The current $2.1bn offer by Standard Industries for Brass Monier (headquartered in Luxembourg) provides a great example of how takeover tactics differ across Europe. Following a hostile bid from Standard Industries, Brass Monier announced that it intended to implement a capital increase from reserves by issuing 3,916,666 new shares to its shareholders. The offer value will increase even though the bidder has not taken any action to increase its bid simply as a result of the increased issued share capital. An unusual way to achieve a higher offer value. Perhaps not surprisingly the bidder has obtained a preliminary injunction to prevent the planned capital increase. Next Monday the Luxembourg court will consider Braas Monier's submission that the preliminary injunction should be withdrawn.
This situation highlights two key points for UK market participants.
The first is that in the UK, Rule 21 of the Takeover Code (Restrictions on frustrating action) would apply. So an equivalent UK company would not be able to implement a capital increase / bonus issue during the course of an offer period unless it obtained the approval of its shareholders in general meeting. Rule 21 of the Takeover Code states that: "During the course of an offer, or even before the date of the offer if the board of the offeree company has reason to believe that a bona fide offer might be imminent, the board must not, without the approval of the shareholders in general meeting: (b) (i) issue any shares or transfer or sell, or agree to transfer or sell, any shares out of treasury or effect any redemption or purchase by the company of its own shares;" The Panel must be consulted in advance if there is any doubt as to whether any proposed action will fall within this Rule.
The second is the very different role the courts play in takeovers which are subject to the Takeover Code. In the UK, the court will typically only be involved if the offer is structured as a transfer scheme under the Companies Act 2006. Instead the Panel supervises and regulates takeovers and other matters to which the Takeover Code applies in accordance with the rules set out in the Takeover Code.