Are there any circumstances where a minimum price may be set for the shares in a target company?
Mergers & Acquisitions (3rd edition)
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.
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.
In publicly traded companies the acquisition of shares by means of a public tender offer must comply with the following rules regarding the price of the shares:
- 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 Superintendency of Finance (Superintendencia Financiera de Colombia), 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 offers 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.
For public offer, Croatian law provides for a minimum consideration that the bidder has to offer to the shareholders of the target of a listed company.
The general rule is that the price indicated in the takeover offer may not be lower than the maximum price at which the bidder has acquired the shares with voting rights in the period of one (1) year prior to the date of the obligation to publish the takeover offer.
If the average stock price on stock exchanges and regulated public markets is higher than the minimum price (as described below), the bidder is obliged to offer a higher price, with the average price being calculated for each stock exchange or regulated public market as a weighted average of all prices on the stock exchange or the regulated public market in the last three (3) months prior to the occurrence of the obligation to publish the takeover bid.
In case the shares have been illiquid during the last three months, i.e. if the shares have been traded for less than 1/3 of a trade day in that period, the price of shares will be determined by method of comparison. The comparison will be made between the price determined by a fair market value report on the shares price, audited by an independent auditor, and the highest price the bidder has paid for the shares in the period of one year prior to the takeover bid. The bidder will be obliged to pay the higher of these two prices.
If the bidder, or a person acting in concert, within one year after the expiration of the offer’s term acquire shares of the target company that were the subject of the takeover for a price that is higher than the price set forth in the offer, such bidder would be obliged to pay the difference to all shareholders who have accepted the bid within seven (7) days from the acquisition of such additional shares. This provision does not apply to the acquisition of shares through statutory changes (for example mergers and demergers), through an increase of the share capital of the target company or an acquisition of target company’s shares in lieu of the payment of a dividend.
If the shares are issued by public companies, the price ranges established by the stock exchange in which the transaction takes place must be applied.
If the shares are issued by private companies, there is no rule.
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.
Regarding the takeover bids, Czech law lays down a minimum price set for the shares in the target company. The bidder shall offer the minimum price or consideration at least equivalent to the higher of the weighted average stock exchange price of the shares in the target company during the six-month period in relation to the emergence of the takeover bid obligation and the highest consideration paid or agreed to be paid by the bidder or his affiliates within the twelve-month period prior to the emergence of the takeover bid obligation.
There are no special rules governing the consideration within the scope of other types of (private) M&A transactions, except for the equal treatment principle.
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. For companies listed on the CSX, the Code mandates that cash offers at a set minimum price must be made in certain circumstances.
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 public offer where it is mandatory (see question 25).
The price of voluntary offers is freely determined.
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.
As a measure to further ensure the rights of the minority shareholders of the target company, the Greek Law 4514/2018, which harmonised MiFID II, introduced the obligation for the offeror to prepare a valuation report with respect to the targeted shares, if specific conditions are met. In such cases, the minimum cash consideration will be determined by taking into account both the market value and the valuation, as the minimum price per targeted share will be the higher of the two.
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.
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.
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 are generally no restrictions on the price of the shares in a target company, but schemes of arrangement are subject to court supervision.
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 is no special regulation regarding establishing a minimum price for the shares in an M&A transaction. However, the parties could agree on a private document that if the potential buyer finally decides to acquire the target company, no matter what the procedure to determine the price of the shares concludes, the price of the share could not be less than the agreed amount in the mentioned private agreement.
Generally, the parties to an M&A transaction involving a private company are free to fix the price for shares in a target company. Nonetheless, it would be prudent to fix the share price at the fair market value (“FMV”) as there have been instances in recent years when the BIR have imposed Donor’s tax on the difference between the FMV and the selling price. We hasten to point out, however, that this risk has been mitigated by recent amendments to the Tax Code.
In the case of a mandatory tender offer, the 2015 SRC Implementing Rules and Regulations provide guidelines for the valuation on shares in order to protect the public.
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.
In voluntary private M&A deals, the parties are not subject to any minimum or maximum price limitation, except in case of a squeeze-out (see 27 below).
In public M&A, a minimum consideration applies in two scenarios.
In a mandatory PTO (see 25 below) the consideration may not be lower than the higher of (a) the highest price paid by the bidder or any entity in a control or group relationship therewith for shares of the same category in the six months prior to the PTO’s preliminary announcement or (b) the volume-weighted average price of the share in the regulated market for the same period. If the consideration may not be calculated using any of these criteria or the CMVM understands that the consideration is not sufficiently justified or is not equitable, it may appoint an independent auditor to calculate such minimum consideration.
Additionally, the exercise of sell-out or squeeze-out rights is also subject to a minimum price, as detailed in 26 and 27 below.
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).
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.
There are no regulatory requirements other than in the case of a mandatory offer, in which case the offeror is obliged to pay the same price as equals the highest price paid for the shares during the period of 6 (six) months preceding the making of the mandatory offer.
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 of the offer).
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.
In the case of a private company, there is no requirement for a minimum price for the shares in a target company.
For a public company, there is no requirement for a minimum price except in the following cases:
- In the case that the acquirer acquires shares in the target company resulting in its shareholding reaching or exceeding 25, 50 or 75 percent of the voting rights in the target company, the acquirer is required to make a tender offer for all securities of the target company. In such case, the tender offer price must not be 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.
- 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 have 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 5 business days prior to the date on which the board of directors of the target company resolves to propose its shareholders’ meeting to consider delisting the shares from the SET;
- 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 ordinary or preference shares of the target company as appraised by a financial advisor.
There are currently no such circumstances.
In the case of acquisition of a listed target, the Takeover Code mandates the minimum price to be offered to the public shareholders. This price must be the negotiated price under the acquisition agreement or a market linked price based on different scenarios—for example the volume-weighted average price paid or payable for acquisitions, whether by the acquirer or by any person acting in concert with him, during the fifty-two weeks immediately preceding the date of the public announcement.
Further, in all cross-border transactions, the shares of an Indian company cannot be sold below a minimum price to a non-resident. Such price is to be determined in accordance with any internationally acceptable pricing methodology for valuation at an arms length basis which must be certified by certain prescribed valuers such as a SEBI registered merchant banker.
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:
(i) 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
(ii) 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:
(i) 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
(ii) 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.
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 a direct share transfer agreement or block trade for shares in a public company, the share transfer price cannot be lower than a percentage (typically 90%) of the company’s closing share trading price on the last trade day prior to the signing of relevant agreements. For indirect share transfers (e.g., acquiring shares of a shareholder of a public company), there is no strict minimum price requirement. However, for any transaction involving state-owned shares, the transfer price should be no less than the price determined by the appraisal results of the state-owned assets.
Pursuant to the CML, FRA is entitled to deny approval of the MTO application or request its amendment, in the event the proposed cash consideration for the actively traded shares falls below: (i) the average closing price on EGX for the previous six months; or (ii) the average closing prices for the shares during the three months prior to the submission date of the MTO application; or (iii) the highest tender offer price submitted for the shares during the previous 12 months, whichever is higher. The said provision shall not apply, however, in case the tender offer price has been determined based on the fair value report prepared by an independent financial advisor registered with FRA.
Furthermore, pursuant to CML the purchase price offered in a competing tender offer application, submitted to FRA for approval should be in cash and should be at least 2% higher than the original tender offer price. However, FRA retains the prerogative of accepting a competing tender offer that does not meet such a condition if it materially amends the original tender offer terms to the benefit of the shareholders of the Publicly Traded Company.
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, Takeover Code). 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.
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.
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 (or earlier if the Panel requires), the offer must not be on less favourable terms. Such offer need not be in cash, however any cash alternative consideration must, at the date of the announcement of the offer, have a value equal to or higher than the highest relevant purchase price.
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.
A statutory minimum price applies in case of the acquisition of a public company limited by shares (Nyrt.) via a public takeover bid. In such cases, the price offered in the public takeover bid must reach the statutory minimum price, i.e. the highest of the prices calculated based on the factors set out in the Capital Market. Also, when counter-offer(s) are made in a compulsory public takeover proceedings, the price offered in each subsequent counter-offer must be 5% higher than the price specified in the original compulsory public takeover bid or in the directly preceding counter-offer.
In addition to the above statutory requirements applicable to public companies, minimum prices may be set out in shareholders’ agreements. This may especially be the case where the acquisition is based on the exercise of drag-along rights, tag-along rights or call options or put options.
Otherwise, the parties to the deal are free to agree on any price: no minimum or maximum price is set forth by law. However, if a party discovers that there was a gross disparity between the value of the shares and the price, the aggrieved party may contest the deal on the grounds of gross disparity in value based on the Hungarian Civil Code.
In accordance with Article 17 of the Takeovers Act (ZPre-1) the price offered in the takeover bid shall not be less than the highest price paid for the same securities by the offeror in the period of 12 months prior to the announcement of such bid.
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.