Merger & Acquisitions - The European Lawyer Reference Series, 1st Ed 2012 - Irish Chapter
31 July 2012
Category: Legal Articles
The following article is taken from The European Lawyer Reference Book 'Mergers & Acquisitions', 1st Ed. 2012. Mason Hayes & Curran's Justin McKenna explores M&A Law in Ireland. Reproduced with permission from Thompson Reuters. © Copyright Thompson Reuters. All rights reserved. For more information, please click here.
1. MARKET OVERVIEW
1.1 Please give a brief overview of the public M&A market in your jurisdiction
The public M&A market in Ireland has been relatively quiet in 2010/2011. The last large-value completed public M&A deal in Ireland was the $1.2 billion recommended offer by scheme of arrangement (see section 2.1, below, for an explanation of this term) for SkillSoft Plc by a private equity consortium consisting of Berkshire Partners, Bain and Advent, in which Mason Hayes & Curran acted for the bidders and William Fry acted for the target, completed in June 2010. Subsequent to that, despite a number of abortive processes, the only completed public M&A transactions have been the EUR 93 million recommended offer by scheme of arrangement by US private equity firm Spectrum Equity for Trintech Plc, the EUR 217 million recommended offer by BAE Systems for Norkom Group Plc, the recommended offer by scheme of arrangement for Oglesby & Butler which was valued at only EUR 4.3 million and the recommended offer, valued at £44 million, by CR Bard for Clearstream Technologies Plc. The number of scheme of arrangement based offers has continued to exceed the number of conventional tender offers for reasons which are discussed below. There have been no hostile offers since the unsuccessful bid by Ryanair for Aer Lingus announced in December 2008.
There have been few new wholly or largely domestic new entrants to either the Irish Stock Exchange or other markets and three financial institutions, Allied Irish Banks, Irish Life & Permanent (owner of the Permanent TSB Bank) and Anglo Irish Bank which were previously of substance on the Irish Stock Exchange are either almost wholly state-owned (AIB and IL&P) or wholly state-owned and de-listed and in a run-down mode (Anglo) due to state recapitalisation measures rather than conventional M&A activity. The other main Irish listed bank, Bank of Ireland, has escaped outright state-ownership due to a substantial private equity investment.
1.2 What are the main laws and regulations which govern the conduct of public M&A activity in your jurisdiction?
The key laws and regulations governing takeover offers for public companies in Ireland (which for these purposes are companies that have securities admitted to listing and trading on a market, rather than companies that are simply incorporated or registered as public companies) are as follows:
- the Irish Takeover Panel Act 1997; and
- the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 (the Takeover Bids Regulations).
Further detailed rules are made under the Irish Takeover Panel Act 1997 for the conduct of takeovers and substantial acquisitions of securities:
- the Irish Takeover Panel Act, 1997, Takeover Rules, 2007 (the Irish Takeover Rules or the Rules); and
- Irish Takeover Panel Act 1997, Substantial Acquisition Rules, 2007 (the Substantial Acquisition Rules).
1.2.1 What entities are covered?
In summary, the Irish Takeover Rules apply to the following companies:
- any Irish-incorporated public limited company or other Irish-incorporated body corporate, any of whose securities are authorised for trading (or have been so authorised within ifve years prior to the relevant takeover proposal) on a market regulated by a 'recognised stock exchange' - in this case, the Irish Stock Exchange; and
- any Irish-incorporated public limited public limited company, any securities of which are authorised to be traded, or have been so authorised within five years prior to the relevant takeover proposal, on the London Stock Exchange (eg, the Main Market or AIM), the New York Stock Exchange or NASDAQ.
The rules that apply to a takeover offer may also be affected by whether or not it has securities admitted to trading on a regulated market in Ireland as deifned by EC Directive 93/22 (a 'regulated market') (in Ireland, the only such market is the Main Securities Market of the Irish Stock Exchange).
1.2.2 Who is the regulator?
The Irish Takeover Panel is the entity established to monitor and supervise takeovers so as to ensure compliance by relevant companies with the
provisions of the Irish Takeover Panel Act 1997 and the Irish Takeover Rules.
1.3 Other than in relation to anti-trust, are there other applicable regulations such as exchange and investment controls?
Exchange controls were abolished in Ireland with effect from 31 December 1992. Particular regimes apply to acquisition of controlling interests in
regulated ifnancial institutions and airlines, but subject to particular regulated industry provisions, as an open economy, Ireland does not impose other restrictive provisions on foreign ownership or control generally in respect of public companies.
2. PREPARATION AND PRE-ANNOUNCEMENT
2.1 What are the main structural means of obtaining control of a public company? If there is more than one, what are the key advantages and disadvantages of each route? Is one route more commonly used than others?
The principal legal means for obtaining control of a public company in Ireland are as follows:
- a public offer to acquire securities of a directive company (as defined below) under Regulation 23 of the Takeover Bids Regulations to acquire all of the equity securities of the company, by which the acquirer of 90 per cent or more can squeeze out the minority (a 'directive company offer'); or
- a public offer to acquire securities of a non-directive company (as deifned below) under section 204 of the Companies Act 1963, by which the acquirer of 80 per cent or more can squeeze out the minority (a 'non-directive company offer'); or
- a scheme of arrangement under section 201 of the Companies Act 1963 to formalise a proposal to vary the rights of shareholders by passing a 75 per cent shareholder vote in each affected class of the target company (a 'scheme of arrangement').
A company qualiifes as a 'directive company' if it is company that has securities admitted to trading on a regulated market in Ireland (the Main Market of the Irish Stock Exchange) and the circumstances speciifed in Regulation 6 of the Takeover Bids Regulations apply to it; otherwise it is a 'non-directive' company. Directive company offer and non-directive company offers are for convenience both referred to generically as 'takeover
It is also possible in theory to use either of the following legal means to obtain control of a public company, though in practice neither has ever been used for this purpose in connection with a company subject to the Irish Takeover Rules:
a merger with one or more EEA companies by acquisition or by formation of a new company under the European Communities (Cross-
Border Mergers) Regulations 2008 (a 'cross-border merger'); or
a merger with another Irish-incorporated public limited company under the European Communities (Mergers and Divisions of Companies)
Regulations 1987 (a 'Third Directive merger').
These merger types are derived from EU law and each involves the transfer of the target company's assets and liabilities to an acquirer and the
dissolution of the target company.
The advantages and disadvantages of offers and schemes of arrangement can be summarised as follows:
Different levels of approval are required to obtain actual control of the target
With a takeover offer, the bidder requires more than 50 per cent acceptances to obtain control of the target company, and either 80 per cent (a directive company offer) or 90 per cent (a non-directive company offer) offer acceptances to achieve a squeeze-out.
A scheme of arrangement requires the approval of 75 per cent in value and a majority by number of the target company's shareholders who vote (whether in person or by proxy) at the relevant shareholders' meeting to approve the scheme. A single nominee shareholder with multiple accounts for beneficial owners is one shareholder for this purpose (eg, a depositary which holds shares subject to a deposit agreement in connection with traded ADRs for example). Shareholder non-responsiveness can make the required majority for a scheme relatively easier to obtain. If a large number of shareholders do not vote, the approval of substantially less than 75 per cent of all shareholders will in effect be required, and this can be a feature which is relevant in an offer for a company with a large but average small value retail shareholder base.
Although it is technically possible to structure a partial takeover as a scheme of arrangement, schemes of arrangement do not typically allow the acquisition of control, followed by the squeeze-out of minorities to be completed in two steps. This is a one-stage process.
An offer provides a quicker timeframe for acquiring effective control
Under the minimum timeframe for a simple agreed offer under the Irish Takeover Rules, the first closing date is 21 days from the sending of the offer document (subject to extension by application to the Irish Takeover Panel in the case of US requirements for target companies that are listed on NASDAQ or NYSE, if applicable) (Irish Takeover Rules, Rule 31.1). However, it can be longer (up to 60 days) if a competing offer is made (Irish Takeover Rules, Rule 31.4).
The quickest timetable for a scheme is somewhat longer: the minimum length of time between sending the scheme document and the scheme becoming effective would be in the region of 8 weeks. In addition, even if the scheme document can be prepared at the same time as the announcement of the bid (this is the announcement of a ifrm intention to make an offer, which is known colloquially called the 'Rule 2.5 Announcement', by reason of the relevant Rule), it is less likely that the scheme document can be sent on the same day as the announcement, given the requirement to obtain the court's permission to convene the necessary shareholders' meeting. An offer document (if it is ready) can be sent on the same day as the Rule 2.5 announcement. Furthermore, scheme timetables are themselves subject to the timetables of the High Court and in particular the court vacation periods in which no regular sittings take place.
A scheme of arrangement provides a quicker timeframe for acquiring 100 per cent control and access to target cash and assets after the offer has become unconditional
Immediately upon a scheme becoming effective (which occurs upon delivery of an office copy of the court order to the Registrar of Companies for registration - Companies Act 1963, section 201(5)), the bidder will acquire 100 per cent of the target company.
In the case of an offer (directive or non-directive company), acquisition of 100 per cent control after the offer has gone unconditional may take several weeks as dissident minority shareholders in the target company have the right, during such period, to apply to the court to object to their shares in the target being compulsorily acquired on certain discretionary grounds (Companies Act 1963, section 204(1)) and in the case of a directive company, on certain technical grounds (Regulation 27 of the Takeover Bids Regulations).
A 100 per cent shareholding is likely to be acquired in a shorter timeframe under a scheme than under the compulsory acquisition procedure involved under an offer. Furthermore, there is no possibility of a challenge to a statutory squeeze-out of the non-assenting minority and there is no
necessity to wait for the statutory challenge period of one month to expire.
In practice, this means that in a scheme takeover, security for offer ifnancing may be taken over target assets approximately 30-45 days after the scheme becomes effective (to allow for re-registration of the target as a private company and a ifnancial assistance whitewash (which is no longer necessary in the UK) and an offer adds a month to this timetable. This is often regarded as a signiifcant disadvantage of a scheme by offerors and their ifnanciers.
A scheme of arrangement is more vulnerable to shareholder opposition
If there is an organised minority opposed to a scheme, the minority will need less support to be able to block the scheme than it would need to
prevent an offer becoming unconditional as to acceptances.
One tactic that an opponent of a scheme may adopt is to split their holding into a large number of different nominee holdings so as to defeat the majority-in-number requirement. Supporters can do the same if they are aware of such a tactic. However, the court might question a supporter's use of such a tactic in considering whether or not to sanction the scheme and such activity could give rise to unwelcome consequences under Rule 9 of the Irish Takeover Rules. Under the Rules the Irish Takeover Panel may impose an obligation to make a mandatory bid on concert parties who acquire control at a 30 per cent level or increase the level of that control.
A scheme of arrangement provides a forum for opposition
A scheme of arrangement provides an opportunity for public opposition by a dissenting shareholder in that both a shareholders' meeting and a court application are required to sanction a scheme (neither of these are required for a conventional tender offer). This opposition can be voiced at the shareholders' meeting convened to consider the scheme or in person or through counsel at the court hearing to sanction the scheme. Each of these poses risks. If a dissenter is able to organise other shareholders to oppose the scheme, the required level of support at the shareholders' meeting (including the majority-in-number requirement) may not be obtained. If a dissenter is able to persuade the court that there was some irregularity in the scheme or that the court should for some other reason exercise its discretion not to sanction the scheme, the court would decline to sanction the scheme and it would not become effective.
If a takeover offer were made by the bidder, the objector's only forum for public opposition would be a general meeting of the bidder, if one is required. Ordinarily such a general meeting is required only in limited circumstances, such as to approve management participation in the offer in certain instances, or in certain limited instances where an exception to the requirement for a mandatory offer is to be approved. The objector would have to initiate proceedings itself to bring the matter before the court before a squeeze-out was initiated.
In an offer, the bidder initiates and controls the offer process. In a scheme, the target initiates and controls the scheme process. The ability to control the manner in which the scheme is implemented by means of a transaction agreement is qualified and such an agreement is usually the subject of some negotiation. It is notable that the Irish Takeover Panel does not at this stage intend to amend the Irish Takeover Rules to remove the ability of the parties to put a transaction agreement in place, as is the case under recent changes to the City Code on Takeovers and Mergers in the UK, as (we understand) the operation of such agreements has not proven to be problematic in practice.
Stamp duty and other costs
If the bidder makes an offer for the target company (or the transaction is implemented by way of a scheme of arrangement structured as a share transfer, rather than by cancellation) there would be a stamp duty cost for the bidder of 1 per cent of the value of the consideration given by the bidder
(although there may be opportunities to mitigate this cost).
No transfer stamp duty tax cost would arise if a scheme of arrangement structured as a share cancellation is used, since this does not involve any transfer or agreement to transfer the shares; instead, the existing shares are cancelled by way of court order and new shares in the target are issued to the bidder.
2.2 What secrecy and disclosure obligations are placed on bidders and target companies ahead of any formal announcement of a bid?
The timing and disclosure of stake building are principally regulated by the Irish Takeover Rules and the Substantial Acquisition Rules. For example, whether or not an offer is being made for a company, a person is restricted from making certain acquisitions of its securities that would bring it from below 10 per cent to above 15 per cent (but less than 30 per cent, at which threshold a mandatory bid under the Irish Takeover Rules would be triggered) of the voting rights within a seven-day period (Substantial Acquisition Rules, Rule 4).
Similarly certain acquisitions of securities must be disclosed to the company, the Stock Exchange and the Irish Takeover Panel (Substantial Acquisition Rules, Rule 6). Certain other acquisitions and disposals must be notified to the company and made public by the company under the general rules applicable under the Irish transposition of the EC Transparency Directive 2004/109 (Transparency (Directive 2004/109/EC) Regulations 2007 (the Transparency Regulations), Part 5).
The Irish Takeover Rules stipulate that strict conifdentiality must apply to discussions that may lead to a bid (Irish Takeover Rules, Rule 2.1). However, an announcement is required to be made in speciifed circumstances, including where the target is the subject of rumour and speculation or there is an anomalous movement in its share price, or where negotiations or discussions are about to be extended to include more than a very restricted number of people (Irish Takeover Rules, Rule 2.2). Guidance from the Irish Takeover Panel will be sought in the case of any proposed announcement in such circumstances.
The general rules dealing with the disclosure of inside information will also apply (Market Abuse (Directive 2003/6/EC) Regulations 2005 (the
Market Abuse Regulations), Regulation 10).
A bidder must not announce a proposed bid (called ' firm intention to a make an offer') until its financial adviser is satisifed that the bid is fully funded and can be implemented by the bidder (Irish Takeover Rules, Rule 2.5). Subject to this, the announcement must be made without delay by the bidder (usually also by the target company in the case of a recommended offer).
2.3 Are there any constraints over the ability of a bidder to carry out due diligence on the target?
In general, a bidder is permitted to share diligence information with a bidder on a voluntary basis, which may include responses to the bidder's queries.
The principal constraints are strategic, since:
- inside information must be disclosed to the public where the company is no longer able to ensure its conifdentiality (Market Abuse Regulations, Regulation 10(7)); and
irrespective of any preference that the target board may have for one bidder over another, the target company is obliged to provide any information specifically requested by a bidder if, and to the extent that, the same or substantially the same information was previously made
available to another bidder (Irish Takeover Rules, Rule 20.2).
For either or both of these reasons, which could result in information having to be disclosed to the public or to a hostile bidder, the target may choose to make a more restricted range of information available to a recommended bidder in a diligence process.
2.4 Is it possible for a target company to grant a bidder exclusivity and/or a break fee? Are there any other steps which can be taken to provide greater certainty to a bidder that its bid will be successful?
Subject to compliance by the target company with the Irish Takeover Rules (in particular, the General Principle that a target board 'must not deny the holders of securities the opportunity to decide on the merits of [an] offer' (Irish Takeover Panel Act 1997, Schedule, paragraph 3), a target is not prohibited from reaching agreement with a bidder that it will not initiate any discussions with other potential bidders.
The Irish Takeover Rules restrict break fees to speciifc quantiifable third party costs and an upper limit of 1 per cent of the value of the offer (Irish Takeover Rules, Rule 21.2 and Note). Panel consent to the arrangement is also required.
The payment of fees under such an arrangement - usually called an 'expenses reimbursement agreement' - will typically be triggered in the
- the target board withdraws its recommendation or recommends a competing offer; or
- the target fails to take any of the agreed actions required in order to complete the acquisition (such as by withdrawing or modifying a scheme of arrangement).
2.5 Are there any restrictions on a bidder obtaining commitments from a target company's shareholders ahead of the announcement of
In a recommended offer a bidder will usually require the target company directors (and, occasionally, specified large shareholders) to give irrevocable undertakings that they will accept the offer or vote their shares in favour of the scheme.
Extending the discussion of a proposed bid to include shareholders risks triggering the obligation to make an announcement, so the parties must take particular care on this point. The bidder is obliged to consult with the Panel before seeking irrevocable commitments from any party (Irish Takeover Rules, Rules 2.2(e) and 4.3).
2.6 Are the directors of the target company under any particular obligations or duties in the period leading up to a bid?
The first responsibility of a target company board in any offer is to obtain competent independent advice (Irish Takeover Rules, Rule 3.1(a)). This advice and the considered views of the board on the offer will be set out in a circular posted to shareholders. This will usually take the form of a ifrm recommendation for acceptance or rejection of the offer. Only directors who are not affected by conflicts of interest may take part in the formulation of such advice. If necessary the board must form an independent committee that excludes such conlficted directors for the purpose of considering the offer.
After a bidder has disclosed its intention to make a bid to the directors of the target company, they are subject to the following specific obligations in the period leading up to the announcement of a ifrm intention to make an offer:
- to maintain strict confidentiality with respect to the proposed bid (Irish Takeover Rules, Rule 2.1(a));
- following an approach that may or may not lead to an offer, to make an announcement where required by the Rules (Irish Takeover Rules, Rules 2.2-2.4); and
- not to deal in securities of the target company in specified circumstances (Irish Takeover Rules, Rule 4.4; Market Abuse Regulations, Regulation 5).
3. ANNOUNCEMENT OF A BID
3.1 At what stage does a bid have to be announced?
An announcement concerning a bid or possible bid is required if the Irish Takeover Panel directs that one should be made and specifically, unless the Panel consents otherwise:
- immediately after a firm intention to make an offer has been notiifed to the target board, irrespective of the attitude of the board to the offer;
- immediately after a transaction which gives rise to an obligation to make a mandatory offer (Irish Takeover Rules, Rule 9 or Rule 37). A mandatory offer must take place in circumstances such as where a shareholder acquires voting rights that would bring it above 30 per cent of the total voting rights, including where this occurs as the result of a share buyback;
- when, following an approach by a bidder to the target, the target is the subject of rumour and speculation or there is an anomalous movement in its share price (the person with responsibility for making an announcement must consult the Panel immediately if either of these things happens);
when, before an approach has been made by a bidder to the target, the target is the subject of rumour and speculation or there is an anomalous movement in its share price, and there are reasonable grounds for concluding that the cause of the rumour, speculation or price movement is the target's own actions or intentions price (the person with responsibility for making an announcement must consult the Panel
immediately if either of these things happens);
- when negotiations or discussions concerning the bid are about to be extended to include more than a very restricted number of people. A bidder which proposes to approach a wider group of people (including, inter alia, where a group is being organised to make or to ifnance an bid or where irrevocable commitments are to be sought) must consult the Panel in advance;
- when a purchaser is being sought for a holding, or aggregate holdings, of securities conferring 30 per cent or more of the voting rights in a relevant company, or when the board of a relevant company is seeking potential bidders, and:
- the company is the subject of rumour and speculation or there is an anomalous movement in its share price; or
the number of potential purchasers or potential bidders approached is about to be increased to include more than a very restricted number of people; or when, after an announcement has been made to the effect that offer discussions are taking place or that an approach or offer is
contemplated, the discussions are terminated or the bidder decides not to proceed with a bid (Irish Takeover Rules, Rule 2.2).
As discussed, a bidder may not announce a firm intention to make an offer unless and until the bidder and its financial adviser are satisifed, after careful and responsible consideration, that the bidder is able and will continue at all relevant times to be able to implement the offer (Irish Takeover Rules, Rule 2.5).
3.2 Briefly summarise the information which needs to be announced at this stage
If, prior to the announcement of a firm intention to make an offer, any of the circumstances listed above in connection with Rule 2.2 occurs, then the Rules prescribe that a brief announcement by the target that talks are taking place which may or may not lead to an offer (there is no requirement to name the bidder), or by an bidder that it is considering making an offer, will satisfy the announcement requirements unless there are special circumstances requiring a more detailed announcement (Irish Takeover Rules, Rule 2.4).
An announcement of this type must state that a person interested in 1 per cent or more of any class of relevant securities of the target or, if the bidder is named, of the bidder is subject to the relevant disclosure obligations from the date of the announcement.
The most important item that must be included in an announcement of a ifrm intention to make an offer where the offer is for cash or includes an element of cash is the cash conifrmation by the bidder's ifnancial adviser or by another appropriate person that the bidder has resources available to it sufifcient to satisfy full acceptance of the offer (Irish Takeover Rules, Rule 2.5(d)).
An announcement of a ifrm intention to make an offer must also contain the prescribed information, including:
- the terms of the offer;
- the identity of the bidder and, if applicable, of the ultimate controlling interests in the bidder;
- details of all relevant securities of the target in which the bidder or any person acting in concert with the bidder is interested and details of all short positions of each such person in securities of the target;
- details of all relevant securities of the target in respect of which irrevocable commitments or letters have been received;
- all conditions (including normal conditions relating to acceptances, quotation and increase of capital) to which the offer or the making of itis subject;
- speciifed details of certain arrangements between the bidder and securities holders (Irish Takeover Rules, Rules 4.1(d) and 8.7); and
- a statement that a person interested in 1 per cent or more of any class of relevant securities of the target or, if the bidder is named, of the bidder is subject to the relevant disclosure obligations from the date of the announcement or, if earlier, the commencement of the offer period (Irish Takeover Rules, Rule 2.5(b)).
4. BID TIMETABLE
4.1 Please provide a brief overview of the bid timetable, assuming that the bid is recommended by the board of directors of the target
When a bidder has made an announcement of a firm intention to make an offer the bidder is obliged to proceed with the according to the timetable speciifed in the Irish Takeover Rules. This timetable can be summarised as follows (with relevant variations indicated between the process for a
takeover offer and a scheme of arrangement):
date of the announcement of a firm intention to make an offer: announcement made pursuant to Rule 2.5. This must include a cash conifrmation of certain funds where the offer includes a cash element. The certain funds must be maintained until completion of the offer
(Irish Takeover Rules, Rule 2.5);
- first scheme court hearing: application to the High Court for an order convening the scheme meeting of members (Companies Act 1963, section 201(1)). Where a bid is proceeding by scheme of arrangement, the target and bidder must notify the Panel and provide it with copies of all documents to be furnished to the court (Irish Takeover Rules, Rule 41.1);
- not more than 28 days after the announcement: posting of the offer document. For a scheme of arrangement, this takes the form of notices of the relevant meetings required in order to approve the scheme (Irish Takeover Rules, Rule 30.2(a));
- not less than 21 days after the posting of the offer document: (i) for a takeover offer, the ifrst closing date for acceptance; and (ii) For a scheme of arrangement, the meetings of shareholders to approve the scheme of arrangement. Given statutory periods of notice of general meetings, these meetings will generally take place no earlier than 24 days of the posting of the offer document (Irish Takeover Rules, Rule 31.1);
on the date stated in the offer document (with any permitted extensions), but not more than 60 days after the posting of the offer document: for a takeover offer, the final closing date for acceptances; by 8.00am on the business day following the final closing date or the date on which offer becomes unconditional as to acceptances: for a takeover offer, an announcement of the results of acceptances received (Irish Takeover Rules, Rule 17.1). A further announcement shall be made by 8.00am on the business day after all the satisfaction of all conditions
to the offer (Irish Takeover Rules, Rule 17.3);
- second scheme court hearing: court hearing to approve advertisements of the scheme and ifx the date for the scheme approval hearing; within one month of the ifnal closing date: for a takeover offer, if acceptances have been received from 80 per cent of holders (nondirective company offer) or 90 per cent of holders (directive company offer) as applicable, then the bidder will send notices in the prescribed form to the non-accepting holders (Companies Act 1963, section 204(4), Takeover Bids Regulations, Regulation 23(2));
one month after posting of notices to non-accepting holders: for a takeover offer, expiry of the appeal period for the takeover offer and acquisition of the securities of the non-accepting holders by the bidder (Companies Act 1963, section 204(5), Takeover Bids Regulations,
- third scheme court hearing: for a scheme of arrangement, the final court hearing to approve the scheme of arrangement; and
- on receipt of a court order resulting from the third court hearing: for a scheme of arrangement, filing of the court order in the Companies Registration Office, upon which the scheme becomes effective.
4.2 Are there any material differences if the bid is hostile (ie, unsolicited) and/or if there are competing bidders?
A hostile bid is highly unlikely to take place by way of a scheme of arrangement, since this process is almost always initiated in court by the target (though it is legally possible for a shareholder in a company to initiate a scheme).
The announcement of a hostile bid will be announced by the bidder alone, instead of by joint announcement by the bidder and target, and in cases where there is no prior discussion of the proposed bid, the target may get very limited forewarning of the announcement.
After the posting of an offer document by a hostile bidder, the target will post a ifrst response circular to holders within 14 days, setting out the opinions of the target board on the offer (Irish Takeover Rules, Rule 30.3(a)). The target board may issue further communications to holders (trading results, a proift or dividend forecast or proposal, an asset valuation or a statement of the anticipated effects of the merger) up to the 39th day after the posting of the offer document. The target cannot issue such communications in the period between the 39th day and the end of the offer period (Irish Takeover Rules, Rule 31.9).
The offer document may be revised by the hostile bidder up to the 46th day after the posting of the first offer document (Irish Takeover Rules, Rule 31.9). The 46th day is the last day on which the revised offer can be open for acceptance for 14 days before to the latest possible closing date for acceptances on the 60th day (Irish Takeover Rules, Rule 32.1). The revised offer document also gives the hostile bidder an opportunity to respond to
the matters stated in the target's defence document.
The timetable for conducting a hostile bid will be affected by whether a 'competitive situation' exists. This arises where a bid is announced at a time when another bid is in existence. In such circumstances time the limit of the 39th day for communications by the target with shareholders and the last date on which an offer may be revised may be altered by the Panel (Irish Takeover Rules, Rules 31.4(a) and 32.1). The Panel has more general powers to adjust bid timetables in a competitive situation (Irish Takeover Rules, Rule 31.4(b)).
4.3 What are the key documents which the shareholders of a target company would typically receive on a bid?
After the making of an announcement of a firm intention to make an offer, the first document that shareholders will receive is the offer document.
Where the bid takes the form of a takeover offer, the offer document will have the contents specified in the Rules (Irish Takeover Rules, Rule 24), and where the bid is a recommended bid it will also incorporate a circular from the target board containing their recommendation (Irish Takeover Rules,
Rule 25). This document will set out the steps required to be taken.
Where the bid takes the form of a scheme of arrangement, the offer document will take the form of notices of the meetings of shareholders required in order to approve the scheme. The other prescribed contents of an offer document will also apply (Irish Takeover Rules, Rules 24 and 25). In addition to attending and voting at the scheme meetings, the shareholders will also be entitled to cast votes by proxy and relevant forms of proxy will
be included with the offer document.
If the offer is not a recommended offer, then shareholders will receive a ifrst response circular from the target board by way of a separate document within 14 days of posting of the offer document (Irish Takeover Rules, Rule 30.3).
The bidder may issue one or more revised offer documents to shareholders during the offer period if it chooses to revise its offer (for example, by
increasing the price) (Irish Takeover Rules, Rule 32.1).
In a takeover offer, once the threshold for minority squeeze-out has been met, the prescribed notices will be sent to the remaining non-
accepting shareholders (Companies Act 1963, section 204(4) Takeover Bids Regulations, Regulation 23(2)).
5. FUNDING AND CONSIDERATION
5.1 At what stage does a bidder need to have funding in place? Are there any legal or regulatory requirements which the bidder must satisfy to show that its funding is sufficient?
The period for which the bidder must have certain funds in place is the period between the announcement of a ifrm intention to make an offer and the date on which the bid is completed or lapses. 'Certain funds' is the colloquial term used to describe the requirement that the bidder's financial adviser will conifrm that the bidder has sufficient resources to discharge the consideration due under the offer. A statement to this effect must be made in both the Rule 2.5 announcement and the offer document. The bidder's ifnancial adviser may be required to itself discharge the offer consideration if the consideration is not available and the Irish Takeover Panel is not satisifed that the financial adviser acted responsibly and took all reasonable steps to assure itself that an offer consideration consisting of cash was available and would continue to be available at all relevant times.
5.2 Can the consideration offered by a bidder take any form? Are there any special requirements the bidder must satisfy if the consideration is otherwise than in cash?
The consideration offered by a bidder may take the form of any combination of cash and/or securities. The securities offered may be securities of the
bidder or of another company.
In the event that the consideration for an offer includes securities of a company, the offer document must include additional ifnancial and other information on that company and dealings in its securities (Irish Takeover Rules, Rules 24.2-24.4) and a valuation report must be provided in the case of an offer by scheme of arrangement.
6.1 Can a bid be made subject to the satisfaction of any pre-conditions? If so is there any restriction on the content of any such pre-conditions?
A bid may be made subject to pre-conditions - for example, the required acceptance condition described at section 6.2, below, or approval from the relevant competition authorities (Irish Takeover Rules, Rule 12). However, bids cannot be made subject to any pre-condition that depends solely on the subjective judgements of the bidder's directors or is within their control (Irish Takeover Rules, Rule 13.1).
6.2 What conditions are usually attached to a bid itself? Other than as a result of law and regulation specific to particular sectors and/or
bidders are there any conditions which are mandatory?
Every bid must specify an acceptance condition at a level that would result in the bidder holding securities conferring more than 50 per cent of the voting rights in the target (Irish Takeover Rules, Rule 10.1). In a takeover offer, this acceptance level is usually set at the 80 per cent or 90 per cent squeeze-out threshold for a non-directive company offer and a directive company offer respectively. Similarly, a scheme of arrangement will usually be subject to the condition that all resolutions passed at the scheme meetings are passed. Where the proposed deal structure involves a subsequent listing of securities, this may also be made a condition of the bid.
6.3 Is the bidder able to rely on the fact that a condition is not satisfied as a means of not proceeding with the bid?
The non-satisfaction of a condition may permit a bid to lapse. A typical reason is where a resolution fails to be passed with the required majority at the scheme meeting (typically, a scheme of arrangement is conditional on the passing of all resolutions at all scheme meetings, and not just the
resolution(s) required in order to sanction the scheme).
However, where a bidder wishes to assert that a bid has lapsed due to a condition involving a criterion of materiality, substance or signiifcance not having been satisifed, the bidder must consult the Panel and satisfy it that in the prevailing circumstances it would be reasonable for the bid to lapse (Irish Takeover Rules, Rule 13.2). In practice, the Irish Takeover Panel will be very reticent to accept that the offer should lapse based on the non-satisfaction of a condition other than one resulting from an application for a necessary regulatory clearance being declined or a negative shareholder in respect of a resolution the passing of which was specified as a condition vote.
7.1 Is a bidder free to buy shares in the target in the period leading up to a bid and subsequently? If so, what are the disclosure requirements? Are there any material consequences for the bidder or target if stakebuilding does take place?
A bidder can buy shares in the target in the period leading up to a bid, but it should be aware of certain consequences that arise from such stakebuilding.
The first consequence of stakebuilding is that it may trigger disclosure obligations under the Transparency Regulations and the Substantial Acquisition Rules. Under the Transparency Regulations, a person is obliged to notify a listed company where the percentage of voting rights that it holds reaches, exceeds or falls below one 3 per cent and each 1 per cent threshold thereafter (or in the case of a non-Irish issuer on the basis of
thresholds at 5, 10, 15, 20, 25, 30, 50 and 75 per cent) (Transparency Regulations, Regulation 14; Transparency Rules 2009, Rule 7.1). Transferable securities and options, futures, swaps, forward rate agreements and other speciifed derivative contracts are counted towards these thresholds provided that they result in an entitlement to acquire voting shares (Transparency Regulations, Regulation 17). The company is obliged to publicly disclose the information notiifed upon receipt of notiifcation from the notifying person.
As noted above, the Substantial Acquisition Rules prohibit persons from making acquisitions - called a 'substantial acquisition of securities' - of an affected company's securities that would bring it from below 10 per cent to above 15 per cent (but less than 30 per cent) of the voting rights within a seven-day period (Substantial Acquisition Rules, Rule 4). There are exceptions to the prohibition, including for a substantial acquisition of securities made by a bidder immediately before immediately before announcing a ifrm intention to make an offer (Substantial Acquisition Rules, Rule 5). The Substantial Acquisition Rules also require disclosure of certain acquisitions to the Irish Stock Exchange and the Panel (Substantial Acquisition Rules, Rule 6). It is likely that the Substantial Acquisition Rules will be abolished in the near future. The UK equivalents of the Substantial Acquisition Rules were abolished in 2006, and in 2008 the Irish Takeover Panel published a consultation paper on abolition but has not yet moved to abolish them.
After the announcement of a bid, and for the duration of the offer period, dealings in shares of the target and of the bidder are governed by the Irish Takeover Rules. In this period, the following dealings in relevant securities (which includes equity securities of the bidder and target) must be disclosed:
- all dealings in relevant securities by the bidder or the target (Irish Takeover Rules, Rule 8.1); and
- all dealings in relevant securities by any associate of either of the bidder or the target (Irish Takeover Rules, Rule 8.1); and
- all dealings in relevant securities by any person (which includes two or more persons who co-operate on the basis of an agreement) who is interested in (or who becomes interested in) 1 per cent or more of any class of relevant securities (Irish Takeover Rules, Rule 8.3).
Interests in relevant securities for the purposes of calculating the 1 per cent disclosure threshold include the aggregate gross long position of the
person in question.
All public disclosure must be made by a stock exchange Regulatory Information Service (Irish Takeover Rules, Rule 8.5).
8. RECOMMENDED BIDS
8.1 Where a bid is recommended, does the target board require a 'fiduciary out' (e, the ability to withdraw its recommendation)? If so what, typically, is the scope of this right and what are the consequences for the bid?
Each director of an Irish company has a ifduciary duty to act in good faith in what they consider to be the interests of the company. This is supplemented by a duty not to restrict the director's power to exercise an independent judgment. However, the latter duty is usually described as being qualiifed where the director considers in good faith that it is in the interests of the company for a transaction or engagement to be entered into and carried into effect (The recently published draft Companies Bill 2011, section 225 sets out the ifduciary duties of directors - including the latter clariifcation - in statutory form for the first time, and can be regarded as a signpost of where Irish law is going in this area).
The directors' general public law duties are supplemented by the obligation of the (independent and unconlficted) members of the target board to give their opinion on the offer (Irish Takeover Rules, Rule 3.1). Where the directors recommend a particular bid, they are not prohibited by the Rules from withdrawing that recommendation, for example if a highervalued bid emerges. This can be done by way of response circular posted to
However, one issue poses a particular problem for directors who propose to withdraw their recommendation: the irrevocable undertakings typically required by a recommended bidder from the members of a target company board to vote their shares in favour of the bid. The bidder will usually want the directors to give an undertaking that cannot be withdrawn under any circumstances, including where a higher-valued bid emerges. In considering whether their ifduciary duties permit them to give such a restrictive undertaking, directors should take into consideration whether or not it is in the interests of the company that the bid succeeds and the likelihood that the bid will be abandoned or amended in the event that the undertaking is not given. Ordinarily, the target board will reserve the right to recommend a competing higher offer but there have been instances when target boards have accepted a constraint from doing so unless competing bids meet certain price and other parameters.
9. HOSTILE BIDS
9.1 How can a target company defend a hostile bid?
As noted above, it is a general principle of the Irish Takeover Rules that the target board must not deny the holders of securities the opportunity to decide on the merits of an offer (Irish Takeover Panel Act 1997, Schedule, paragraph 3). This principle is relfected in a number of Rules that together make it almost impossible to implement the takeover defences that are typical in less regulated takeover markets. For example, during an offer period, or at any earlier time at which the board has reason to believe that the making of an offer may be imminent, the target is not permitted to take
any of the following actions:
- allot or issue any authorised but unissued shares (including treasury shares);
- issue or grant an option in respect of any unissued shares (including treasury shares);
- create or issue, or permit the creation or issue of, any security conferring rights of conversion into or subscription for shares;
sell, dispose of or acquire, or agree to sell, dispose of or acquire, any assets of a material amount or any operations yielding proifts of a
- enter into any contract otherwise than in the ordinary course of business; or
- take any action, other than seeking alternative offers, which may result in frustration of an offer or possible offer or in target shareholders being denied the opportunity to decide on the merits of such an offer or possible offer;
- without speciifc authorisation from the Irish Takeover Panel and/or the shareholders (Irish Takeover Rules, Rule 21.1).
In the event that the directors of a target company decide, after receiving independent advice, that a particular bid is not in the interests of the company, their principal duty is to set out their views in a response circular to shareholders (Irish Takeover Rules, Rules 3.1 and 25.1).
As noted above, the directors are not obliged to co-operate with a hostile bidder, for example by permitting access to due diligence material. However, the principle of equality of information may convince the directors that, in a competitive situation, making due diligence information available to a nonhostile bidder runs the risk of requiring disclosure of the same information to a hostile bidder in the event that the hostile bidder requests it (Irish Takeover Rules, Rule 20.2)
Though the Rules leave a limited range of actions available to defend against a hostile bid, there are a number of tactical options that directors will be able to implement in consultation with their legal advisers.
10. COMPULSORY ACQUISITION OF SHARES
10.1 Briefly describe any compulsory acquisition or 'squeeze-out' provisions a bidder may be able to take advantage of in order to
acquire the shares of non-accepting shareholders
As discussed at section 2.1, above, takeover offers and schemes of arrangement provide different legal means to squeeze-out non-accepting shareholders. The required threshold for each method can be summarised as follows:
- directive company offer: the acquirer of 90 per cent or more of the affected securities that are not already owned by it can squeeze-out the non-accepting minority (Takeover Bids Regulations, Regulation 23);or
- non-directive company offer: the acquirer of 80 per cent or more of the shares affected that are not already owned by it can squeeze-out the non-accepting minority (Companies Act 1963, section 204); or
- scheme of arrangement: with the approval of the court, where a resolution is passed by 75 per cent by value of the votes cast at each relevant shareholder meeting and more than 50 per cent in number of the shareholders voting in person or by proxy at each meeting, then the dissenting shareholders will be bound by the scheme and their shares will be affected in the same way (usually by cancellation) (Companies Act 1963, section 201).
A takeover offer is a simple proposal by the bidder to the shareholders of the target company. It does not require any particular legal steps to be taken by the target in order to be effective.
A scheme of arrangement is a statutory procedure by which a target company makes an arrangement or compromise with some or all of its members. It is generally initiated by the target company and conducted by it in cooperation with the bidder.
The advantages and disadvantages of each approach is summarised at section 2.1, above.
11.1 What are the requirements for de-listing a target company's shares following a successful bid?
Where a target company that is listed on the Main Securities Market of the Irish Stock Exchange has, by virtue of its shareholdings and acceptances of the offer, acquired or agreed to acquire issued share capital carrying 75 per cent of the voting rights of the target and has stated in the offer document that it intends to de-list the target company's shares, then the cancellation of its listing will take place automatically in accordance with the Listing Rules (Irish Stock Exchange Listing Rules, Listing Rule 1.6). A notice period of 20 business days is required from the date that the 75 per cent of acceptances has been received or the date on which compulsory acquisition notices were sent in connection with the takeover offer.
12. TRANSFER TAXES
12.1 Are there any transfer taxes which are payable on a bid for a target company incorporated in your jurisdiction, under the various routes described above?
If the bid takes place by way of takeover offer, then a stamp duty cost of 1 per cent of the value of the consideration given by the bidder is payable by it
(although mitigation opportunities may exist).
No stamp duty tax cost arises if a scheme of arrangement is structured to take effect by cancellation of the existing shares.
13. EMPLOYEE ISSUES
13.1 Are there any employee notification or consultation requirements on a bid?
The bidder is obliged in its offer document to state:
- its strategic plans for the target company and their likely repercussions on employment and on the locations of the target's places of business; and
- its intentions with regard to safeguarding the employment of the employees and management of the target and of its subsidiaries, including any material change in the conditions of employment (Irish Takeover Rules, Rule 24.1).
Simultaneously with the posting of the offer document, both the bidder and the target are obliged to make the offer document readily available to the representatives of their respective employees or, where there are no such representatives, to the employees themselves (Irish Takeover Rules, Rule 30.2(a)).
Likewise the board of the target company is required to state in its response circular (which is also circulated to shareholders and not to
employees) its views on:
- the effects of implementation of the bid on all the target's interests including, speciifcally, employment; and
- the bidder's strategic plans for the target and their likely repercussions on employment and on the locations of the target's places of business, as set out in the offer document;
- and must also state the board's reasons for forming its opinion (Irish Takeover Rules, Rule 25.2).
The response circular, to the extent that it is not incorporated in the offer document, must similarly be made available to the employee representatives of the bidder and the target or, where there are no such representatives, to the employees themselves (Irish Takeover Rules, Rule 30.3(c)).
Provided it is received in good time for posting, the target board must append to the response circular any opinion that it receives from the target company's employee representatives on the effects of the offer on employment (Irish Takeover Rules, Rule 30.3(b)).
14. CURRENT TOPICAL ISSUES AND TRENDS
14.1 Please summarise any current issues or trends relating to public M&A activity in your jurisdiction
The continued movement of US MNCs to Ireland has resulted in number of larger companies (over a dozen companies of such companies have a market capitalisation of over $1 billion), many of whom do not have an Irish listing, being subject to the Irish Takeover Rules. In due course, as proposals concerning complete or partial ownership changes in these enterprises may develop, we expect to see continued involvement in resulting transactions for those Irish ifrms which are active in this area, despite the fact that the bulk of the business activities of many of these enterprises is carried out outside of Ireland.
The differences in detail between the Irish Takeover Rules and the London City Code have tended to widen in the last few years. Notable features include the retention (for the time being) of the Substantial Acquisition Rules by the Irish Takeover Panel and there being no plans at present to adopt the UK's Cadbury reforms in their entirety. The Irish Takeover Panel has published consultation papers on a number of proposed reforms (details are available at: www.mhc.ie/fs/doc/publications/irish-takeover-panel-july-2011.pdf). It is possible that some of the Cadbury reforms may be considered at a later date, but for now UK practitioners will need to be aware that their ability to rely on experience from UK takeover practice in relation to an approach to an offer governed by the Irish Takeover Rules is diminishing.
The contents of this publication are to assist access to information and do not constitute legal or other advice. Specific advice should be sought in relation to specific cases. © Copyright Mason Hayes & Curran 2012. All rights reserved. MHC.ie