Are there any circumstances where a minimum price may be set for the shares in a target company?
Mergers & Acquisitions (2nd edition)
An Offshore Listing Vehicle may be subject to provisions under the Listing Rules and/or the Takeover Code regarding the minimum price that may be set for its shares.
Please refer to the relevant Offshore Chapter for detail regarding each offshore jurisdiction.
As to the acquisition of shares in listed 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.
In a private M&A transaction, the consideration payable is a commercial matter for the parties.
In a public M&A transaction, there are certain circumstances where the Code imposes minimum levels of consideration that must be offered to the target company’s shareholders.
If acquisitions of interests in shares are made during the 3 month period prior to an offer period, or between the commencement of the offer period and the bidder’s announcement of a firm intention to make an offer, the offer must not be on less favourable terms. If a bidder has acquired for cash interests representing, generally, 10% or more of any class of the target company’s shares in issue during the offer period and the preceding 12 month period, or interests in any shares of any class of the target company have been acquired for cash during the offer period, the offer for that class of shares must be in cash (or include a cash alternative) at not less than the highest price paid. Where interests in shares of any class representing 10% or more of the shares of that class in issue have been acquired in exchange for securities during the offer period and the preceding 3 months, such securities will normally be required to be offered to all other holders of shares of that class.
In addition, where a bidder is required to make a mandatory offer, such an offer must be for cash or include a full cash alternative (see question 25 below).
Save for the circumstances set out above, an offer does not have to be in cash, but any securities offered as consideration must, at the date of announcement of the offer, have a value equal to or higher than the highest relevant purchase price.
While the parties are free to decide on the terms of the contract, from a tax law perspective, the price has to be at fair market value. If the acquisition involves a tender offer to the shareholders of a public company, where the price must be justified and may not be lower than an applied fair value; the average weighted market price of the shares on a regulated market for a certain period, the highest price paid by the tender offeree for a past period. In such cases a price justification mechanism has to be applied, by virtue of a special ordinance, issued by the Financial Supervision Commissions, which also governs the applicable price valuation methods.
In public M&As the following rules apply regarding the price of the shares of listed companies, that must be acquired by means of a tender offer (Oferta Pública de Adquisición - OPA):
- If buyer has acquired shares in the listed company within the 3 previous months to the date on which the tender offer is informed to the (Superintendencia Financiera de Colombia - SFC), the acquisition price of the shares included in the tender offer shall not be less than the higher price paid by the buyer in such previous acquisition.
- If there is a pre-agreement (pre-acuerdo) in place between buyer and seller regarding the shares, the purchase price shall not be less than the higher price set forth in such pre-agreement.
- In the event of competing offer over a listed company, the purchase price offered in the competing offer cannot be inferior than the purchase price included in the initial tender offer.
As a general rule, the offer price must equal to at least the highest price paid by the bidder for the target’s shares over the 12 months preceding the offer where the public offer is mandatory (see question 25).
The price of voluntary offers is freely determined.
No, New Zealand does not have a minimum price rule. In the context of a takeover, a board will obtain an independent advisor report that provides an independent assessment of the value of a target company and gives an indicative price range (although the results of that report will not be binding).
The price submitted by an offeror in respect of a second tender offer regarding the same company should not be less than the highest price made by the offeror in the previous tender offer.
In case of submission of a competitive bid, such bid must be in cash and its price must exceed the price of the original mandatory tender offer (or the last competitive bid, if applicable) by at least 2%.
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.
For private M&A transactions, no minimum price is required by law.
For public M&A transactions, Art. 106 of the Consolidated Financial Act provides that mandatory tender offers shall be launched as soon as an investor comes to hold an interest representing over 25% of the shares, or 30% for small to mid-sized companies. The takeover must be pursued at the highest price paid or agreed on for the shares in the previous 12 months.
The offer price in a voluntary offer cannot be less than the price paid by the bidder (or any person acting in concert with it) for shares in the target during either:
- The three-month period before the commencement of the offer period.
- If the Panel thinks more appropriate in the circumstances and so directs, the 12-month period before the commencement of the offer period.
In addition, where a bidder (or any person acting in concert with it) acquires any shares in a target at a higher price than the offer price during the offer period, the bidder must increase the offer price accordingly.
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.
In the case of a private M&As the consideration payable is a matter of negotiation and agreement between the parties.
In relation to listed companies, the Regulations issued by the Cyprus Stock Exchange provide that all shareholders of the same category of securities must be treated equally. In general, the price offered in a bid must be the highest price paid or agreed to be paid during the last 12 months before the offer period for the shares in the target company.
If a person (natural or legal) acquires securities which provide them with a total of more than 30% of the voting rights of a company, they have an obligation to make a public offer to acquire an additional number of securities which when added to those already held give him a percentage greater than 50% of the voting rights of the company.
Any person (natural or legal) who acquires securities in any company which added to any already held by him, give them in total more than of 75% of the voting rights of a company, has an obligation to make a public offer to acquire all the securities of the company. Again the consideration offered must be at least equal to the highest price paid for the securities of the same category in the 12 months preceding the obligation to make a public offer.
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 25 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.
There are generally no restrictions on the price of the shares in a target company, but schemes of arrangement are subject to court supervision.
In relation to a mandatory bid initiated for a listed company, the acquirer is obliged to offer a fair consideration in cash, which should be neither less than the average market value of the shares during the six (6) months prior to the bid, nor than the maximum price at which the acquirer had purchased shares during the twelve month period prior to the bid.
For public offers, German law provides for a minimum consideration that the bidder has to offer to the shareholders of the target of a listed corporation. The consideration, whether offered in a mandatory or a voluntary tender offer, must be at least equivalent to the higher of:
- the weighted average stock exchange price of the shares in the target during the three-month period leading up to the announcement of the offer (or of the acquisition of control in the case of a mandatory offer); and
- the highest consideration paid or agreed to be paid by the bidder or any party attributed to it within the six-month period prior to publication of the offer document.
Should the bidder purchase shares in the target during the acceptance period of the offer or through off-market transactions, within one year upon expiry of the offer period at a higher price, the bidder must increase the consideration to be paid to the shareholders who accepted the offer accordingly. As the Takeover Act requires that all shareholders shall be treated equally, the shareholders holding the same class of shares must receive the same consideration. If there are different classes of shares, the best price is to be determined separately for each class of shares.
If the offer is neither a voluntary nor a mandatory offer (i.e., aiming at a shareholding below 30% of the voting rights post-offer, or where the bidder holds a shareholding of more than 30% pre-offer) there are no rules governing the consideration, except for the equal treatment principle.
Mandatory public offers are subject to a minimum bid price. More in particular, the bid price should at least be equal to the higher of:
- the highest price paid over a period of 12 months before the announcement of the bid for the securities concerned by the bidder or a person acting in concert; and
- the weighted average of the trading prices on the most liquid market for the securities concerned over the last thirty calendar days before the event giving rise to a mandatory bid.
Further, the FSMA is entitled to impose conditions or adjustments to the price in certain circumstances.
There is no minimum bid price requirement in case of a voluntary public offer. There is, however, a general requirement that the bid price must allow the offer being successful. If a counter or higher offer would occur, the consideration must be at least 5% higher than the consideration of the latest offer.
Both for mandatory and voluntary public offers, the consideration must be equal for all shareholders. If the offer concerns securities of different categories, the prices offered for each of those categories may not contain differences other than those resulting from the respective characteristics of each category.
If, during the bidding period, the bidder or persons acting in concert with the bidder, acquire or undertake to acquire securities of the target outside the offer at a price higher than the offer price, the offer price will be adjusted to that higher price.
For a duration of one year as of the end of the bid period, the bidder or persons acting in concert with the bidder cannot acquire directly or indirectly securities that were the object of the public offer at more favorable terms than those set out in the public offer, except where the price difference is granted to all security holders who have taken part in the bid.
18.1 In the context of private target companies, there is no law which prescribes any minimum price for shares or contributed charter capital in any target company. In practical terms, however, it can often be difficult to obtain the necessary regulatory approvals for an acquisition transaction where the proposed purchase price is lower than the registered par value of the target shares (in the case of a JSC) or the actual amount of the target contributed charter capital having been paid into the target company by the vendor (in the case of LLCs). Such difficulties arise purely from the formation by licensing officials of discretionary opinions to the effect that the proposed purchase price is “unreasonable” or has been devised in order to evade tax liability. In addition, it should be noted that there is legal basis for the Vietnam tax authorities to impose capital transfer tax on the basis of the deemed actual market value of the transferred shares or contributed charter capital, as opposed to the consideration having been paid by the purchaser.
18.2 In the case of shares in listed public companies, any Direct Agreement Transactions not implemented via the normal on-market trading system are subject to “trading band” restrictions, namely, that the purchase price must not be:
- in the case of HOSE listed companies more than 7% above or below the closing price of the relevant shares on the HOSE at the end of the trading day immediately preceding the date of implementation of the proposed transaction; or
- in the case of HNX listed companies more than 10% above or below the closing price of the relevant shares on the HNX at the end of the trading day immediately preceding the date of implementation of the proposed transaction.
18.3 Direct Agreement Transactions can be implemented at purchase prices falling outside of the allowable “trading bands”, but only pursuant to specific approvals granted by the SSC on a case-by-case basis.
18.4 In the context of Mandatory Public Offer transactions, the price at which the offeror makes the public offer must not be less than:
- the average reference price of shares of the target company as announced by the [HOSE or HNX] within the 60 consecutive calendar days preceding the date of the offeror lodging the MPO registration documents with the SSC (the Offer Lodgement Date); and/or
- the highest purchase price paid by any entity which implemented any mandatory public offer to acquire shares in the target company within the 60 consecutive calendar days preceding the Offer Lodgement Date.
Under Swiss takeover law, in a mandatory offer as well as in a voluntary offer in relation to all shares of the target company the offer consideration must comply with the minimum price rule. Under the minimum price rule, the offer price must at least be equal to the market price (defined as the 60-day volume weighted average price, 60-day VWAP) or, if higher, the highest price paid by the bidder (or any affiliate or person acting in concert) in the twelve months preceding the tender offer. The minimum price rule does not apply if the target company has validly introduced an opting-out and therefore is not subject to the mandatory offer duty regime (see question 25).
Besides the minimum price rule, any public tender offer must comply with the best price rule. Under the best price rule, a bidder has to increase the offer price if, during the tender offer or within six months after completion of the offer, the bidder (or any affiliate or person acting in concert) acquires shares in the target at a price exceeding the offer price.
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.
The price is subject to negotiations by the parties and, as a matter of principle, may not be set at a value which is clearly below the real value of the shares (thus generating doubts about the purpose of the transaction).
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 organizational 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).
In private transactions it is up to the parties to agree on the transaction consideration. In case of an offer for a publicly listed company, the offer consideration may as a main principle not be less favourable than the highest price paid by the offeror for any target shares during the six months preceding the announcement of the offer. Further, if the offeror directly or indirectly acquires target shares after an offer has been announced on terms which are more favourable for the holder than the terms and conditions of the offer, the offeror is to adjust the terms and conditions of the offer to a corresponding extent. In addition, if the offeror directly or indirectly acquires target shares within a period of six months after the commencement of payment of the consideration on terms which are more favourable than the terms and conditions of the offer, the offeror is obliged to pay compensatory cash consideration to those who have accepted the offer (however this does not apply if a party other than the offeror has announced an offer to acquire shares in the target company on terms which are more favourable for the shareholders than the terms and conditions in the offer).
If the acquisition will be through a subscription of primary shares, the minimum subscription price will have to be the par value of the shares of stock, since the issuance of watered stock is prohibited by law.
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 until it closes to acceptances (Rule 6). For these purposes, the offer period refers to any current period relating to the target and not just the bidder’s own offer.
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.
There are no requirements under the laws of Japan that mandate when a certain minimum price be set for the shares in a target company.
However, in a tender offer transaction, the acquirer must offer the same price per share to all shareholders of the target company. Also, in the two-step process described in our response to Question 5 above, it is common for the price per share to be paid in the squeeze-out to the minority shareholders who did not accept the tender offer to be set equal to the tender offer price.
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.
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.
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.
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.
If the acquisition of a publicly traded company triggers the mandatory tender offer requirement, then the offer price cannot be freely determined by the transaction parties. The CMB legislation imposes certain restrictions on the lower limit of the offer price. Accordingly, the price to be offered to the remaining shareholders for the offer price cannot be less than:
a. the highest price paid for the same group of shares within the six months prior to the date that the mandatory tender offer obligation arose (including both purchases made through and outside of the stock exchange); and
b. the average weighted adjusted daily trading price for the six months preceding the announcement of the transaction.
If there is an increase in the purchase price of the transaction triggering the mandatory tender offer process through any price adjustments (e.g., an adjustment under the relevant share purchase agreement), additional payment options, or similar factors, then these increases should also be reflected in the offer price.
In a buy-out triggered by a merger (detailed under question 27 below), the buy-out price should be the adjusted weighted average trading price from the 30 days preceding the announcement of the transaction (excluding the announcement date).