The courts of Milan currently are developing case law on a significant issue in Italian takeover law: whether minority shareholders are entitled to claim monetary damages from majority shareholders who have failed to carry out their legal obligation to launch a public tender offer for all outstanding shares upon exceeding a holding of 30 percent of a company.
Mandatory Tender Offers under Italian Takeover Law
Under Italian takeover law, any purchaser who comes to own more than 30 percent of the voting shares of an Italian-listed company must launch a bid for all outstanding voting shares of that company. The rule aims to offer an exit right to minority shareholders on a change of control of a company and to allow them to participate in the “control premium” paid to the seller of a stake conferring on the purchaser more than 30 percent of the voting rights. The same obligation applies if the 30 percent threshold is exceeded jointly by the purchaser and another shareholder with whom the purchaser has made an agreement regarding the governance of the listed company (or patto parasociale). It often is a delicate question of facts and legal interpretation whether or not shareholders are acting in agreement (or “acting in concert,” in takeover terminology) and if such agreement qualifies as a patto parasociale.
The SAI-Fondiaria Case
In the SAI-Fondiaria case currently before the Milan courts, the dispute arose out of whether or not there was a patto parasociale or a concert party relationship between SAI and Mediobanca regarding the listed insurance company La Fondiaria. The background is as follows: Mediobanca held 14 percent of the share capital of La Fondiaria, and SAI held initially 7 percent and then acquired an additional 22 percent stake. If Mediobanca and SAI were acting in concert, the purchase of the 22 percent stake by SAI would have resulted in Mediobanca and SAI jointly holding more than 30 percent of La Fondiaria and, consequently, an obligation to make a mandatory bid would have been triggered under Italian law. Mediobanca and SAI rejected the allegation that they were acting in concert, and the matter went before the Italian stock exchange supervisory authority (CONSOB), the Italian antitrust authority and the Italian courts. However, by the time a decision had been made by the Italian courts that SAI and Mediobanca were acting in concert, La Fondiaria had merged with SAI, and it was too late for the mandatory bid, because the object of the bid was no longer the same. Minority shareholders were aggrieved at having been denied a control premium which would have arisen on a mandatory bid and sued SAI and Mediobanca for the payment of monetary damages. There are currently 11 cases pending before the courts of Milan against SAI and Mediobanca, claiming an overall amount of €155 million in monetary damages.
The question of monetary damages
Italian law is silent on the right to monetary damages for loss arising from a failure to launch a mandatory bid. In fact, administrative sanctions aside, Italian law only provides for two express remedies for failure to launch a mandatory bid: the acquirer cannot vote any of its shares, and the acquirer is required to sell the shares exceeding the 30 percent threshold within 12 months.
In three rulings between June 2005 and October 2006, the Milan Tribunal ordered SAI and Mediobanca to pay monetary damages to minority shareholders, arguing that the failure to launch the mandatory bid was a tort vis-à-vis the other shareholders. Following an appeal by SAI and Mediobanca, in January 2007 the Milan Court of Appeals overruled the first of the Milan Tribunal’s rulings, arguing that Italian law provided for no remedy other than the express sanctions of disenfranchisement and compulsory sale, and hence did not permit a remedy in tort.
Recent Decisions and Outlook
The Milan Court of Appeals’ overruling of the Tribunal of Milan’s decision was not the end of the matter. In May and June 2007, the Tribunal of Milan made two new rulings ordering SAI and Mediobanca to pay monetary damages to minority shareholders on the basis of a breach of contractual or quasi-contractual obligations owed to other shareholders. The ruling builds on the general concept under Italian company law that all shareholders of a company are linked through a “contract of the company” (contratto di società ) and argues that the obligation to comply with Italian takeover law is an implied obligation under that contract. Consequently, the failure to launch a mandatory bid is, at the same time, a breach of a contractual obligation vis-à-vis the other shareholders. The court calculated the amount of damages as the difference between the market price of the shares at the date the bid was due and the hypothetical price at which the bid should have been launched, multiplied by the number of shares held by the claimants at that time.
Whether or not the new concept of contractual liability owed to other shareholders is accepted as law, the recent decisions of the Milan Tribunal demonstrate a strong determination to uphold the case for individual minority shareholders’ protection in Italian takeover law. In light of this development, large investors must seriously consider the risk of minority shareholders’ actions when planning their acquisition strategies, whether they are acting in concert or alone.