On November 12th 2013, the European Securities and Markets Authority (“ESMA”) published a statement on shareholder cooperation and acting in concert under Directive 2004/25/EC on takeover bids (the “Takeover Directive”). The statement clarifies the extent to which investors may cooperate on corporate governance issues without being regarded as “acting in concert” and therefore running the risk of triggering an obligation to make a mandatory offer under the Takeover Directive.
Under the law of May 19th 2006 on takeover bids (the “Takeover Law”), a person (natural or legal) who, after adding to his/her existing holdings of securities is entitled to exercise 33 1/3 % of the voting rights in a Luxembourg company that has securities admitted to trading on a regulated market in the EU/EEA, is required to make a public offer for the remaining securities at an equitable price. For the purpose of determining whether the threshold has been met, the voting rights attached to securities held or acquired by parties acting in concert with such person are included.
Persons “acting in concert” is defined as “natural or legal persons who cooperate with the offeror or the offeree company on the basis of an agreement, either express or tacit, either oral or written, aimed at either acquiring control of the offeree company or at frustrating the successful outcome of a bid”. Due to the ambiguous nature of the “acting in concert” rule it is often unclear whether the mandatory public offer obligation has been or will be triggered. Hence this can cause hesitation on the part of shareholders to cooperate with each other to the detriment of good corporate governance.
The White List
The ESMA statement sets out a “White List” of certain activities relating to shareholder cooperation. Where shareholders cooperate to engage in any activity on the White List, such cooperation will not, in and of itself, lead to such shareholders being regarded as acting in concert and therefore being at risk of triggering a mandatory takeover offer. ESMA has also emphasised that where shareholders engage in any activity on the White List with the aim of acquiring or exercising control over a company, or in fact have acquired or are exercising control, these persons will be regarded as acting in concert.
The activities included on the White List are as follows:
- entering into discussions with each other about possible matters to be raised with the company’s board;
- making representations to the company’s board about company policies, practices or particular actions that the company might consider taking;
- other than in relation to the appointment of board members, exercising shareholders’ statutory rights to: (i) add items to the agenda of a general meeting; (ii) table draft resolutions; or (iii) call a general meeting other than the annual general meeting;
- other than in relation to a resolution for the appointment of board members, agreeing to vote the same way on a particular resolution put to a general meeting, in order, for example: (A) to approve or reject: (i) a proposal relating to directors’ remuneration; (ii) an acquisition or disposal of assets; (iii) a reduction of capital and/or share buy-back; (iv) a capital increase; (v) a dividend distribution; (vi) the appointment, removal or remuneration of auditors; (vii) the appointment of a special investigator; (viii) the company’s accounts; or (ix) the company’s policy in relation to the environment or any other matter relating to social responsibility or compliance with recognised standards or codes of conduct or (B) to reject a related party transaction.
If shareholders cooperate to engage in an activity which is not included on the White List, that fact will not, in and of itself, mean that those shareholders will be regarded as persons acting in concert. Each case will be determined on its own particular facts.
Appointment of board members
Cooperation by shareholders in relation to the appointment of board members can be particularly sensitive in the context of the application of the mandatory bid rule. If shareholders cooperate they may be in a position to control the operational management of the company. ESMA notes that different approaches adopted by different Member States are a result of national company law and prevailing shareholder structures and hence have not included any activity relating to cooperation in relation to board appointments on the White List.
With regard to the appointment of members to the board of a company ESMA set out certain examples of what form this cooperation could take.
The statement also set out certain facts which the competent authorities should consider when examining whether such cooperation amounts to acting in concert.
ESMA emphasises the importance of early consultation with national competent authorities where there is any uncertainty.