Are there any circumstances where a minimum price may be set for the shares in a target company?
Mergers & Acquisitions
There are some provisions in bylaws of companies - which are generally incorrectly called “poison pills” in the Brazilian market - that force a potential buyer to calculate the price to be paid to the minority shareholders according to certain formulae that lifts the price up. There are also rules related to mandatory tender offers that apply and could have the same effect.
There is no “minimum price” but when the required shareholder approval is sought, a notice must be provided which includes a statement of what the directors of a company have determined the “fair value” of the shares to be.
Provided that a shareholder does not vote in favour of the merger or amalgamation, they are entitled to apply to the Bermuda courts to have them appraise the value of their shares. Although such appraisal rights do not carry the ability to prevent the transaction from closing, to the extent that there is a difference between the price paid to the shareholders and the court determined “fair value”, the shareholders would be entitled to receive the difference.
British Virgin Islands
There is no limit on the value of a share that has already been issued by a target company, to the extent it is necessary to issue further shares in a company the price paid must not be below the par value of the share as stated in the memorandum and articles of association.
The Cayman Islands do not have a regulation relating to setting the floor price of any offer. Subject to the Board complying with their fiduciary and other duties, parties are generally free to contract as they wish as to terms and price.
ZL: The requirement for a minimum price usually exists in acquisitions involving state-owned shares or listed companies. According to Provisional Measures for the Management of Transfer of State-owned Equities in Enterprises, price of the shares shall not be less than 90% of the price determined by appraisal unless it’s consented by competent authority. When the acquirer is required to make tender offer to the shares of a listed company in pursuance of the Administrative Measures for the Takeover of Listed Companies, the offering price shall not be less than the highest price the acquirer paid to the shares of the same class within six months prior to the indicative announcement of the tender offer.
In general, parties are free to agree upon the consideration payable for shares. However, in case of a public tender offer, the offer consideration may need to correspond at least to the highest price paid by the offeror for any target shares during the six months preceding the announcement of the offer.
With respect to consideration, the Takeover Act applies stricter regulations to takeover offers (as well as to mandatory offers) than to voluntary public offers. If the bidder seeks to obtain 30% or more of the target company’s voting rights, the bid is considered to be a takeover offer. The consideration must be appropriate, meaning that it must comply with both, (i) the average share price as quoted by a German or EEA exchange within a three-month period prior to the announcement of the offer (the volume-weighted average price) (ii) and the market value evaluation of the company (in principle supported by an evaluation by a professional accountant firm). Additionally, the consideration cannot be lower than the bidder’s highest consideration offered or paid for any target share in the six months prior to the release of the offer document.
Voluntary public offers and private M&A transactions are not subject to minimum consideration requirements in Germany. By law, the bidder or the buyer respectively is free to decide on the amount of the consideration.
With respect to listed companies and in case where a mandatory take-over bid to the shareholders of such company takes place, there is a rule relating to a minimum price, i.e. the person obliged to proceed to such mandatory bid (offeror) must offer an equitable and fair consideration in cash, which cannot be lower than: a) The average market value of the securities which the take-over bid concerns computed for a period of six (6) months preceding the date when the offeror had an obligation to proceed to the bid, or b) the highest price at which the offeror or any of the persons acting on the account of such offeror or in concert with such offeror have purchased the relevant security during the twelve (12)-month period preceding the date, when the offeror had an obligation to launch a bid.
Additionally, in cases where an acquisition is a result of a litigation and/or a conflict between shareholders of an entity, the court may determine the minimum price the acquirer will pay the seller in order to take possession of its shares.
Where the company’s shares are listed on a stock exchange, the rules of the exchange may make provision on this.
If the Takeover Code applies, the bid price must not be less than the highest price that the bidder (or any person acting in concert with the bidder) has paid for any interest in the target’s shares during the three months prior to the commencement of the offer period, and during the offer period (Rule 6). Rule 6 also specifies circumstances in which the offer price must also not be less than the highest price paid by the bidder for shares in the 12 months prior to the offer period.
Isle of Man
If the Takeover Code applies, Rule 6 specifies that the bid price must not be less than the highest price paid by the bidder (or person acting in concert) for any interest in shares in the target during the period commencing three months prior to the offer period.
Rule 6 also specifies circumstances in which the offer price must also not be less than the highest price paid by the bidder for shares in the 12 months prior to the offer period and during the offer period.
Separate rules apply to mandatory offers under Rule 9 of the Takeover Code.
Under Norwegian law, there are no statutory provisions requiring a minimum price to be set in connection with acquisitions of shares in non-listed companies. The same apply for voluntary offers for shares in companies listed on a Norwegian regulated market and the bidder is free to offer whatever price it wishes.
However, in a mandatory offer for shares in a company listed on a Norwegian regulated market (see question 24 below), the share price offered cannot be lower than the highest price paid, or agreed to be paid, by the bidder for the shares (or right to the shares) in the company during the last six months. Notwithstanding, if it is clear that the market price for such shares at the time the mandatory offer obligation was triggered exceeds the price offered, the STA provides that the Oslo Stock Exchange can demand that market price must be paid for such shares. This rule has typically been invoked in situation where the general rule has been abused, for example, where a bidder has exercised options with a low subscription price prior to exceeding the mandatory bid threshold. The STA does not provide adequate guidance on how this market price is to be calculated, and an EFTA-court ruling from 2010 found this rule to be non-compliant with the EU takeover rules.
Non-public companies can specify the sale price of shares (interest) being purchased within the scope of implementation of pre-emptive rights in the charter. The price can be specified as a fixed amount or as a method to determine on a case-by-case basis.
Notably, pursuant to Federal law ‘On joint-stock companies,’ a court may disregard the price fixed in the charter of a non-public joint-stock company in a dispute if it is below the market price as of the date of sale.
Public companies cannot set a minimum price of their shares.
In any public offer, the offer price cannot be less than the highest price for which the shares were purchased by the offeror during the 12 month period prior to the offer, although the CMA has the discretion to adjust the price on application. The CMA must be consulted where more than one class of shares is involved. In the context of a mandatory offer for a public target company, any consideration must have a cash alternative, and must be calculated under the same general principle.
Bidders are required to offer shares to shareholders at a minimum value in other instances, namely where an offeror (or person acting in concert with it):
- has purchased shares within the three month period prior to the commencement of the offer period. In this case, the offer to shareholders of the same class cannot be on less favourable terms; or
- has purchased shares above the offer price during the period from the making of a public announcement (in instances where a firm intention of an offer is made to the target board, or a mandatory or permissive offer is required), until the offer closes for acceptance. In this case, the offer must be increased to no less than the highest price paid for the shares acquired during such period, and a public announcement of such a revised offer must be made.
No restrictions on minimum price apply in respect of private acquisitions.
There are no regulations regarding the purchase price of shares in a target company, including for public tender offers.
There is no requirement for a minimum price for the shares except in the following cases:
1) In the case the acquirer acquires shares in the target company resulting in its shareholding reaching 25, 50 or 75 per cent of the total voting rights in the target company, the acquirer is required to make a tender offer for all securities of the target company.
In the tender offer documents, the tender offer price must be not lower than the highest price for the shares of the target company paid by the acquirer or any of its related persons during a period of 90 days prior to the date on which the tender offer documents are submitted to the SEC.
2) In the case of a delisting tender offer, the offer price must not be less than the highest price calculated on the following bases: -
- the highest price paid for the shares which has been acquired by the acquirer or any of its related persons during a period of 90 days prior to the date on which the tender offer documents are submitted to the SEC;
- the weighted average market price of the shares during a period of five business days prior to the date on which (a) the board of directors of the target company resolves to propose for consideration by the shareholders meeting of the target company the delisting of the shares from the SET or (b) the date on which the shareholders meeting resolves on the delisting of the shares from the SET, whichever comes first;
- the net asset value of the target company calculated based on the book value which has been adjusted to reflect the latest market value of the assets and liabilities of the target company; and
- the fair value of the shares of the target company as appraised by a financial advisor.
As to the acquisition of shares in listed joint stock corporations, mandatory offers – and voluntary offers aimed at acquiring control – are subject to mandatory regulations regarding price building under the Takeover Act in order to ensure equal treatment of shareholders in case of a change of control. As a basic rule, the offer price for shares cannot fall below the highest consideration that was paid or agreed by the respective bidder within the previous twelve months before the offer was notified and also must at least meet the weighted average stock exchange quotation over the six months preceding the day on which the bidder announced the intention to launch an offer.
Many private M&A transactions contain the determination of a final purchase price based on closing accounts. In such cases sellers often seek to set a minimum price that must be paid for the shares.
The Listing Rules sets out terms in accordance with which an offer to acquire shares has to be effected. Both in the context of a mandatory bid and in the exercise of squeeze-out rights, the rules require the holder of the controlling interest to launch an offer for the securities held by the minority at an equitable price. The equitable price to be paid for securities is the highest price determined by the following criteria:
- The price offered for the security should not be below the weighted average price of the security or the security transactions made on a Regulated Market during the previous six months;
- The price offered for the security should not be below the highest price paid for the security by the offeror or persons acting in concert with the offeror during the previous six months;
- The price offered for the security should not be below the weighted average price paid for the security by the offeror or persons acting in concert with the offeror during the previous six months;
- The price of the security should not be lower than ten percent below the weighted average price of the security within the previous ten trading days.
Furthermore, it after a bid has been announced and before the offer closes for acceptance, the offeror or any person acting in concert with the offeror, purchases securities that are priced higher than the offer price, the offer shall increase his offer so that it is not less than the highest price paid for the securities acquired.
There is no general requirement for a potential buyer to offer a minimum price for a target company’s shares, even if it previously acquired shares of the target in open-market transactions. However, in some states, once a buyer acquires a certain percentage of a target’s shares it may not merge with that company unless it complies with minimum or fair price requirements or the merger is approved by the target board of directors and/or a certain percentage of disinterested shareholders. In states with these statutes, the minimum or fair price is usually determined by reference to the market price of the target’s shares or the highest price the buyer paid to acquire its shares.
In the context of a tender offer, the rules promulgated under the Exchange Act require that anyone conducting a tender offer pay the same consideration to all tendering shareholders (the so-called “best price rule”). In addition, the organisational documents of some corporations and the laws of some states require buyers in two-step transactions to pay the same consideration to shareholders in both the tender offer and the back-end merger (which is the common practice in any event).
There are generally no specific rules in Vietnam as to the minimum price for shares or contributed charter capital which may be offered or paid in the context of M&A transactions (although minimum offer price rules do apply in the context of new share issuances).
There are, however, price-related rules which apply in the context of listed companies, for example:
- minimum offer price rules which apply in respect of mandatory public offer transactions; and
- transactions proposed to be implemented at prices falling outside of the allowable “trading band” set by the relevant stock exchange require the specific approval of the SSC on a case-by-case basis.
As a general proposition, it is normally considered to be undesirable for shares or contributed charter capital to be transferred at lower than registered par value or actual contribution value (due to the scrutiny which will invariably be placed on any such transactions by the Vietnamese tax authorities).
Transfers at market value have the benefit of minimising the likelihood of scrutiny by the tax authorities.
There are no circumstances where a minimum price may be set for the shares in a private merger or acquisition as this will be a commercial decision to be agreed between the parties. With respect to listed GBCs and Reporting Issuers, the pricing mechanism laid down by Rule 14 of the Securities (Takeover) Rules 2010 shall apply.
Where the Takeover Code applies, the bid price must not be less than the highest price that the bidder (or any person acting in concert with the bidder) has paid for any interest in the target’s shares during the three months prior to the commencement of the offer period, and during the period until the offer closes to acceptances.
It is common that the shares are sold at their nominal value or at a higher price, depending on the target’s financial status. Selling the shares for a lower price than their nominal value is not expressly prohibited, however, objections may be raised by the relevant authorities if there is no reasonable justification for the lower price (e.g. such as that the target undergoes an economic deadlock).
No, New Zealand does not have a minimum price rule.
In public mergers, there are certain circumstances where the Code sets a minimum level of consideration which must be offered to target shareholders.
As a general principle, unless the Panel has provided its consent, an offer may not be made for a target at a price per share that is lower than that which the bidder or those acting in concert with it paid at any point in the three months prior to announcement of the offer (the Panel have the power to look back further where they consider it necessary to do so in order to preserve equality of treatment for all target shareholders).
Where a bidder is required to make a mandatory offer (see question 24 below), the Code requires that such an offer must be made in cash or include a cash alternative. The minimum consideration for such an offer is set at the highest price at which the bidder (or any of those acting in concert with it) acquired any shares in the target company during the 12 month period prior to the announcement of the mandatory offer.
The Code also stipulates that where a bidder, or those acting in concert with it have acquired shares in the target company representing more than 10% of the voting rights of any class of shares in the twelve month period prior to the commencement of the offer period, that offer must be made for cash and may be set no lower than the highest price at which such shares were acquired.
The consideration payable in respect of a private merger is entirely a matter of negotiation between the parties.
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.
Principally, private M&A transactions are not subject to minimum consideration requirements in Turkey. The purchaser and the seller are free to decide on the amount of the consideration, in consideration of the arm's length principle.
In case of listed companies, shareholders (acting individually or in concert with third persons, directly or indirectly) holding more than 50% of the voting rights or the right to choose or nominate the majority of the members of the board of directors are deemed to hold control over the management. Shareholders who obtain management control are obliged to make mandatory purchase offers to other shareholders. The offer price for mandatory purchase offers may not be less than the arithmetic average of the daily weighted average price for a period of six months preceding the public announcement of the event triggering the mandatory offer, or less than the purchase price paid for the purchase of company shares within the six months preceding the mandatory offer. In the event of indirect acquisition of management control, the offer price should also not be less than the price specified in the valuation report to be prepared in accordance with the rules established by the Capital Markets Board.
However, there is no minimum price necessary for voluntary purchase offers, as long as a mandatory purchase offer is not triggered.