This country-specific Q&A gives an overview of mergers and acquisition law, the transaction environment and process as well as any special situations that may occur in Spain.
It also covers market sectors, regulatory authorities, due diligence, deal protection, public disclosure, governing law, director duties and key influencing factors influencing M&A activity over the next two years.
This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Mergers & Acquisitions Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/mergers-acquisitions/
What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
The main Spanish rules regarding private contracts, including share purchase agreements, are both, the Civil Code (Código Civil) and the Code of Commerce (Código de Comercio). Additionally, the regulation of the corporate Spanish companies is the Spanish Companies Act (Ley de Sociedades de Capital). Besides, provided that any of the participating company´s share capital is quoted on the Spanish Stock Exchange, it also applies the Spanish Act of the Stock Exchange Market (Ley del Mercado de Valores) and any eventual takeover bids are foreseen in the Royal Decree 1066/2007, on the public takeovers bids regime (Real Decreto sobre el régimen de las ofertas públicas de adquisición de valores). In the event that the transaction implies the purchase of shares quoted on the Stock Exchange, the competent authority to preserve the law fulfilment is the Spanish Stock Exchange Commission (Comisión Nacional del Mercado de Valores or CNMV). Additionally, in terms of antitrust, the National Commission on the Markets and Competition (Comisión Nacional de Competencia) is the authority which is responsible for preserving and promoting an effective competition in the national markets. The different Commercial Registers (Registros Mercantiles) – which are located all over the country - are the competent to register companies´ life, implying legal beginning of effects (and available public information) once registered. But not the transfer of shares itself, which does not have to be registered (when transferred not by way of a Structural Change). In this case, and going back to private contracts, the Public Notaries, who in Spain attest the date of transfer and the capacity and authority of the relevant attendees, substitute any other regulatory authority – without prejudice to the National Commission on the Markets and Competition, when applicable.
The main regulations on mergers, spin-offs and other forms of corporate reorganizations are included in the Act of Structural Changes of Legal Companies (Ley de Modificaciones Estructurales de las Sociedades Mercantiles). As the previous case, the different Commercial Registers are the competent to register the corporate reorganizations, implying also legal beginning of effects (and available public information) once registered, without prejudice to competences of the Spanish Stock Exchange Commission (if any participating company´s share capital is quoted on the Spanish Stock Exchange) and the National Commission on the Markets and Competition (antitrust), when applicable.
What is the current state of the market?
According to Transactional Track Record, during the first nine months of 2016 the M&A transactions in Spain have been similar to the ones registered during the same period in 2015, which was a very good year in comparison with 2014. These seems to mean that the M&A market has not been significantly affected by the lack of formal national government during almost a whole year. Notwithstanding the above, the last quarter of the year is becoming more active probably than the rest of the year. Therefore, the economy and the markets in general seem to be reacting in quite good mood to the clearance of the Spanish environment.
Which market sectors have been particularly active recently?
Regarding the Spanish market, Real Estate, Technologies and Finance & Insurance. Additionally, there has been a notorious increase in the investment on Energy, especially on renewable energies.
From our Deloitte Legal side, we have perceived active movements regarding infrastructure and hospitality sectors.
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
- The regulatory framework: new applicable Spanish laws and European Directives, especially related to taxation, financial markets and compliance rules. In this regard, the special significance that the regulatory changes have on the M&A markets implies a positive (or negative) encouragement in the investors’ willing to invest.
- Financing: the capability and volume from the financial entities to grant financing in favour of companies, which may promote investments and to mobilize markets.
- New technologies and markets: the irruption of new products, services and channels, which may affect, among others, to classic and established markets (e.g. transports and hotels).
What are the key means of effecting a merger?
The main effect is that, by operation of law, provided that the process, terms and conditions stated under the Act of Structural Changes of Legal Companies (Ley de Modificaciones Estructurales de las Sociedades Mercantiles) are followed, the absorbing company (which results of the merger) automatically inherits the rights and obligations (including employees and labour and social security obligations) of the absorbed company/companies through a so called “universal succession”, without the need of claiming for specific consents or authorisations for the transfer. The absorbed company is consequently extinguished without liquidation.
What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?
Provided that the target company does not have its share capital quoted on the Stock Exchange, the public information can be obtained mainly through (i) the Commercial Registers (Registros Mercantiles) – the setting up conditions, the financial statements, the by-laws, the governance bodies, all general powers of attorney granted, its auditors appointed, any Structural Change, etc; (ii) the Real Estate Registers (Registros de la Propiedad) -real estate properties, lease agreements, options, etc; and (iii) the Intellectual and Industrial Spanish Office (Oficina Española de Patentes y Marcas) – trademarks, patents, commercial names, etc.
Additionally, if the target company has its share capital quoted on the Stock Exchange, as this market is more regulated, the relevant information shall be included by the target company in its corporate webpage and duly reported to the Spanish Stock Exchange Commission (Comisión Nacional del Mercado de Valores or CNMV). In this regard, in this case, as well as the information which may be obtained through the Commercial Registers (Registros Mercantiles), some other information should be reported by the target company in its webpage, among other, that referring to significant shareholders, treasury stock and shareholders’ agreements.
By way of law, there is no obligation to provide the potential acquirer with certain information. However, the common practice in Spain is to provide with some relevant information moving from an early stage of the transfer process to the final one (at closing). In this regard, there is a wide range of possibilities, from a limited provision of documents to a very complete one, distinguishing, in the event, between the different phases and bidders. Mainly it depends on the terms and conditions agreed on the letter of intent or the memorandum of understanding and on the applicable exclusivity and confidentiality clauses.
In bilateral process, with no other potential acquirer, usually the information provided is higher and more relevant. Under a tender process, where there are several bidders, the seller usually limits the provision of information and only increases it when there is only one final bidder in order to promote the potential binding offer and/or the closing.
To what level of detail is due diligence customarily undertaken?
During the last years, the common practice has been to reduce the scope of the due diligence and focus the study basically on checking whether a deal breaker comes up and key findings.
It depends on the target and the sector in which it operates, but in general, traditionally some aspects are analysed in most of the due diligence processes from the legal point of view, such as, among others, valid title of the owner to the shares, any existing burdens or encumbrances on them, limitation to the transfer of shares, valid deposit of the financial statements, legal status of the Company´s real estate, permits and licenses, IP, litigations and relevant clauses on agreements in view of the transaction (liabilities, change of control clauses, termination clauses, causes of resolution, etc.).
Over the last months, in accordance with the Spanish regulatory framework, the market has experienced a major concern on compliance and regulatory matters. As a consequence of the above, corporate governance matters, for example could also be included and a specific compliance due diligence may be carried out (including, for example, data protection issues, criminal liability on companies, antitrust, insurance, money laundering, etc).
In this regard, in Deloitte Legal Spain we have been able to adapt to these continuous changes related to due diligence processes and their scopes, focusing our efforts in the trend of the market and being capable to offer ad-hoc scopes and also special and specific compliance and regulatory advisory services.
What are the key decision-making organs of a target company and what approval rights do shareholders have?
The key decision making organs of the target company are the Managing Body (formed by a minimum of three directors) or the Administrators (the company may have a Sole Administrator, joint Administrators or joint and several Administrators) and the shareholders, through a general Shareholders’ meeting. A unipersonal (or sole shareholder) company (having a one and only shareholder and a special regimen) is also permitted.
Regarding the rights of the shareholders, by law, they have the right to decide (through the general Shareholders’ meeting) an eventual sell of the company’s essential assets, being understood as such any amounting to 25% or above in relation to the company´s total assets.
With regards to the sale of the shares of the company, according to law, there is a difference between Sociedades de Responsabilidad Limitada (Private Limited Liability Companies) and Sociedades Anónimas (Private Companies). The first ones having a pre-emption right on the acquisition of the shares and the seconds being in principle freely transferred. Without prejudice to the above, provided that it is foreseen in the by-laws of the company and/or in a shareholders’ agreement, most of the times, those pre-emption rights – which should be specifically waived in the event of a potential transaction – apply to all types of companies. In addition, if it is also agreed in the by-laws or in a shareholders’ agreement (if only in the latter, their binding effects towards third parties may be challenged) they may have a right (tag-along right) to join the transaction and sell his stake in the company if another shareholder sells his stake. This right is designed to protect the minority shareholders. On the contrary, for the majority shareholders there may be a drag-along right, which enables a majority shareholder to force a minority shareholder to mandatorily join in the sale of a company under the specific conditions agreed between shareholders.
What are the duties of the directors and controlling shareholders of a target company?
The managing body of the target company may direct and provide the potential acquirer with the information in a duly and a confidential way. In this regard, as the process may move forward, the managing body could inform the shareholders regarding the interest of a third potential acquirer and the eventual conditions of the proposed transaction. Moreover, the provision of information depends on the due diligence and tender process, as it changes whether there is only one potential acquirer or there are several.
In relation to the directors´ duties, there are several obligations which must be fulfilled by the management body. In this regard, they must act diligently (they will carry out their tasks with the diligence of a prudent business person and be loyal to the interests of the company, act in the best interest of the company and comply with the duties established in the by-laws and the applicable laws and regulation).
Moreover, these obligations imply:
- the duty to notify an eventual conflict of interest: any direct or indirect conflict of interest that might arise and be in any way damaging to the company’s interest;
- the prohibition to compete against the company (unless previously authorized by the company, the directors may not carry out, whether in their own name or on behalf of a third party, activities that are identical or similar to those of the company’s corporate purpose);
- the prohibition to take advantage of business opportunities regarding investments or activities affecting the company’s assets when that investment was known by the member of the company as a consequence of their condition as directors, or in the event that the company had an interest in it; and
- the obligation of keeping a duty of secrecy in relation to confidential information known due to their position, unless its disclosure is allowed by law.
Do employees/other stakeholders have any specific approval, consultation or other rights?
In case of certain Structural Changes (mergers, spin-offs, etc), both employees and shareholders have specific rights. Employees -through their legal representatives- and shareholders have rights of information about the proposed Structural Change once the General Shareholders’ Meeting is called for its approval (there is a list of compulsory information legally determined and a specific information period provided by law). As well, creditors have in the referred Structural Changes a one-month term opposition right (unless their credits are sufficiently guaranteed and therefore they are not affected as a consequence of the Structural Change). In general, there are no other approvals or consultations in case of these Structural Changes since they imply that, following the specific process of approval and publicity established by law, all rights and obligations (including employees and labour and Social Security obligations) are automatically transferred through a so called “universal succession”, without the need of claiming for other consents or authorisations.
In case of acquisitions, there are two different scenarios:
- Shares deal: as a general rule, legally shareholders have pre-emption right of purchase but it differs depending on the legal form of entity. As well, pre-emptive rights can be altered/modified in the by-laws (although it is not usual, sometimes these alterations/modifications are only in private stakeholders’ agreements without changes in the by-laws). Employees do not have specific rights in case of shares deal.
- Assets deal: considering the transfer of essential assets or a business unit, the General Shareholders’ Meeting of the seller entity (the company owning the assets) has to approve the proposed transfer.
Employees related to the assets transferred pass to the purchaser entity keeping all their employment conditions. Seller and purchaser entities have to inform in advance their respective employees about the date of transfer and the reasons, consequences and measures to be adopted from a labour perspective in relation to the transfer proposed. As well, seller and purchaser entities have to inform the Social Security authorities in order to de-register the employees involved as employees of the seller and the registration of the same as employees of the purchaser. Anyway, both seller and purchaser entities are jointly and severally liable of employment and social security obligations for the last three years related to the employees transferred.
Additionally, asset deals require: (a) consents from creditors to the new debtor; (b) notifications to debtors in order to inform them about the new creditor; and (c) as a general rule, consents from counterparties of agreements transferred, unless the respective agreement permits the transfer without consent.
Finally, it should be noted that: (a) additional information provided by law has to be submitted to the Spanish Stock Exchange Commission in case of listed companies; and (b) additional approvals could be required from: (i) anti-trust authorities, depending on the entities involved in the proposed transaction; and/or (ii) other regulatory authorities, in case of companies involved is sectors like financial, insurance or energy, among others.
What regulatory/third party approvals are required and what waiting periods do these impose, if any?
Approvals are required from: (i) anti-trust authorities, depending on the entities involved in the proposed transaction; and/or (ii) other regulatory authorities, in case of companies involved is sectors like financial, insurance or energy, among others.
In case of Structural Changes, there are no approvals from employees but the proposed Structural Change has to be approved by the General Shareholders’ Meeting. As well, creditors have in specific Structural Changes a one-month term opposition right (unless their credits are sufficiently guaranteed and therefore they are not affected as a consequence of the Structural Change). In general, there are no other approvals or consultations in case of these Structural Changes since they imply that, following the specific process of approval and publicity established by law, all rights and obligations (including employees and labour and Social Security obligations) are automatically transferred through a so called “universal succession”, without the need of claiming for other consents or authorisations.
In case of acquisition, there are two different scenarios:
- Shares deal: as a general rule, legally shareholders have pre-emption right of purchase but it differs depending on the legal form of entity. As well, pre-emptive rights can be altered/modified in the by-laws (although it is not usual, sometimes these alterations/modifications are only in private stakeholders’ agreements without changes in the by-laws). There are no approvals from employees.
- Assets deal: considering the transfer of essential assets or a business unit, the General Shareholders’ Meeting of the seller entity (the company owning the assets) has to approve the proposed transfer. There are no approvals from employees.
Additionally, asset deals require: (a) consents from creditors to the new debtor; (b) notifications to debtors in order to inform them about the new creditor; and (c) as a general rule, consents from counterparties of agreements transferred, unless the respective agreement permits the transfer without consent.
To what degree is conditionality an accepted market feature on acquisitions?
Conditions precedent are generally accepted and usual, especially in case of required third-party approvals. On the contrary, conditions subsequent are not so common.
What steps can an acquirer of a target company take to secure deal exclusivity?
Exclusivity may be (and is usually) agreed by means of private preliminary agreements (e.g. purchase offer, letter of intent or memorandum of understanding) between seller and acquirer and for a certain term. The referred private preliminary agreements may be entered into as binding or non-binding (exclusivity makes no sense when the parties decide to enter into non-binding agreements).
In case of breach of exclusivity, when binding, acquirer may claim damages compensation according to Spanish law. In order to make easier a claim and quantification of damages compensation, the parties may agree specific compensations as liquidated damages (i.e. a penalty). Under Spanish law these agreed penalties could be agreed as cumulative or alternative to damages compensation. In case of penalty cumulative to damages compensation, Spanish courts could mitigate the amount of the penalty considering the circumstances involved.
There would be other options (e.g. purchase option rights) but they are unusual in Spanish M&A transactions due to time and costs constraints.
What other deal protection and costs coverage mechanisms are most frequently used by acquirers?
Standard coverage is agreed in private preliminary agreements (e.g. purchase offer, letter of intent or memorandum of understanding) before the transaction is completed and/or in the shares/assets purchase agreements at completion.
Deal protections are mainly representations and warranties from the seller, personal or in rem guarantees, escrow accounts, purchase price adjustments, earn-outs or non-compete or exclusivity agreements.
Additionally, merger and acquisition insurances are getting more importance.
Which forms of consideration are most commonly used?
Sellers in Spain continue having main interest on cash, being paid fully at closing or partially delayed and conditioned to certain events. Earn-out and price adjustments agreements are also usual. We also see indirect considerations by means of, for example, transactional services agreements: payment of leases, IP rights or other types of services rendered by sellers. Payments by shares or, in-kind contributions, are not so commonly used, although possible.
At what stages of an acquisition is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
Public disclosure is generally not required, with the exception of:
- Listed companies (as a general rule, it is necessary to file – as soon as practicable – formal notice with the Spanish Stock Exchange Commission notice about any fact or decision able to affect the shares quotation).
- Companies in regulated sectors like insurance, financial sector or energy.
In case of voluntary disclosure, it is advisable not before the transaction is completed (in case of transaction subject to conditions, when conditions are met), especially when third party consents have to be obtained or when third parties with right of information have to be informed.
Are there any circumstances where a minimum price may be set for the shares in a target company?
As a general rule, acquirer and seller are free to determine the purchase price in an assets or shares deal but there are other circumstances to be considered:
- A purchase price below market price may involve additional taxation.
- The Spanish Companies Act requires in particular cases (e.g. in case of shareholders exercising a separation right) that the transfer price has to be the shares reasonable value (“valor razonable”). In the absence of agreement about reasonable value, it will be the value determined by an independent expert – appointed in accordance with the rules established by law.
- The Spanish Supreme Court states that the purchase price cannot be negative (i.e. an event where the seller pays the acquirer for the sale).
In case of Structural Change (e.g. merger), by law the price has to be a market price. The market price is estimated considering the real equity value of each company involved and this is the basis for the calculation of the shares exchange rate. The proposed shares exchange rate has to be included in the directors’ report about the Structural Change and in the Structural Change project. In case of Private Companies (Sociedad Anónima) an additional report from independent expert is required in order to check, among others, the proposed shares exchange rate.
Is it possible for target companies to provide financial assistance?
No, as a general rule. Financial assistance regulations are slightly different depending on the legal form of entity but, in general, they are not permitted.
Limited Liability Companies (Sociedad Limitada) cannot accept as guarantee their own shares (or shares of companies belonging to their group). As well, they cannot advance funds, grant credits or loans, give guarantees or facilitate financial assistance for the acquisition of their shares (or shares of companies belonging to their group).
Private Companies (Sociedades Anónima) cannot advance funds, grant credits or loans, give guarantees or facilitate financial assistance for the acquisition of their shares (or shares of their parent companies). These limitations do not apply: (i) when these transactions pursue that employees acquire shares of the company (or of the parent company); or (ii) to banks, in certain events. On the contrary, Private Companies (Sociedades Anónima) can accept as guarantee their own shares (or shares of their parent companies) in limited and listed events imposed by law and with certain limits.
Which governing law is customarily used on acquisitions?
In our experience, the governing law in most acquisitions of Spanish companies’ shares and/or business is the Spanish law.
Nevertheless, Spanish regulations are flexible and permit the election of governing law to acquisition or purchase agreements. In this sense, it is common to expressly agree the exclusion of the application of the Spanish Civil Code (Código Civil) to a transaction and any complementary Spanish regulation that might be applicable to the acquisition, in order to state that the acquisition agreement shall be governed specifically by the terms and conditions expressly agreed therein. Alternatively, the parties may agree that the terms and conditions of the agreement shall be governed by a foreign regulation, as long as a link exists between the elements of the agreement and such foreign regulation (i.e. applicable foreign regulation due to the nationality of any of the parties or its the parent company, on international transactions, if required by the financing banks, etc). Notwithstanding the above, in any event, the Spanish mandatory rules and regulations must be followed and those include, among others, the formal requirements to fulfil the transfer the ownership of the shares.
What public-facing documentation is it necessary for a buyer to produce in connection with the acquisition of a listed company?
In Spain, it is only necessary for a buyer to produce public-facing documentation in public takeover bids (OPAs) scenarios. Such information shall be controlled by the Spanish Stock Exchange Commission (Comisión Nacional del Mercado de Valores or CNMV). Please note that the buyer shall execute a public takeover bid (OPA) if the buyer becomes, or will become, the owner of, at least, 30% of the listed company share capital or, in general terms, when the buyer acquires the direct or indirect control of the listed company.
In such events, the Royal Decree 1066/2007, on the public takeovers bids regime (Real Decreto sobre el régimen de las ofertas públicas de adquisición de valores), which shall be taken into consideration with other regulations, establishes the minimum information that shall include, from one side, the mandatory public announcements and, from the other, the informative prospectus on the takeover bid which shall be made available to the general public and the employees. The minimum information that shall include both documents is very exhaustive and, in general terms, refers to (i) the buyer and its group; (ii) the relevant listed company; (iii) the relevant shares and other rights of the applicable listed company; (iv) the offered consideration; (v) the takeover bid conditions; (vi) guaranties; (vii) financing; (viii) the acceptance and liquidation process, and (ix) the purpose and necessary authorizations to execute such takeover bid.
What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?
In Spain the formalities required to document an ordinary transfer of shares (for non-listed companies) will depend on the type of company to be acquired. In this sense, the most common type of companies in Spain are the Private Limited Company (Sociedad de Limitada), or a Private Company (Sociedad Anónima) and in accordance with Spanish Companies Act (Ley de Sociedades de Capital), the formalities to execute a transfer of shares will depend on whether the company to be transferred is a Private Limited Company (Sociedad de Limitada), or a Private Company (Sociedad Anónima), being generally the transfer of the shares in a Private Limited Company more restricted than the transfer of shares in a Private Company.
The main differences between the aforementioned company types to transfer shares, are the following:
- In Private Limited Companies, non- transferring shareholders have a pre-emption right on the acquisition of the shares in case the shares will be transferred to a third party (i.e. person different from the spouse, ascendants, descendants of the shareholder, or, if expressly included in the company’s By-Laws, in favour of a company member of the same group). While the general system regarding the Private Companies is that the shares are usually freely transferred, unless the transfer regime of the shares is expressly foreseen in the company’s By-Laws (and in both scenarios unless something different is stated in a shareholders agreement).
- Referring to Private Limited Companies (Sociedad Limitada), the voluntary transmission inter vivos of shares (e.g. by means of a shares purchase agreement) must be granted into a public deed, before a public notary. Notwithstanding, referring to Private Companies (Sociedad Anónima), the voluntary transmission inter vivos of shares does not require additional formalities further to those applicable for an ordinary private agreement. Likewise, regarding Private Companies (Sociedad Anónima) it must be pointed out that the share capital of Private Companies may be formed by either nominative or bearer shares. In this sense, the transfer system of each kind of share differs; nominative shares are transferred by means of endorsement and such transfer must be evidenced towards the company through the exhibition of the title in which the name of the new shareholder shall be included, while bearer shares are transferred by means of physical transfer, not being necessary to include the name of the new shareholder in the document evidencing ownership.
Nevertheless, the formalization of the transfer of shares, such transfers shall not be registered with the corresponding Commercial Registry. Regardless the aforementioned, in case the share transfer implies any of the following: (i) change of the company to a sole shareholder company (i.e. as consequence of the transfer, the shares of the company are owned by one sole shareholder) (ii) change of sole shareholder, such circumstances must be registered at the Companies Registry. Notwithstanding the above, the share transfer must be duly recorded in the shareholders registry book by the governing body.
Regardless the differences between the formal requirements for the transfer of shares in both different type of Spanish companies, the common practice in Spain is to formalize the transfer of shares before a public notary due to the public function and authority provided by such position. In this sense, is important to note that in Spain public notaries do not only provide evidence on the identity of the individual or entity that will sign the agreement, their authority and capacity to sign the agreement and the date of the agreement, but also they have the authority and corresponding obligation to control all the legality of the agreement (included all the terms and conditions agreed by the parties). Additionally, is also relevant to note that the resulting public deed will be a public document which will extremely difficult to challenge according to Spanish regulations either by the parties or by third parties.
With regards to the tax implications, the transfer of shares (both Private Limited Companies and Private Companies) does not trigger VAT expenses, stamp duties or whatever any other transfer taxes. Nevertheless, the Spanish tax regulations set forth an anti-abuse practices rule, that shall be analysed case by case, applicable to those companies which majority of assets are composed by Spanish real estate not affected/used to carry out the business activities.
Are hostile acquisitions a common feature?
Our regulations only permit the hostile acquisitions of listed companies by means of the completion of a special takeover bid (OPA), but does not permit the hostile acquisitions of non-listed companies. On this regard, the Spanish Stock Exchange Commission (Comisión Nacional del Mercado de Valores or CNMV) informs that, since January 1, 2010, there have only been started a total of 36 takeover bids (OPAs) in Spain and just a small number of them are hostile and also a small number of them obtained a successful result.
What protections do directors of a target company have against a hostile approach?
Royal Decree 1066/2007, on the public takeovers bids regime (Real Decreto sobre el régimen de las ofertas públicas de adquisición de valores), establish that in a takeover bid process (OPA) scenarios, the Board of Directors of the relevant company must draw up a detailed and motivated report about the public takeover offer, which must contain their comments in favor or against the takeover bid, and specifically state there if (i) it does exist any agreement between the relevant company and the offeror, its administrators or partners, or between any of those and the members of the Board of Directors; (ii) the opinion of the members of the Board of Directors on the specific takeover bid; and (ii) the members of the Board of Directors intention to accept or reject the offer of the takeover bid process.
Such Board of Directors report will have publicity and shall also include the possible impact of the offer and the strategic plans of the offeror, on the set of interests of the affected company, the employment of the affected company and on the location were the affected company develops its activity. Likewise, is important to note that the directors of the affected company are obliged to include in their report (i) if any of them have a conflict of interest and (ii) the opinion of the members of the Board of Directors that are not in the same opinion of the majority of the Board.
Finally, and additional measure that the Board of Directors of the offered company may proposed is a competitive takeover bid (OPA) in order to avoid the hostile approach which shall be also controlled by the Spanish Stock Exchange Commission (Comisión Nacional del Mercado de Valores or CNMV). On this regard, the competitive takeover bid shall, at least, (i) be filed before the previous five days to the finalization of the acceptance process of the initial take rove bid, (ii) the shares affected by the competitive takeover bid cannot be less than the shares affected by the initial takeover bid, (iii) to improve the initial takeover bid (wherever by offering a higher prices to the affected shares or by extension to the number of shares affected by the initial takeover bid).
Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
In Spain, a mandatory offer for a target company is only applicable for listed companies, if the buyer owns at least 30% of the shares representing the share capital of a listed company, or if the buyer controls, directly or indirectly the governing body. In such events, the buyer shall make a mandatory offer for the 100% of the share capital of the target company.
Regarding non-listed companies, could be only when a tag along right covering 100% of the target company’s share capital has been agreed. As above explained, this tag along right may provide the minority shareholder the right to join the transaction in case the majority shareholder sells its stake in the target company. The aforementioned tag along right must be envisaged in the by-laws of the company or in a shareholder’s agreement (in such last event, the right may have validity only between the parties).
If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
In case a shareholder may not have full control of the Company, the Spanish Companies Act (Ley de Sociedades de Capital) sets forth different majority regimes for certain resolutions. In this regard, minority shareholders, which are at the same holders of the following stakes, shall be entitled to enforce the following rights (among others) in Private Companies and Private Limited Companies:
- Request for the appointment of an expert for the valuation of assets: a stake amounting to 5% of the share capital in and Private Companies (Sociedad Anónima). 3% shall be required for listed companies, while is not possible to exercise such right in Private Limited Companies (Sociedad Limitada);
- Enforcement of the liability action against the company’s directors as consequence of non-monetary contributions: a stake amounting to 5% of the share capital in Private Limited Companies (Sociedad Limitada) and is not possible to use such right in Private Companies (Sociedad Anónima) and listed companies;
- Request for the covenants of the shareholders meeting: a stake amounting to 5% of the share capital both in Private Limited Companies (Sociedad Limitada) and Private Companies (Sociedad Anónima). 3% shall be required for listed companies;
- Information right without rejection of the request (i.e. the company must be obligated to deliver such information in those cases in which the require stake is reached): a stake amounting to 25% of the share capital in Private Limited Companies (Sociedad Limitada) and in Private Companies (Sociedad Anónima). Nevertheless, with regards to Private Companies (Sociedad Anónima), such percentage may be reduced down to a minimum percentage of 5%. With regards to listed companies, 25% of stake share capital shall be required for the exercise of such information right, which could be reduced down to a minimum percentage of 3%.
- Request for the call of the company’s shareholders meeting: a stake amounting to 5% of the share capital in Private Limited Companies (Sociedad Limitada) and in Private Companies (Sociedad Anónima);
- Request for amend the call (to include additional points of the agenda) of the company´s shareholders meeting: a stake amounting to 5% of the Private Companies (Sociedad Anónima) and 3% of the listed companies (in this case, only for amending the agenda of ordinary general shareholders meetings, which are mandatory by law, and not extraordinary shareholders meetings).
- Request for the attendance of a public notary to the shareholders meeting: a stake amounting to 5% of the share capital in Private Limited Companies (Sociedad Limitada) and 1% in Private Companies (Sociedad Anónima). 1% shall be required for listed companies;
- Enforcement of the corporate liability action against the directors of the company: a stake amounting to 5% of the share capital both in Private Limited Companies (Sociedad Limitada) and in Private Companies (Sociedad Anónima). 3% shall be required for listed companies;
- Right to appoint members of the board of directors by means of the proportional representation system: In Private Companies (Sociedad Anónima), the percentage required will depend on the result of dividing the share capital amount into the number of members of the board of directors. Such shall be applicable to listed companies but not to Private Limited Companies (Sociedad Limitada);
- Request for the appointment of auditors: a stake amounting to 5% of the share capital both in Private Companies and Private Limited Companies Private Limited Companies (Sociedad Limitada) and 1% in Private Companies (Sociedad Anónima). Such minority shareholders right will not be applicable for listed companies as they must submit their financial statements to a statutory auditor in all cases.
Is a mechanism available to compulsorily acquire minority stakes?
With regards to listed companies, Spanish Act of the Stock Exchange Market (Ley del Mercado de Valores), stablish that, in those cases in which (i) the potential acquirer of the shares of a company performs a takeover bid (OPA) over the total of the company’s shares and as a result of it, acquires 90% of the share capital which provides voting rights and (ii) it is at the same time accepted by the holders of the shares representing the 90% of the voting rights; the acquirer and the holders of the shares of the company shall be entitled to require the offeror the purchase of their own shares at an equitable price.
On the other hand, with regards to non-listed companies, and according to the Spanish Companies Act (Ley de Sociedades de Capital), the compulsory right to acquire stakes from other shareholders is foreseen in very limited scenarios, and all them refers to a transfer of the company’s shares from a shareholder to a third party by any reason (inter vivos –e.g. by virtue of a sale and purchase agreement-, mortis causa –e.g. by way of an inheritance-, compulsory transfer – e.g. as a consequence of an expropriation by a public authority, etc).
In this regard, is quiet particular the situation stablished in article 348 bis of the Spanish Companies Act (Ley de Sociedades de Capital) which establishes the right of the shareholder to separate from the company if (i) during the five following years as from the incorporation date of the company, (ii) a shareholders have voted in favour to distribute dividends but (iii) the resolution have not been approved by the shareholders meeting. Nevertheless, such article have not been jet in force as its enforceability have been always been postponed. At this stage, such principle will enter in force on the January 1, 2017, but will not be strange if its enforceability as again postposed.
Finally, with regards to non-listed companies, it can be provided a drag along right which is a right that permits a majority shareholder to force a minority shareholder to join in the sale of its stake in the company. The aforementioned drag along use to be agreed in a shareholders agreement, and in many occasions can be included in the company’s by-laws.