Can a company defend against a hostile takeover?
When reports become public of plans for a hostile takeover of an exchange-listed company, the question arises whether the company may take any measures to oppose the takeover.
A hostile takeover of a listed company occurs against the will of the persons currently controlling the company. In practice, various methods of foiling hostile takeovers are employed. Measures may include changing the amount of the share capital or the par value of the shares in order to reduce the voting power of the shareholder seeking to carry out the takeover, concluding contracts with management on terms unacceptable to the potential acquirer, or taking control over the acquirer itself.
To some extent, a listed company is protected against a takeover by the regulations. A significant stake in the shares of a listed company may not be acquired arbitrarily, but only by announcing a tender offer. An investor may exceed the threshold of 33% of the shares in a company only as a result of conducting a tender offer for enough shares to achieve a 66% stake in the company. The 66% threshold, in turn, may be exceeded only as a result of a tender for all of the shares. The management board of the company whose shares are the subject of a tender offer is required to publish its own opinion on the strategic plans of the offeror, whether the price offered reflects the market value of the shares, and what effect the acquisition may have on employment.
As a rule, the management board of a takeover target has no legal obligation to remain neutral toward takeover attempts. The board may, for example, seek another investor to make a competing tender offer, or, if authorised by the company statute, may increase the share capital and issue new shares to a “friendly” shareholder.
The company statute may nonetheless impose a rule of neutrality on the part of the management board with respect to a takeover attempt by requiring in each instance that the management board obtain the consent of the general meeting of shareholders to take any actions to foil a tender offer for all of the company’s shares. During voting on whether to grant such authority to the management board, voting restrictions (except for restrictions tied to monetary benefits, which continue to apply) and voting privileges do not apply. Notwithstanding such restrictions in the statute, however, the management board may always seek out another investor—a “white knight”—to announce a competing bid, without obtaining authority first from the shareholders.
Moreover, the company statute may provide that if after conducting a tender offer a shareholder has obtained at least 75% of the votes in the company, limitations on the sale of shares and specific entitlements of shareholders to appoint or dismiss members of the management board or supervisory board shall cease to be in force.
It should be borne in mind that if shareholders’ entitlements are to be restricted as a result of a tender offer, the statute should also specify the terms for awarding compensation to the shareholders in question. The amount of the compensation is determined by reference to the shareholder’s influence over the decision-making processes in the company. The compensation is paid by the offeror.
It should be pointed out that the general meeting of shareholders of the target company may adopt a resolution not to apply such provisions of the company statute if the company announcing the tender offer itself does not apply them or if it is a subsidiary of a company that does not apply them. Such a resolution will remain in effect for 18 months after adoption.
Danuta Pajewska & Jakub Koziński, Capital Markets and Financial Institutions practices, Wardyński & Partners