Completing the transactionHostile transactions
What are the special considerations for unsolicited transactions for public companies?
A number of provisions in the Takeover Rules (although technically applying to all public offers, whether hostile or recommended) should be given special consideration in hostile transactions. The following are particularly noteworthy:
- The offer must first be disclosed to the board of the target company or its advisers before making any announcement concerning the offer. In practice, an approach is frequently, although not always, made in writing from the potential bidder to the chairperson or chief executive of the target. This correspondence is often preceded by a telephone call giving basic details of the bidders’ proposal.
- All target shareholders of the same class must be treated equally.
- There are a range of restrictions and obligations on persons dealing with target stock.
- A target board is prohibited from taking certain actions (except pursuant to a contract previously entered into) without shareholder approval or the consent of the Takeover Panel or both, either in the course of an offer, or if the target board has reason to believe that a bona fide offer may be imminent.
- With limited exceptions, information given by a target to one bidder must be made available to all bidders. A second or subsequent bidder will have to request specific information; it is not entitled, by asking in general terms, to receive all information supplied to the first bidder.
The Takeover Rules provide that the board of the target must obtain competent independent advice on every offer in respect of the target and must dispatch to its shareholders a circular setting out the substance and source of such advice, together with the considered views and opinion of the board of the target on the offer. An independent committee may need to be established to consider the offer in the event that any directors have a conflict of interest. As an Irish company, the fiduciary duties and other obligations of target directors will be governed by Irish law. These duties and other obligations will apply to the target directors in deciding whether to engage in a process with a potential bidder, which may result in an offer for the target, and ultimately in deciding whether to recommend, or not recommend, an offer.
As noted above, prior to an announcement concerning an offer or possible offer, the bidder, the target and their respective advisers are required to maintain strict confidentiality in respect of the contemplated offer, and negotiation discussions concerning the offer or possible offer must be kept to a very restricted number of people. 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.
In the case of an unwelcome approach, the target may, at any time following the identity of the bidder being made public, apply to the Takeover Panel to impose a time limit within which the bidder must either announce a firm intention to make an offer or that it does not intend to do so. This is commonly referred to as a ‘put-up or shut-up’ direction. Where the bidder announces that it does not intend to make an offer, subject to certain exceptions, that bidder will, among other matters, be precluded from announcing an offer or possible offer, or making an offer for the target for a period of 12 months.
A transaction cannot practically proceed by way of a scheme of arrangement without support from the target board (notwithstanding some commentary on how a target could perhaps be legally compelled to do so). As a result, a hostile transaction will begin as a takeover offer. It would not be unusual, however, for a recommendation to be obtained after the launch of an offer (possibly following a revision to terms) and, in that case, it would be possible, with Takeover Panel consent, to switch from a takeover offer to a scheme of arrangement to implement the transaction.Break-up fees – frustration of additional bidders
Which types of break-up and reverse break-up fees are allowed? What are the limitations on a public company’s ability to protect deals from third-party bidders?
Break fees are permissible under the Takeover Rules provided that the Takeover Panel has expressly consented to them, pursuant to Rule 21.2 of the Takeover Rules. The Takeover Panel customarily grants consent to break-fee arrangements that are: (1) limited to specific quantifiable third-party costs; (2) subject to a cap of 1 per cent of the value of the offer; and (3) subject to receiving confirmation in writing from the target board and its financial adviser that they consider the break or inducement fee to be in the best interests of the target shareholders.
The offer document is required to contain details of any break fee agreed to by the target company.
The target may enter into an exclusivity agreement; however, this is subject to the Takeover Rules and to the directors’ fiduciary duties. The directors of the target company may also agree to non-solicitation requirements. It is also common, in a recommended transaction, for a bidder to receive irrevocable commitments or letters of intent to accept the offer from the directors of the target and some shareholders.Government influence
Other than through relevant competition regulations, or in specific industries in which business combinations or acquisitions are regulated, may government agencies influence or restrict the completion of such transactions, including for reasons of national security?
In addition to the Irish merger control regime, several industries are subject to additional regulations, such as financial institutions, insurance undertakings, pharmaceutical companies, airlines and telecommunications operators.Conditional offers
What conditions to a tender offer, exchange offer, merger, plan or scheme of arrangement or other form of business combination are allowed? In a cash transaction, may the financing be conditional? Can the commencement of a tender offer or exchange offer for a public company be subject to conditions?
Although it is common for bidders in a public offer to include wide-ranging conditions in the terms of an offer, the practical effect of these is limited by the Takeover Rules and the Takeover Panel’s approach to the application of the Takeover Rules. Except with the consent of the Takeover Panel, or in the case of Competition Acts or EC Merger Regulation conditions, an offer may not be made subject to any condition the satisfaction of which depends solely on subjective judgements of the bidder, or which is within its control. A bidder may not invoke a condition to lapse an offer unless the circumstances giving rise to the right to invoke are of material significance to the bidder in the context of the offer and the Takeover Panel (being satisfied that in the prevailing circumstances it would be reasonable to do so) consents to the condition being invoked. In practice, it is very difficult for a bidder to invoke a condition, other than a material regulatory condition, acceptance condition or a condition that is required to implement the transaction (such as bidder shareholder approval).
In 2017, the Takeover Panel, noting that it had become customary for bidder and target companies to enter into an implementation agreement, issued a practice statement (the Practice Statement) in relation to the circumstances in which the parties may lapse an offer by invoking conditions to the effect that: (1) the implementation agreement has been terminated (that is, it ceased to remain in effect); or (2) the other party had not complied with specified terms of the implementation agreement. In the Practice Statement, the Takeover Panel noted that the Takeover Rules do not prohibit parties to an offer agreeing contractual arrangements regulating the conduct of the offer.
The Takeover Panel’s practice had been to permit parties to an offer to enter into an implementation agreement including terms under which the parties reserved the ability, in a wide range of circumstances, to terminate the agreement. The Takeover Panel also noted that the Takeover Rules do not prohibit the inclusion of conditions to an offer that the implementation agreement had not been terminated, or that parties have complied with specified terms of the implementation agreement, unless the satisfaction of any such condition depends solely on subjective judgments by the directors of the party for whose benefit the condition is expressed or is within the control of the party. Having regard to the desirability for clarity and consistency, and to ensure that there is a high degree of certainty, the Takeover Panel stated in the Practice Statement that it expects that implementation agreement termination events will be expressly included as conditions to the offer and stated in terms compliant with the Takeover Rules. The Takeover Panel further emphasised that the invocation of a condition to an offer, including any such condition, is subject to the consent of the Takeover Panel and falls to be assessed against the ‘material significance’ and ‘reasonableness’ tests prescribed by the Takeover Rules. The Takeover Panel also noted that the fact that it allows or approves the entry into by parties to an offer of an implementation agreement shall not be taken into account in any determination of the Takeover Panel under the Takeover Rules as to whether, in the prevailing circumstances, it would be reasonable for a party to invoke a condition to the offer to lapse or withdraw the offer.
Preconditions may be included whereby the offer does not have to be made (that is, the offer document does not have to be posted) unless each precondition is satisfied. The Takeover Panel must be consulted in advance in order to employ the use of preconditions. Preconditions may only be used where they relate to material official authorisations or regulatory clearances, and the Takeover Panel is satisfied that it is likely to prove impossible to obtain the authorisation or clearance within the offer timetable.Financing
If a buyer needs to obtain financing for a transaction involving a public company, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?
In financing a transaction, consideration offered by a bidder may take the form of any combination of cash or securities or both. The securities offered may be securities of the bidder or of another company.
A bidder may only announce a firm intention to make an offer under the Takeover Rules (a Rule 2.5 Announcement) when it and its financial adviser are satisfied, after careful and responsible consideration, that the bidder is in a position to implement the offer. Where the offer is a cash offer or there is a cash alternative, the Rule 2.5 Announcement must include a confirmation from the bidder’s financial adviser (or another appropriate person) that resources are available sufficient to satisfy full acceptance of the offer. Any required debt and equity funding for the offer must be fully and, except with respect to conditions relating to closing of the offer, unconditionally committed prior to the Rule 2.5 Announcement and continue to be available at all relevant times. If the confirmation proves to be inaccurate, the Takeover Panel may direct the person who gave the confirmation to provide the necessary resources unless the Takeover Panel is satisfied that the person acted responsibly and took all reasonable steps to ensure the cash was available. A bidder that makes a Rule 2.5 Announcement is bound to proceed with a formal offer. A Rule 2.5 Announcement must contain all the terms and conditions of the offer; these terms cannot subsequently be altered without the Takeover Panel’s consent.
An offer document issued under the Takeover Rules must include a description of how the offer is being financed and the source of finance (including the names of the principal lenders or arrangers of the finance).
If the offer of consideration includes securities of a company, the offer document must include additional financial and other information in relation to that company and dealings in its securities under the Takeover Rules. A valuation report must also be provided in the case of an offer structured as a scheme of arrangement.
If transferable securities are to be offered, the bidder must publish either a prospectus or a document containing equivalent information. A prospectus or equivalent document must be approved by the Central Bank or the competent authority of another EEA member state and passported into Ireland.Minority squeeze-out
May minority stockholders of a public company be squeezed out? If so, what steps must be taken and what is the time frame for the process?
When an offer is made to gain 100 per cent control of the target, the buyer may use a statutory procedure to compulsorily acquire the shares of dissenting shareholders (the squeeze-out procedure).
Under regulation 23 of the Takeover Regulations, the relevant threshold for triggering the squeeze out procedure where the target is fully listed on a regulated market in any EU or EEA member state (such as Euronext Dublin or the London Stock Exchange) is the acquisition of 90 per cent of the issued share capital. A bidder has three months from the last closing date of the offer to give notice to dissenting shareholders that it wishes to exercise its rights under regulation 23. Once a notice has been served, a dissenting shareholder has 21 days to apply to the High Court of Ireland (the High Court) for relief.
The relevant threshold for triggering the squeeze-out procedure where the target is listed on the Euronext Growth or AIM of the London Stock Exchange, Nasdaq or the New York Stock Exchange, is set out in the Companies Act. A bidder must receive 80 per cent acceptances in value within four months of the publication of the offer to trigger the squeeze-out procedure. If the bidder already holds 20 per cent or more of the shares in the target, it must receive acceptances from shareholders holding 80 per cent in value of the remaining target shares and receive acceptances from at least 50 per cent in number of the holders of the target shares which are the subject of the offer. Once a notice has been served, a dissenting shareholder has one calendar month to apply to the High Court for relief.
In addition to the squeeze-out procedure, once the relevant threshold is achieved, the remaining minority shareholders can exercise buyout rights requiring the bidder to purchase their shares.
In the case of schemes of arrangement, approval of a majority 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 is required. The scheme of arrangement also requires the sanction of the High Court. Subject to the requisite shareholder approval and sanction of the High Court, the scheme will be binding on all shareholders.Waiting or notification periods
Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations or acquisitions involving public companies?
In 2009, the European Communities (Assessment of Acquisitions in the Financial Sector) Regulations 2009 (the Assessment of Acquisitions in the Financial Sector Regulations) came into effect in Ireland, implementing Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 into domestic law. The main objectives of these regulations were to do the following:
- create greater transparency in the financial services sector;
- assist the local financial services regulators in their supervisory roles over the sector;
- harmonise information provided by relevant firms on the notification and assessment procedures to be followed with regard to acquiring and disposing transactions in the financial services sector; and
- enhance the existing anti-money laundering regime in Europe.
The Central Bank is the body designated to supervise acquiring or disposing transactions in the Irish financial sector and has issued a notification form to notify of a proposed acquisition of, or increase in, a direct or indirect qualifying holding in respect of any of the prescribed categories of Irish authorised entities under these regulations. The Central Bank uses the information provided in the form to examine whether there are prudential grounds upon which it should object to the transaction and if it ought to impose any conditions on an approval of the acquisition.
The Assessment of Acquisitions in the Financial Sector Regulations apply to the following categories of entities:
- credit institutions;
- insurance or assurance undertakings;
- reinsurance undertakings;
- investment firms or a market operators of regulated markets (MiFID firms); and
- UCITS management companies.
The Assessment of Acquisitions in the Financial Sector Regulations apply to transactions involving the acquisition, directly or indirectly, of a ‘qualifying holding’ in a target entity. They also apply to the direct or indirect increase in a qualifying holding, whereby the resulting holding would reach, or exceed, 20, 33 or 50 per cent of the capital of, or voting rights in, a target entity, or a target entity would become the proposed acquirer’s subsidiary.
A qualifying holding means 10 per cent or more of the capital of, or voting rights in, a target entity or a holding that makes it possible to exercise a ‘significant influence’ over the management of a target entity.
The Assessment of Acquisitions in the Financial Sector Regulations also apply on the disposal of a qualifying holding or a holding that results in the disposer’s interest in the target entity falling below the thresholds above or the target entity ceasing to be a subsidiary of the disposer.
A complete notification must be acknowledged in writing by the Central Bank within two working days of receipt of the notification form and it is required to carry out the assessment of a proposed acquisition within 60 working days of the date of the written acknowledgement. The Central Bank may request additional information in respect of a proposed acquisition no later than the 50th working day. Such a request for additional information will interrupt the assessment period until a response is received or 20 working days have elapsed. In certain circumstances the interruption period may be extended to 30 working days.
The Central Bank may, based on a prudential assessment of the proposed acquisition, decide to oppose or to approve of a proposed acquisition. In assessing a proposed acquisition, the Central Bank will look at:
- the likely influence of the proposed acquirer on the financial institution concerned; and
- the suitability of the proposed acquirer and the financial soundness of the proposed acquisition based on the reputation of the entities, whether the entity can and will continue to comply with financial legislation.
The Central Bank may set a maximum period within which the proposed acquisition is to be completed or may impose additional conditions or requirements to be met in respect of a proposed acquisition. If it decides to oppose an acquisition, it must, within two working days of the decision being made (and before the end of the assessment period), inform the proposed acquirer in writing and outline the reasons for its decision. This decision may be appealed to the High Court.