Shell, ABN AMRO and ING) and the VEUO (which promotes the interests of Dutch listed companies).
- Increase minimum percentage of shares that must be tendered A second proposed measure would be to increase the current threshold of shares which must be tendered before a takeover bid can be declared unconditional. Such threshold currently is 50% plus one share, but thresholds of 80% and 95% are suggested. By giving the board the possibility to lower such threshold, friendly takeovers would not be hampered.This alternative is preferred by Eumedion (which promotes the interests of Dutch institutional investors).
- Simplify issuance of preferred sharesA third proposed measure would relate to anti-takeover structures with preferred shares, which de facto can only be implemented prior to a company’s IPO. In such structure, preferred shares can be issued to an independent foundation (without triggering a mandatory offer), which foundation could then acquire control over the shareholders’ meeting in case of a hostile takeover attempt. With this proposal, a resolution to issue preferred shares at the proposal of the (supervisory) board could only be rejected by the shareholders’ meeting with a two-thirds majority vote, providing Dutch companies (which are already listed) with greater flexibility to implement or extend an anti-takeover structure with preferred shares.
- Response time offer memorandumAccording to the last proposed measure of the Minister, the idea would be that a bidder could only submit its draft offer memorandum for approval to the Dutch supervising authority (the AFM) after the board of the targeted company has been given the opportunity to “respond”. The current bid rules provide that a prospective bidder must submit a draft offer memorandum for approval to the AFM within 12 weeks after the first announcement of the intention to declare a bid. The minimum response time mentioned in this fourth proposed measure would be in addition to this 12 week period.
Legislative proposal prevention unwanted telecommunications control
As a separate anti-takeover measure to protect Dutch companies, a legislative proposal is currently under consultation, which introduces the authority for the Minister to prohibit the holding or acquisition of control over a telecom company, if this could lead to such influence on the telecom sector that national security and public order could be jeopardised. Other vital sectors are currently being reviewed as well.
So far the proposals made by the Dutch government seem aimed at initiating a public debate on the matter. If the Dutch government wishes to pursue introduction of any of its proposals, it will have to submit a formal legislative proposal to Dutch parliament. Before doing so, the Dutch government will have to finalise an assessment of the impact of these proposals on relevant parties.
Furthermore, as also mentioned by the Minister, it should be carefully considered whether these proposed measures are not conflicting with European directives.