Structures and applicable lawTypes of transaction
How may publicly listed businesses combine?
There are three principal methods used to acquire an Irish public company: a takeover offer, a scheme of arrangement and a cross-border or domestic merger. A purchaser may pay in cash, securities or a combination of both.
The bidder may make a general offer to the target shareholders to acquire their shares, which must be conditional on the bidder acquiring, or having agreed to acquire (pursuant to the offer or otherwise), shares conferring more than 50 per cent of the voting rights of the target. The bidder may compulsorily require remaining shareholders to transfer their shares on the terms of the offer if it has acquired, pursuant to the offer, not less than 90 per cent of the target shares to which the offer relates, for companies listed on regulated markets in the European Economic Area (EEA) and 80 per cent on other markets (eg, the New York Stock Exchange (NYSE), Nasdaq or AIM). Dissenting shareholders have the right to apply to the High Court of Ireland (the High Court) for relief.
The most commonly used structure for the takeover of an Irish target is by way of a scheme of arrangement, either by a transfer scheme (shares are transferred to the bidder in return for consideration) or a cancellation scheme (shares are cancelled in return for consideration). To become binding on shareholders, the scheme of arrangement requires the approval of a majority in number of the shareholders of each class, representing not less than 75 per cent of the shares of each class, present and voting, in person or by proxy, at a general, or relevant class, meeting of the target company, together with the sanction of the High Court.
A cross-border merger is a statutory procedure under the European Communities (Cross-Border Mergers) Regulations 2008 (the Cross-Border Mergers Regulations) providing for business combinations between Irish companies and other EEA incorporated companies. A cross-border merger requires the approval of not less than 75 per cent of the votes cast, in person or by proxy, at a general meeting of the target shareholders, together with the sanction of the High Court. A domestic merger is a statutory procedure under the Companies Act 2014, as amended (the Companies Act), which facilitates business combinations between Irish companies and is based on the Cross-Border Mergers Regulations.Statutes and regulations
What are the main laws and regulations governing business combinations and acquisitions of publicly listed companies?Irish Takeover Panel Act, the Takeover Regulations and the Takeover Rules
The Irish Takeover Panel Act 1997, as amended (the Takeover Act), the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006, as amended (the Takeover Regulations) and the Irish Takeover Panel Act 1997, Takeover Rules 2013 made thereunder (the Takeover Rules) primarily apply to change-of-control (acquisition of shares carrying 30 per cent of voting rights) and certain other M&A transactions involving an Irish registered target with voting shares (currently or in the last five years) admitted to trading on Euronext Dublin, operated by the Irish Stock Exchange plc (ISE), on another market operated by the ISE (eg, Euronext Growth or the Atlantic Securities Market) or on the London Stock Exchange (LSE) (including AIM), the NYSE or Nasdaq.
The Takeover Regulations and the Takeover Rules also apply to change-of-control transactions involving an Irish registered target with voting shares admitted to trading on one or more regulated non-Irish markets in the EEA, and a non-Irish registered target with voting shares admitted to trading on one or more regulated markets in the EEA including Ireland (but not in its country of incorporation).
The Takeover Rules, which are based on seven general principles set out in the Takeover Act (the General Principles), contain detailed provisions applicable to the conduct of takeovers. The spirit, as well as the strict reading, of the Takeover Rules and the General Principles must be adhered to. Among other matters, the General Principles provide that target shareholders be afforded equivalent treatment and sufficient time and information to reach a properly informed decision on an offer.
The Takeover Rules are not concerned with the financial or commercial advantages or disadvantages of a takeover or other relevant transactions. They include mandatory bid rules, share-dealing restrictions, confidentiality and disclosure obligations, and restrictions on frustrating actions.
The Takeover Rules are administered and enforced by the Irish Takeover Panel (the Takeover Panel), which has statutory powers to make rulings and give directions to ensure the Takeover Act’s General Principles and the Takeover Rules are complied with. The Takeover Panel operates principally to ensure fair and equal treatment of all target company shareholders in relation to takeovers (whether structured by way of an offer or a scheme of arrangement) and certain other relevant transactions.
The Companies Act
The Companies Act is the core statute that regulates the governance and internal affairs of an Irish company, including the principal fiduciary duties of directors.
The Substantial Acquisition Rules
The Irish Takeover Panel Act 1997, Substantial Acquisition Rules 2007 (SARs) are a separate set of rules issued and administered by the Takeover Panel, which restrict the speed at which a person may increase a holding of voting shares (or rights over voting shares) in a target to an aggregate of between 15 per cent and 30 per cent. The main aim is to give target companies adequate warning of stake building.
The Competition Acts
The Competition Acts 2002 to 2017, as amended (the Competition Acts) established the Competition and Consumer Protection Commission (CCPC), which is primarily responsible for the enforcement of the Irish merger control regime. Depending on the size of the transaction, the parties and their operations in Ireland, a takeover may be required to be notified to and approved by the CCPC under the Competition Acts.
Combinations and acquisitions where at least two of the undertakings generate turnover of €10 million or more in Ireland and the undertakings together generate turnover of €60 million or more in Ireland must be notified to the CCPC prior to completion. There are criminal penalties for a failure to notify. The initial process typically takes 20 to 30 working days for mergers that do not raise potential competition concerns. There is a short-form notification for transactions meeting the relevant criteria (either ‘no overlap’ cases or overlapping cases where the combined market share is less than 15 per cent for horizontal overlaps and 25 per cent for vertical overlaps). However, parties should exercise caution in notifying overlapping cases using this procedure.
Larger transactions involving multiple jurisdictions may require notification to and approval by the European Commission under Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings.
The Market Abuse Regulation
Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2004 on market abuse (MAR) and the European Union (Market Abuse) Regulations 2016 regulate insider dealing and market manipulation by imposing significant obligations on issuers.
The Cross-Border Mergers Regulations
The Cross-Border Mergers Regulations apply where the transaction involves a merger of an Irish incorporated entity with at least one other EEA company.
The EU Prospectus Regime
The EU prospectus regime is designed to reinforce investor protection by ensuring that all prospectuses, wherever issued in the EU, provide clear and comprehensive information while making it easier for companies to raise capital throughout the EU on the basis of approval from a single competent authority.
Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 (the Prospectus Regulation) regulates public offers of securities, provides for exemptions from the scope of the prospectus regime, a simplified disclosure regime for secondary issuances, changes to public offer exemptions and the introduction of a new frequent issuer regime.
Part 23 of the Companies Act, which governs prospectus law, was amended by the Finance (Tax Appeals and Prospectus Regulation) Act 2019. These amendments included the alignment of certain definitions in the Companies Act with the Prospectus Regulation, an increase of the application threshold for the Prospectus Regulation from €5 million to €8 million and certain changes to the local offer regime in relation to the content of the local offer document.
The Transparency Regulations and the Transparency Rules
The Transparency (Directive 2004/109/EC) Regulations 2007, as amended (the Transparency Regulations), the Central Bank of Ireland (the Central Bank) guidance on the Irish transparency rules in November 2018 (the Transparency Rules), and the Central Bank (Investment Market Conduct) Rules (SI No. 366 of 2019) seek to enhance the transparency of information provided by issuers on a regulated market by requiring certain disclosure for public companies.
Companies whose shares are listed on Euronext Dublin, Euronext Growth or the Atlantic Securities Market must comply with Euronext Dublin rule book (the Listing Rules), Euronext Growth rules and Atlantic Securities Market rules (respectively). The ISE website contains market and regulatory information applicable to listed companies and provides access to the various listing rules and the Irish Corporate Governance Annex published by the ISE (the Irish Annex). The UK Corporate Governance Code, as supplemented by the Irish Annex, is also applicable to these companies.
Irish companies listed on markets outside Ireland, such as Nasdaq, the NYSE and the LSE (main and AIM markets), are subject to additional rules applicable to those markets.
Some sectors have special rules and additional regulators. In particular, regulated financial services businesses are subject to rules that require change-of-control consent from the Central Bank; media mergers are subject to the approval of the CCPC and the Minister for Communications, Climate Action and Environment (the Minister); and Irish airlines are subject to foreign control restrictions.
Memorandum and articles of association
An Irish incorporated public limited company is also subject to its memorandum and articles of association (forming a contract between the company and its shareholders). The memorandum of association sets out the principal objects of the company, while the articles of association set out the internal regulations of the company, such as shareholder meetings, voting rights, powers and duties of directors, the composition of the board of directors and communications between the company and its shareholders.Cross-border transactions
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (codification) (as, in respect of cross-border mergers, implemented in Ireland by the Cross-Border Mergers Regulations) facilitates cross-borders transactions in Ireland.
A cross-border merger may be effected in one of the following three ways:
- Acquisition: a company acquires the assets and liabilities of one or more companies, which are dissolved without going into liquidation. The acquiring company issues shares to the members of the dissolved companies in consideration of the transaction.
- Absorption: a parent company absorbs the assets and liabilities of a wholly owned subsidiary, which is dissolved without going into liquidation.
- Formation of a new company: a newly incorporated company acquires the assets and liabilities of one or more companies, which are dissolved without going into liquidation. The acquiring company issues shares to the members of the dissolved companies in consideration of the transaction.
The procedures vary depending on the type of merger, but each involves common draft terms of the merger between the companies, an explanatory report by the directors that must be made available to the Irish company’s shareholders, an advertisement of the proposed merger and, in certain cases, an auditor’s report.
The High Court must review and approve both outbound and inbound mergers involving Irish companies. Where applicable, employee protection provisions involving employee participation must also be observed.Sector-specific rules
Are companies in specific industries subject to additional regulations and statutes?
To protect the plurality of the media and to ensure the ‘diversity of ownership and diversity of content’, the Competition Acts provide for additional steps where the transaction involves an Irish media business. The term ‘media business’ includes traditional media, online news sources and online broadcast of certain audio-visual material. Carrying on a media business in Ireland requires an undertaking to have a physical presence in Ireland and make sales to customers located in Ireland or to have made sales in Ireland of at least €2 million in the most recent financial year.
A separate notification to the Minister is also required. The Minister has 30 working days, commencing 10 days after the determination of the CCPC, to consider the media merger. If the Minister is concerned that the merger is contrary to the public interest in protecting the plurality of the media, the Minister will request that the Broadcasting Authority of Ireland (BAI) carry out a Phase II examination. Within 80 working days of receipt of the request, the BAI must prepare a report for the Minister outlining its view on the merger with regard to media plurality and recommending whether the merger should be put into effect (with or without conditions). An advisory panel may be set up to assist the BAI in its review. The Minister will make the ultimate decision, taking into account the BAI report and, if applicable, the view of the advisory panel. The Minister’s final determination must be made within 20 working days of receipt of the BAI report.Transaction agreements
Are transaction agreements typically concluded when publicly listed companies are acquired? What law typically governs the agreements?
It is typical for transaction agreements to be entered into when publicly listed companies are acquired. Such transaction agreements are typically governed by Irish law.
Filings and disclosureFilings and fees
Which government or stock exchange filings are necessary in connection with a business combination or acquisition of a public company? Are there stamp taxes or other government fees in connection with completing these transactions?
If a notification is required to be made to the Competition and Consumer Protection Commission (CCPC), each undertaking involved must submit a merger filing, with the exception of asset-only acquisitions. Joint filings are usually submitted and the purchaser tends to take the lead on drafting the filing. A fee of €8,000 (per filing) applies.
Certain documents relating to public offers governed by the Takeover Rules require the Takeover Panel’s approval, which may result in the Takeover Panel imposing charges for expenses incurred in performing its functions.
A prospectus, if required, has to be submitted to and approved by the Central Bank of Ireland prior to being published, together with the appropriate filing fee.
Certain filings may be required to be made to the Irish Companies Registration Office under the Companies Act.
The rate of stamp duty payable on transfers of shares in an Irish company is 1 per cent. The rate of stamp duty payable on the transfer of non-residential property (other than shares) is 7.5 per cent. However, certain exemptions and reliefs can apply.
Stamp duty at 1 per cent applies on cancellation schemes of arrangements if implemented pursuant to a court order issued on or after 9 October 2019. The stampable consideration is the consideration received by the shareholders and is payable by the company paying the consideration. This provision was successfully challenged before the Tax Appeals Commission and is currently the subject of an appeal before the Irish courts.
Stamp duty reorganisation relief may apply to merger or takeover acquisitions where at least 90 per cent of the consideration comprises shares in the acquiring company. Specific conditions must be satisfied for this relief to apply.Information to be disclosed
What information needs to be made public in a business combination or an acquisition of a public company? Does this depend on what type of structure is used?
Before a public announcement concerning an offer or possible offer of an Irish incorporated listed public company to which the Takeover Rules apply, all persons with confidential information must maintain strict confidentiality in respect of the offer or contemplated offer, and may only pass it to another person if necessary to do so and if that person accepts the need for secrecy. All relevant persons must conduct themselves to minimise the possibility of an accidental leak of information. If, prior to an announcement, the target is the subject of rumour and speculation or there is an anomalous movement in its share price, unless the Takeover Panel consents otherwise, an appropriate announcement must be made to the market. Prior to an approach, the responsibility for making such an announcement lies with the bidder; following an approach, the responsibility shifts to the target.
Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2004 on market abuse (MAR) applies to issuers with shares admitted to trading on regulated markets and issuers of securities traded on multilateral trading facilities. MAR requires issuers to disclose inside information directly concerning them to the public as soon as possible. Where an issuer delays an announcement pertaining to inside information so as not to prejudice its ‘legitimate interests’ (if certain conditions are met), the issuer must inform its regulator in writing of this decision and provide a written explanation of how the conditions for the delay were satisfied, immediately after the information is disclosed to the public.
A prospectus, if required, must contain all information necessary to enable investors to make an informed assessment of the assets, liabilities, financial position, profits and losses and prospects of the issuer, and the rights attaching to the securities in question. It must also include a description of the business, audited financial information for the latest three financial years, an operating and financial review of that period and a confirmation that the issuer has sufficient working capital for its present requirements (the next 12 months). There is an exemption from the requirement to produce a prospectus in connection with securities offered in connection with a takeover or merger. However, a document containing equivalent information is generally still required but, unlike a prospectus, cannot be passported into other EU jurisdictions.
The applicable listing rules set out the content and approval requirements for circulars to shareholders and the circumstances in which they must be prepared.
The principal documents required for a takeover offer are:
- an announcement containing the bidder’s firm intention to make an offer, the consideration to be offered and the other terms and conditions;
- an offer document (containing the formal offer, other terms and conditions of the offer and prescribed additional disclosure);
- a form of acceptance; and
- a response circular from the target board to its shareholders setting out, among other matters, the target board’s opinion on the offer and the substance and source of the competent independent financial advice it is required to obtain – this would, in a recommended offer, commonly form part of the offer document.
If the transaction is undertaken by way of a scheme of arrangement, the documentation is almost identical, but in place of the offer document, there is a circular to target shareholders and a notice convening meetings of shareholders with proxy forms in place of the form of acceptance.
If, after an approach has been made, the target (and, in a securities exchange offer, the bidder) issues a profit forecast or a statement that includes an estimate of the anticipated financial effects of a takeover (eg, as to resulting change in profit of earnings per share), it is required to obtain and publish reports from the accountants and financial advisers concerned regarding the preparation of the forecast or statement. Save with the consent of the Takeover Panel, profit forecasts made before an approach must similarly be reported upon.
No valuation of any assets may be given by or on behalf of a bidder or a target during an offer period unless supported by the opinion of a named independent valuer.
All documents, announcements, press releases, advertisements (except for certain excluded categories) and statements issued by or on behalf of a bidder or target are required to satisfy the same standards of accuracy as a prospectus. All such documents, as well as statements despatched or published by a bidder or a target during an offer period, are required, as soon as possible following despatch or publication and, by no later than 12 noon on the following business day, to be published on a website or designated microsite.Disclosure of substantial shareholdings
What are the disclosure requirements for owners of large shareholdings in a public company? Are the requirements affected if the company is a party to a business combination?
Up to the time of announcement of a firm intention to make an offer under the Takeover Rules, the Substantial Acquisition Rules (SARs) apply to a person acquiring shares and restrict the speed with which a person may increase a shareholding in the target. SAR 6 provides that, subject to limited exceptions, an acquirer is obliged to disclose to the target and the Takeover Panel any acquisition of voting rights in a target which when aggregated with its existing holding exceeds 15 per cent of the target’s voting rights, or if the acquirer already holds between 15 and 30 per cent of the voting rights of the target, any acquisition that increases its percentage holding. Where such notification obligation arises, it must be discharged no later than 12 noon on the day following the relevant acquisition.
SARs 3 and 4 restrict the timing of acquisitions, such that a person may not, in any period of seven days, acquire shares (or rights over shares) in the target carrying 10 per cent or more of its voting rights if, following the acquisition, that person would hold shares (or rights over shares) carrying between 15 to 30 per cent of the voting rights in the target.
Stake-building is totally prohibited if it constitutes insider dealing.
Dealings in the securities of a target company that is in an offer period under the Takeover Rules (and, in certain circumstances, dealings in the securities of a bidder) may trigger a disclosure requirement. The Takeover Rules require that a bidder and its concert parties publicly disclose any acquisition of target securities or derivatives referenced to such securities, including those that are purely cash-settled contracts for difference. Other persons interested in 1 per cent or more of the target’s securities are also required to publicly disclose their dealings during an offer period. Complex rules apply to exempt fund managers and principal traders, particularly when they are members of a group that includes the bidder or a financial adviser to the bidder.
The Transparency Rules, which may apply depending on which market the target is listed upon, require a stakeholder to notify a listed company once the percentage of voting rights acquired by that stakeholder reaches, exceeds or falls below 3 per cent; and then each 1 per cent thereafter.
The Companies Act requires notification within a prescribed time frame where there is a change in the percentage of shares held by a person in a public limited company resulting in:
- an increase from below to above 3 per cent;
- a decrease from above to below 3 per cent; or
- where the 3 per cent threshold is exceeded both before and after the transaction, but the percentage level, in whole numbers, changes (fractions of a percentage being rounded down).
The EU (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 (the 2019 Regulations) require Irish companies to gather and maintain information on individuals who are their underlying beneficial owners (or where none can be identified, their senior managing officials), establish and maintain a local beneficial ownership register containing this information, and file their beneficial ownership details on a central beneficial ownership register. Broadly speaking, a shareholding or ownership interest (direct or indirect) above 25 per cent is indicative of beneficial ownership. The 2019 Regulations do not apply to Irish companies listed on a regulated market that is subject to disclosure requirements consistent with EU law or are already subject to equivalent international standards that ensure transparency of ownership information.
Law stated dateCorrect on
Give the date on which the above content is accurate.
12 May 2020.
The authors would like to thank Joseph Duffy, Ronan Scanlan, Dylan Gannon, Conor Cassidy, Alison Finn, Dorothy Hargaden and Anna O’Carroll for their input and assistance in the preparation of this chapter.