Is a mechanism available to compulsorily acquire minority stakes?
Mergers & Acquisitions (2nd edition)
In Hong Kong, the scheme of arrangement and tender offer and compulsory acquisition are the two mechanisms that have been commonly used to acquire the minority stake of an Offshore Target Company.
Under the Minority Shareholder Squeeze-Out Act the majority shareholder that directly or indirectly owns 90% of the shares in a limited liability company or a stock corporation can squeeze out the minority shareholders with a simple majority vote and the payment of fair compensation. The minority shareholders have no means to block the squeeze-out but can request a compensation review. If the articles of association of a company contain a provision regarding the amount of the compensation to be paid in case of a squeeze out, the contractual provision is not applicable in case the agreed amount is below fair value.
Regarding publicly listed companies, if the squeeze-out follows a public takeover offer not later than three months after the end of the offer period, there is a rebuttable presumption that the compensation is adequate if it is equal to the highest compensation that was paid during the offer period.
The articles of association can stipulate that a squeeze out pursuant to the Minority Shareholder Squeeze-Out Act is not permissible and that minority shareholders cannot be squeezed out.
Where a bidder has acquired or unconditionally contracted to acquire both 90% of the shares to which the offer relates and 90% of the voting rights in the company to which the offer relates it is permitted under the Companies Act 2006 to acquire the remaining shares on the same terms as those set out in its offer. In addition, a minority shareholder has the right to require the bidder to buy its shares at the offer price if the bidder has obtained 90% of both the issued shares and the voting rights in the company. These procedures are only available where there is a takeover offer.
The Companies Act 2006 sets out the procedure for compulsorily acquiring the minority shares in the target company and the timetable for doing so. Upon acquisition of the shares those shareholders who do not accept the compulsory acquisition offer will have their shares transferred to the bidder by operation of law and the consideration that they are entitled to is held on trust by the target company for their benefit.
Where a takeover is carried out by way of a Scheme, if the scheme is approved by the necessary majorities of target shareholders (see question 5) and sanctioned by the court, it applies to all target shares and the compulsory acquisition procedure will not be necessary or relevant.
In the context of a private M&A transaction, a shareholders’ agreement or the company’s articles of association may contain drag and tag rights under which a majority shareholder (or shareholders) can force the sale by the minority shareholders to a third party where the majority shareholder(s) is/are selling out or, alternatively, the minority shareholders can force an acquisition of their shares by the third party where the majority shareholder(s) is/are selling out. The operation of these provisions will be particular to the shareholders agreement (or articles of association, as the case may be) and will be (or will have been) negotiated by the shareholders in the private company.
As mentioned above, a compulsory acquisition can result from agreed drag-along/tag along rights or call/put options.
In the context of an acquisition of a public company, any acquirer, who, as a result of a tender offer (as described in Question 5), obtains ownership of 95% or more of the voting rights in the target, has the right
to purchase the remaining shares and squeeze out remaining minority shareholders. The minority shareholders have the reciprocal right to force the acquirer to purchase their shares.
Pursuant to Decree 2555 of 2010, if the same beneficiary acquires more than 90% of the voting capital of a listed company, one or more shareholders who hold voting capital that represent 1% or more of such capital can demand that the acquirer carries out a tender offer (Oferta Pública de Adquisición – OPA) for the outstanding voting capital. Such OPA must be made within three months following the date on which more than 90% of the voting capital was acquired. Nevertheless, our legal framework does not provide a squeeze-out right in favour of majority shareholders to force the minority shareholders to transfer their shares after a tender offer is completed.
French law provides for a prohibition in principle to exclude a shareholder, which is nevertheless subject to exceptions.
First, as regards listed companies, for a controlling shareholder to implement a squeeze-out following any public offer, shares of the target held by minority shareholders should represent not more than five percent of the shares or voting rights.
Secondly, in the case of an non-listed company, only an express stipulation of the shareholders' agreement may justify the exclusion of the minority shareholder.
If a buyer holds/controls more than 90% of voting rights in a code company, then it must notify the company, the Takeovers Panel and (if the company is listed) NZX, and:
- the buyer has the right to buy out the remaining shareholders; and
- the remaining shareholders have a right to sell their shares to the buyer.
Egyptian law does not recognize squeeze-out mechanisms. As such, no mechanism is available to compulsorily acquire minority stakes.
100% control can be achieved contractually under a merger, equity acquisition or upon the terms of a scheme of arrangement, each as described above. 100% control may also achieved by a bidder availing themselves of the statutory squeeze-out provisions as more particularly described above.
Art. 111 of the Consolidated Financial Act contemplates a “squeeze-out” provision that applies each time that – following the launch of a takeover bid for all of the outstanding voting shares of the target company (whether the takeover bid is voluntary or mandatory) – the bidder holds at least 95% of the voting rights. Under this rule, a bidder in this condition has the right to purchase the remaining shares of the target company within three months from the expiry date of the offer, provided that the bidder asserted its wish to do so in the offer document.
Conversely, no mechanisms exists for compulsory acquisitions of minority stakes in privately held companies.
A bidder can effect a compulsory purchase or squeeze-out of the minority shareholders in the target. Where the target is a Takeover Regulations company, the bidder can squeeze out the minority shareholders where it has received 90% acceptances both in value and voting rights of those shares that are subject of the offer.
Where the target is a non-Takeover Regulations company, the bidder can effect a squeeze-out where it has received 80% acceptances in value within four months of the terms of the offer being published.
Under Brazilian Corporate Law, if less than 5% of all shares issued by the target company remain outstanding in the market after the De-listing Tender Offer auction, the target company shareholders may approve the redemption of such shares (“squeeze out”) based on the price reached in the De-listing Tender Offer, provided the company deposits the amount owed to the minority shareholders with a banking institution duly authorized by the Brazilian securities and exchange commission (CVM).
In the case of a private company then this matter will be exclusively governed by the provisions of the company’s articles of association and any shareholder agreement that may be in place.
In the case of a public takeover, the Public Takeover Law provides for the “squeeze out” or the “sell out” of minority stakes in certain cases.
In particular, according to the provisions of the Public Takeover Law, in case an offeror makes a bid to all the holders of securities of the offeree company for the total of their holding, he is able to require all the holders of the remaining securities to sell him/her those securities in the following situations:
i. where the offeror holds securities in the offeree company representing not less than ninety per cent (90 %) of the capital carrying voting rights and not less than ninety per cent (90 %) of the voting rights in the offeree company;
ii. where the offeror holds or has irrevocably agreed to acquire, following the acceptance of a takeover bid, securities in the offeree company representing not less than ninety per cent (90 %) of the capital carrying voting rights and not less than ninety per cent (90 %) of the voting rights included in the takeover bid.
Furrthermore, the law provides that, in any of the aforesaid cases, the holder of the remaining securities of the offeree company is able to require the offeror to buy his/her securities from him/her at a fair price.
Minority shareholders may under Norwegian law be subject to a squeeze-out. A majority shareholder or bidder that, directly or through subsidiaries, acquires shares in a company (both private (AS) and public (ASA)) that represent 90% or more of the total number of shares and votes can adopt a resolution by its own board of directors resolving to squeeze-out the remaining minority shareholders by a forced purchase at a redemption price. Each of the minority shareholders (holding less than 10%) has a corresponding right to demand that such majority shareholder (holding more than 90%) to acquire their minority shares. The rules and procedures for such compulsory acquisition procedure is set out in chapter 4 of the LLCA and the PLLCA.
Schemes approved by 75 per cent of shareholders (or creditors) are binding on all shareholders (or creditors) and either by the order sanctioning such scheme or a subsequent order, a court can make provision for the transfer of a company’s undertaking or its shares, pursuant to such scheme.
In addition, the approval of an offer to buy the shares of a public company by 75 per cent of shareholders within four months of such offer will give rise to a right on the part of the acquirer to compulsorily acquire the shares of dissenting shareholders upon notice within two months, subject to any objection proceedings.
Under Law 2190/1920, a majority shareholder that maintains 95% or more of the company’s capital has the right to enable the acquisition of the remaining share capital. A squeeze-out right is available to majority shareholders that, following a takeover bid, hold 90% or more in a listed company, for a consideration equal to the one contained in the takeover bid.
Squeeze-out mechanisms are available under German law following a successful acquisitions of shares in a company.
27.1 Takeover-related Squeeze-out
The takeover related squeeze-out option allows a bidder who acquires at least 95% of the target’s voting share capital to purchase the remaining voting shares within three months following the expiry of the acceptance period by filing an application to Frankfurt am Main District Court.
In this case, the consideration offered under the tender offer is deemed to constitute an appropriate cash compensation under the squeeze-out procedure, provided that the bidder has acquired shares constituting 90% or more of the registered share capital of the target as result of the tender offer. No formal shareholders’ meeting is required.
Corresponding to the takeover-related squeeze-out, the minority shareholders of the target have a put right if the above described conditions for a takeover-related squeeze-out are met. Practically, this results in an extension of the acceptance period by additional three months if the bidder acquired shares with a total value of at least 95% of the registered share capital of the target. Such procedure is uncommon as bidders usually fail to reach a shareholding of 95% after the offer.
27.2 Merger-related Squeeze-out
Under the German Reorganization Act (Umwandlungsgesetz), holders of shares equating to 90% of the share capital of the target may squeeze out the remaining minority shareholders in connection with an upstream merger (Verschmelzung) of the target into the controlling shareholder. The main requirements for such merger-related squeeze-out are that
- each of the companies, i.e., the target and the parent company, is either a German stock corporation, a partnership limited by shares (Kommanditgesellschaft auf Aktien) or a European public company (Societas Europea, SE); and
- the required squeeze-out resolution is made within three months following the signing of the merger agreement.
The squeeze-out compensation is based on the current value of the target pursuant to a formal fair market valuation of the target.
The resolution and the valuation may be challenged by minority shareholders.
27.3 Corporate Squeeze-out
The bidder may also utilize the traditional corporate squeeze-out procedure at any time following the bid if it owns at least 95% of the registered share capital of the target (including non-voting shares). However, this procedure requires a shareholders’ resolution.
The squeeze-out compensation is based on the current value of the company pursuant to a formal fair market valuation of the target and must be paid as cash compensation. The resolution and the valuation may be both challenged by minority shareholders and are subject to a lengthy judicial review, which usually delays the implementation of the squeeze-out.
First of all, there is a principle requirement to proceed with a mandatory public offer if a person or several persons acting in concert acquire(s), directly or indirectly, at least 30% of the securities with voting rights in a publicly traded company (see also above - question 25).
Further, minority shareholders of publicly traded companies can be squeezed out.
If a public offer has taken place, a bidder may force the remaining shareholder to the sell their securities with voting rights or giving access to voting rights and the remaining shareholders have sell-out rights (see above - question 26) when:
- the bidder owns a 95% interest in the capital of the target;
- the bidder holds 95% of the voting securities;
- if it concerns a voluntary offer, the bidder, as a result of the public offer, has acquired voting securities representing 90% of the capital of the target.
For purposes of determining the stake of the bidder in the target, the stake of persons acting in concert with the bidder is taken into account.
The securities are acquired at the bid price.
A majority shareholder further has the possibility to squeeze-out minority shareholders in the absence of a preliminary public offer. Such squeeze-out procedure can be initiated when a natural or legal person, together with persons acting in concert and the target company, holds 95 % of the voting securities of a publicly traded company and seeks to acquire the remaining securities with voting rights or which give access to voting rights of the target.
No. No such mechanism exists in Vietnam.
Upon completion of a tender offer, the bidder has basically to means to squeeze-out minority shareholders. Under FMIA, the bidder holding 98% of the voting rights of the target can apply for a court decision cancelling the remaining equity securities of the target against the same consideration as offered under the offer. The request must be made within three months of the offer's additional acceptance period. The proceedings are generally uncontroversial as minority shareholders' defense possibilities are very limited. In particular, minority shareholders cannot object to the price they obtain. In addition, the Swiss Merger Act allows an offeror to complete a squeeze-out merger if it holds 90% or more of the voting rights of the target. In such a case, minority shareholders can be forced to accept cash or any other merger consideration in exchange for their target shares. However, in case of a squeeze-out merger, minority shareholders have appraisal rights.
The person that acquires more than 95% of shares of a public joint-stock company or the person that was the sole shareholder of a reorganised (merged) company that became the holder of at least 95% of shares of the new public joint-stock company created as a result of such reorganisation, is entitled to demand buy-out of all the remaining shares of such public joint-stock company.
Squeeze-out rights are provided only for listed companies and only under strict conditions.
The authority can compel majority shareholders to acquire the shares owned by minority shareholders, as suggested in Article 38.
Most states have short-form merger statutes that permit a majority shareholder that has obtained a certain percentage of a company’s stock (typically between 80%-90%) to “squeeze out” minority shareholders by merging it with the parent without submitting the transaction to a shareholder vote. In addition to allowing short-form mergers, Delaware permits a buyer that has purchased in a tender offer a number of outstanding shares in the target that would otherwise be required to approve a merger (generally a majority, although the target company’s organizational documents may set a higher threshold) to consummate a merger with the target without submitting it to a shareholder vote, provided certain other conditions are met. Notably, this mechanism is not available in hostile takeovers, as there must be a merger agreement in place specifically contemplating the use of the specific statute that authorizes it.
The Swedish Companies Act provides for a squeeze-out mechanism including both a right for the minority owners to sell and the majority owner to purchase minority shares in a company in case one shareholder’s ownership exceeds 90 per cent of the shares in the company.
There is none. The Philippines has no squeezed-out mechanisms as they are known in other jurisdictions.
The Guernsey Companies Law provides that if within 4 months of the date of an offer the offer has been approved or accepted by shareholders comprising not less than 90% in value of the shares subject to the offer, the offeror may, within a period of 2 months immediately after the last day on which the offer can be approved or accepted, give notice to any dissenting shareholder that it desires to acquire his shares (“notice to acquire”). Subject to the Court’s powers referred to in 25. above, on the expiration of 1 month from the date of the notice to acquire, the offeror must send a copy of the notice to the target and pay the necessary consideration for the dissenting shareholder’s shares, and the offeror shall then be registered as the holder of those shares.
For the purposes of calculating the 90% threshold, shares held as treasury shares and shares held by the offeror or its affiliates are not taken into account.
If the acquirer holds 90% or more of the total voting rights of the target company as a result of a tender offer or otherwise, the acquirer has a statutory call option right by which the acquirer can require all of the minority shareholders to sell their shares to the acquirer without needing to pass a resolution at a shareholders’ meeting.
If a majority shareholder owns less than 90% of the total outstanding shares of the target company, the acquirer can still make the target company a wholly-owned subsidiary if a resolution is passed by super-majority vote (requiring two-thirds or more affirmative votes) at a shareholders’ meeting of the target company. There are a variety of methods for squeezing-out minority shareholders. The most prevalent method is to use a reverse share split, which reduces the number of shares of the target company by a ratio that results in all of the minority shareholders owning less than one share, at which point they cease to be shareholders in the target company. The same result can also be achieved by a cash-out merger or share exchange between the majority shareholder and the target company, but the tax implications of such cash-out merger or share exchange used to create a major barrier to the use of them for squeeze-outs. However, as a result of recent tax reforms, a cash-out merger or share exchange between the majority shareholder and the target company has become more tax efficient when the majority shareholder holds two-thirds or more of the total issued and outstanding shares of the target company. As such, it is anticipated that the cash-out merger or share exchange structure will be widely used for the squeeze-out process moving forward.
Isle of Man
Both the 1931 Act and the 2006 Act contain provisions for the compulsory acquisition of shares from minority shareholders which apply to all takeover offers that constitute a scheme or contract (which expression includes a series of contracts) involving the transfer of shares to another person. If the bidder has had its offer approved within a specified period of time by not less than 90% in value of the shares affected the bidder may compulsorily acquire the remaining shares.
There is no bar on the shares owned by an affiliate of a bidder being taken into account when determining whether the 90 per cent threshold has been crossed.
The Companies Act 2001 provides that where an offer has been approved by of special resolutions of the target company’s shareholders, the minority shareholder who has voted against the offer may require the target company or a third party arranged by the target company to purchase his shares at a fair and reasonable price. The law does not provide for the compulsory acquisition of minority shares. However, in practice, minority shareholders opt for a buy-out.
In relation to listed GBCs and Reporting Issuers, an offeror, who has acquired 90% or more of the voting shares of the target company, may give notice to any dissenting shareholder that he intends to acquire the dissenting shareholder’s voting shares. The notice must be given within 28 days from the last day on which the offer shall be accepted. The offeror shall acquire the shares of the dissenting shareholder on the same terms as for the approving shareholders within 21 days of the issue of a notice. However, the offeror may not acquire these shares if the dissenting shareholder has made an application to the Supreme Court following the issue of the notice until the determination of such application.
Section 103 of the Companies Act, provides that holders of 95% or more of the shares of a Company may compulsorily acquire the remainder. The principal difference between section 103 and section 102 is that a dissentient in section 103 can only apply to court to appraise the value of its shares. It cannot seek to vitiate the compulsory acquisition. The English case law on equivalent statutory provisions will be persuasive in Bermuda courts. English case law is such that a minority shareholder will find it very difficult to persuade the Court that on offer accepted by a majority of 95% is not reasonable and fair.
British Virgin Islands
BVI law provides for squeeze out provisions under section 176 of the Act in certain circumstances. Where an individual shareholder or shareholders acting in concert hold 90% of the votes of the issued shares in the target entitled to vote, section 176 provides that such shareholder(s) can instruct the target to redeem the remaining 10%, and the target shall so redeem the shares on the terms given by the majority shareholder(s). The majority shareholder(s) can use this power at any time and it applies irrespective of whether the shares are, by their terms, redeemable.
The Companies Law provides that, where a person (the Offeror) makes a takeover offer to acquire all of the shares (or all of the shares in any class) in a Jersey company (other than any shares already held by the Offeror at the date of the offer), if the Offeror has, by virtue of acceptance of the offer, acquired or contracted to acquire not less than 90 per cent in nominal value of the shares (or class of shares) to which the offer relates, the Offeror may (subject to the requirements of the Companies Law), by notice to the holders of the shares (or class of shares) to which the offer relates which the Offeror has not already acquired or contracted to acquire, compulsorily acquire those shares. A holder of any shares who receives a notice of compulsory acquisition may (within six weeks from the date on which such notice was given) apply to the Jersey court for an order that the Offeror not be entitled and bound to purchase the holder’s shares or that the Offeror purchase the holder’s shares on terms different to those of the offer.
Squeeze out mechanisms are available for controlling shareholders that are in control of the company, directly or indirectly holding no less than 90% of the shares and voting rights. A squeeze out of minority shareholders is not designed to be exercised at the controlling shareholder’s sole discretion. The TCC permits squeeze outs only where the minority acts in bad faith, adversely affects the functioning of the company, or acts recklessly.
The TCC also provides an exit opportunity for minority shareholders of publicly traded companies at the closing of “material transactions”, where a merger is defined as a material transaction. Shareholders objecting to material transactions at the shareholders meeting are allowed to exercise a buy-out right and exit the company. In other words, dissenting shareholder have the right to sell their shares to the company and the company is required to buy these shares accordingly. Shareholders who do not exercise these buy-out and exit rights are entitled to receive shares in the surviving company in proportion to their shares in the dissolving company.