Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
Mergers & Acquisitions
A buyer who acquires control of a publicly held company, directly or indirectly, is obliged to launch a MTO for all voting shares of the relevant target and pay at least 80% of price paid to the controlling shareholders. The tag along rights may increase up to 100% of the control purchase price depending on listing segment where the shares of the relevant company are listed. In addition, controlling shareholders who acquire one third of the free float shares are also obliged to launch a MTO.
Section 102 of the Companies Act gives dissenting shareholders the ability to compel the Acquirer to acquire their shares on the same terms as set out in the initial bid or on such other terms as the parties may agree or as the court deems fit upon application by either party. Where an purchaser makes an offer to acquire the shares of the company, and in pursuance of that offer has transferred to it more than 90% of the shares of the company, the purchaser must, within one month of the date of the transfer which caused it to exceed the 90% threshold, give notice of that fact to the holders of the remaining shares who have not consented to the scheme or contract. Any such holder may, within 3 months from receiving the notice from the purchaser that the purchaser has acquired 90% of the shares of the company, himself give notice compelling the purchaser to acquire his shares. Where a remaining shareholder gives such a notice, the purchaser is entitled and bound to acquire those shares on the same terms as set out in the scheme or contract or on other terms as may be agreed or as the court, on application by either party, thinks fit to order.
British Virgin Islands
The BVI does not have any laws or regulations requiring an acquirer to make a mandatory or compulsory offer for a target company.
The Cayman Islands do not have a law or regulation requiring an acquirer to make a mandatory or compulsory offer for a target company.
According to Security Law (revision in 2014) and Measures for the Administration of the Takeover of Listed Companies (revision in 2014), a buyer is obliged to make a tender offer to all shareholders of the target company to buy all or part of shares they hold, when the buyer has possessed 30 percent of the stocks issued by the said company through trading at the stock exchange or by agreement, etc. and the purchase is intended to continue.
In publicly listed companies, if the holdings of a shareholder (either alone or together with parties acting in concert with such shareholder) exceed 30% (or 50% in certain situations) of the total voting rights in a listed company the shareholder is obliged to launch a mandatory offer to acquire the remaining securities in the company. The obligation to launch a mandatory offer is, however, not triggered if the threshold has been exceeded by means of a voluntary tender offer made for all shares and securities giving entitlement to shares in the target (including acquisitions outside such offer that are executed during the offer period of said offer) any shareholder whose ownership exceeds 30% or 50% may become obliged to launch a tender offer for the remaining shares.
A mandatory offer and a related disclosure obligation are triggered, according to the Takeover Act, if 30% of the voting rights have been acquired or attributed (this is considered as the acquisition of control); however, this is not the case if the bidder acquired control through a takeover offer.
There are various instances in which voting rights are attributed to the bidder although they are not directly held by it. This is e.g. the case for voting rights held by a subsidiary of the bidder, by a third person which holds it for the account of the bidder or which are held by parties acting in concert with the bidder (Section 30 of the Takeover Act).
Law 3461/2006 on takeover bids, sets forth the rule according to which if a buyer acquires securities of a company and his/her/its percentage of securities held in such company exceeds the threshold of one third (1/3) of the total voting rights of the company, the former is obliged to launch a mandatory bid, within a 20-day time period from the acquisition, for the total securities of the target company. The same obligation arises for each person holding over one-third (1/3) without exceeding one-second (1/2) of total voting rights of the said company, in case such person acquires securities of the target company representing over three percent (3%) of total voting rights of the offeree company within a twelve month (12) period.
Pursuant to Rule 9 of the Takeover Code (where applicable), a mandatory offer must be made when the bidder (and parties acting in concert) either:
- acquires an interest in shares which carry 30% of more of the voting rights of the company; or
- is interested in shares which in the aggregate carry not less than 30% of the voting rights of a company but does not hold shares carrying more than 50% of such voting rights, and the bidder (or any person acting in concert with them) acquires an interest in any other voting shares of the company .
Isle of Man
If the Takeover Code applies, Rule 9 specifies that a mandatory offer must be made where the bidder (and parties acting in concert):
- acquires shares carrying 30% or more of the voting rights of a target; or
- is interested in shares carrying not less than 30% but not more than 50% of the target's voting rights, and that person acquires an interest in any other voting shares in the target.
Pursuant to the STA, any person or legal entity, that directly, indirectly, or through consolidation of ownership (following one or more voluntary offers), acquires shares representing more than one-third of the voting rights of a Norwegian company listed on a regulated market, is required to make an unconditional offer of the remaining shares in such company. This obligation to issue such mandatory offer is repeated when the shareholdings exceeds 40% of the voting rights and 50 % of the voting rights, however, such repeated offer is not mandatory when the thresholds are passed in connection with the original mandatory offer. The same rules will apply to acquisitions of the relevant number of shares in a foreign domiciled company listed in Norway but not in its home country. Certain exceptions apply, and the most practical being when shares are acquired as consideration in mergers or demergers.
Consolidation rules apply for shares held by certain affiliates and closely related parties. Hence, the combined holdings of both the acquirer or disposer and such a party’s close associates are relevant when deciding if any disclosure obligations have been triggered.
Some derivative arrangements (total return swaps) may also be considered as controlling votes in relation to the mandatory offer rules, and could under certain circumstances trigger a mandatory offer obligation, even though the bidder owns less than one third of the shares. Acquisitions of more than 50% of the voting rights in a company owning more than 1/3rd of the shares in a company whose shares are listed on a Norwegian regulated market, could also trigger an obligation to issue a mandatory offer, if such owner company’s principal business consists of holding shares in such listed company.
A shareholder exceeding the above mentioned thresholds may sell a portion of its shares to avoid the obligation of a mandatory offer. Such sale must be made within four weeks after the mandatory offer obligation was triggered, and must include all shares exceeding one-third of the shares, or thresholds in the repeated offer.
In addition to the above mentioned rules for companies listed on a regulated market, there are rules on compulsory acquisition for limited liability companies in general. A shareholder who becomes the owner of 90% or more of the total number of issued shares in Norwegian limited company, as well as 90% or more of the total voting rights, is obliged to acquire the remaining shares in the company if a minority shareholder so requests. Please see question 26 for further information of the statutory rules in this respect.
Pursuant to Federal law ‘On joint-stock companies,’ the person that acquires more than 30%, 50% or 75% of shares of a public joint-stock company (taking into account the shares already owned by the acquirer and its affiliates) has to make a tender offer to other shareholders of the company to buy out their remaining shares of the same category.
The person that acquires more than 95% of shares of a public joint-stock company as a result of the above mandatory tender offer or a voluntary offer, is obliged to buy out the remaining shares of the company (and has the right to compel such buy-out).
There will be an obligation to make a mandatory offer of shares in a listed entity where a person or group acting in concert increases its / their share ownership in such listed entity, so as to hold 50% or more of such listed entity's voting shares. When such requirements are satisfied, the CMA has the power to order the relevant person / group to make a mandatory offer in respect of the remaining shares.
As detailed above, any acquisition which results in a shareholding that imposes an obligation to make a mandatory offer must be announced publicly. The price to be offered must contain a cash alternative of not less than the highest price for which the shares were purchased by the offeror during the 12 month period prior to the date of the board order for a mandatory offer, although the CMA has the discretion to adjust the price on application.
In addition, where the requirement to make a mandatory offer applies, the offeror is required to file a report with the CMA detailing all purchases of the target company's shares in the previous 12 months.
Under the FIEA, as a general rule a tender-offer is mandatory on the following occasions: (i) if the buyer acquires shares off-market and the shareholding ratio immediately after the acquisition (hereinafter “Target Ratio”) is more than 5% (unless the Target Ratio is less than 1/3 and the buyer acquires shares from no more than ten persons within 61 days); (ii) if the buyer acquires shares off-market and the Target Ratio is more than 1/3; (iii) if the buyer’s shareholding ratio before the acquisition is more than 50% and the Target Ratio is less than 2/3 (unless the buyer acquires shares from no more than ten persons within a 61-day period); and (iv) if the Target Ratio is not less than 2/3 (in which case the buyer must solicit shareholders of all types of shares of the target companies and shall purchase all shares tendered by shareholders).
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 it is required to make a tender offer for all the securities of the target company.
If a controlling shareholding of more than 30% in a listed joint stock corporation is directly or indirectly acquired, a mandatory offer needs to be submitted to the remaining shareholders. Mandatory offers are subject to minimum pricing rules, cannot be made conditional (except for legal conditions such as regulatory approvals) and cannot foresee a withdrawal right.
Holding up to 30% of the shares does not trigger a mandatory offer but a shareholding between 26% and 30% needs to be reported to the Takeover Commission and in principle the voting rights exceeding 26% are suspended.
The Listing Rules stipulate that where a direct or indirect acquisition of fifty percent plus one of the voting rights of a target company is made, the acquirer of such controlling interest in the company shall be required to launch, within seven days of the acquisition of such controlling interest, a mandatory bid as a means of protecting the minority shareholders of that company. The announcement of the bid shall be followed by the publication of an offering document containing the information necessary as would enable the holders of securities in the target company to reach a properly informed decision on the bid. Publication of the offer document is to be made within twenty one calendar days from the announcement of the launching of the mandatory bid.
A mandatory bid shall be addressed to all holders of securities in the company for all their holdings at an equitable price.
The Listing Authority is vested with the authority to exempt the launching of a mandatory bid in certain circumstances, including cases where the controlling interest in the target company was obtained as a result of the reduction of the company’s share capital and where control was acquired through the exercise of pre-emption rights rather than through the purchase of securities in the company from other persons.
Neither federal law nor Delaware law requires shareholders that have obtained significant stakes in companies to make mandatory or compulsory offers for the remaining outstanding shares. However, three states (Maine, Pennsylvania and South Dakota) have combined aspects of control share acquisition and fair price statutes and adopted so-called “control share cash-out” provisions in their corporation laws. These statutes require that, unless the organisational documents of a corporation provide otherwise, if a shareholder obtains a certain level of voting power (20% in Pennsylvania, 25% in Maine and 50% in South Dakota), other shareholders can demand that such shareholder purchase their shares at a fair price.
A mandatory public offer must be made in circumstances where the target company is public and the purchaser:
- proposes to offer to purchase voting shares leading to ownership of 25% or more of the issued voting share capital;
- already holds (collectively with its affiliates and related parties) 25% or more of the issued voting share capital, and proposes to acquire a further 10% or more of the issued voting share capital; or
- already holds (collectively with its affiliates and related parties) 25% or more of the issued voting share capital, and proposes to acquire a further 5% or more but less than 10% of the issued voting share capital within one year of having completed any previous acquisition of voting shares.
Pursuant to Rule 33 of the Securities (Takeover) Rules 2010, a mandatory offer must be made when the offeror:
- holds more than 30% of the rights attached to voting shares of a company and acquires or contracts to acquire additional voting shares of the company;
- acquires effective control of a company; or
- following a dealing in securities of a company, acquires the right to exercise or control the exercise of more than 50% of the rights attached to the voting shares of the company.
Where the Takeover Code applies, a mandatory offer must be made when the bidder either:
- acquires an interest in shares which carry 30% of more of the voting rights of the company; or
- is interested in shares which in the aggregate carry not less than 30% of the voting rights of a company but does not hold shares carrying more than 50% of such voting rights, or the bidder (or any person acting in concert with them) acquires an interest in any other shares of the company.
In case of a listed joint-stock company, a person (legal entity or individual) who, due to its own acquisitions or those of the persons acting in concert with, holds more than 33% of the voting rights in a company is obliged to initiate a takeover bid addressed to all shareholders and for all their shares, no later than two months after reaching this holding percentage. This obligation is not imposed if the shares package was acquired following an exempted transaction, such as privatisation, share transfer between mother-daughter companies or following a takeover bid.
As a majority shareholder, a buyer may “squeeze-out” the minority shareholders if, following the completion of a takeover bid addressed to all shareholders for all their holdings, the buyer is entitled to claim the shareholders who have not subscribed within the offer to sell their shares at a fair price, if the buyer is found in one of the following cases:
- owns shares representing at least 95% of the total number of shares in the share capital which entitle the right to vote and at least 95% of the voting rights that can be effectively exercised;
- acquired, in the takeover bid addressed to all shareholders for all their holdings, shares representing at least 90% of the total number of shares in the share capital which entitle the right to vote and at least 90% of the voting rights referred to in the takeover bid.
If a buyer acquires more than 20% of a code company, then it must make a full takeover offer (unless the acquisition of shares has been approved by shareholders for the purposes of the Takeovers Code or in certain other limited circumstances).
The Code requires a bidder to make a mandatory offer where it (together with persons acting in concert with it) acquires an interest in shares carrying 30% or more of voting rights in the target (which excludes treasury shares, but, usually, includes shares which have voting rights restricted or suspended). Similarly, the Code also requires a bidder to make a mandatory offer if it (together with persons acting in concert with it) is interested in not less than 30% but not more than 50% of the voting rights in the relevant target company and there is any increase at all in the percentage level of that holding.
Such offers must be for cash consideration or include a cash consideration alternative and may only be subject to very limited conditionality.
Other than as may be set out in the articles or any shareholders agreement, there are no such provisions applicable to private M&A transactions
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).
For 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 a mandatory purchase offer to other shareholders, including but not limited to the holders of publicly-traded shares. See also explications under Question 17 above.