Is a mechanism available to compulsorily acquire minority stakes?
Mergers & Acquisitions (3rd edition)
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 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.
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.
Our tender offers regulation does not include a squeeze-out mechanism. Therefore, squeeze-out mechanisms are uncommon in Colombia.
Nevertheless, once the company becomes private, it may be registered as a simplified stock corporation, a type of company that allows equivalent mechanisms to the squeeze-out.
Previous to Law 1258 of 2008, forcing a shareholder out of a company was particularly complicated. However, Law 1258 included certain provisions to able buy out shareholders. Such mechanisms, though, are exclusive for simplified stock corporations and are essentially two: (i) exclusion, and (ii) cash consideration in a merger or spin-off transactions.Through exclusion, a majority of the shareholders can vote a shareholder out of a company, if the exclusion events and procedures are expressly stated in the by-laws. Following the exclusion, the company shall buy out the participation of the excluded shareholder.
The other mechanism that may be explored allows a majority of shareholders to approve a merger or a spin off, and to exclude minority shareholders from participating in the resulting entity. Instead of receiving stock, the company can distribute cash to such shareholders as consideration, achieving thus the buy out of such minority shareholders. These two alternatives are available only for simplified stock corporations.
Additionally, Law 1258/2008 instituted a short-form merger applicable to companies owning 90 per cent of the shares of a simplified stock corporation. In this event, the decision of the legal representatives or the board, shall suffice to approve a merger. No shareholder vote is needed. The merger can be structure to provide for cash consideration for certain minority shareholders, as previously explained, and therefore achieving the buyout.
Yes, in line with the EU corporate regulatory framework, the Croatian Companies Act provides for voluntary squeeze-out mechanism, and the Act on Takeovers of Joint Stock Companies sets out the terms for statutory squeeze-out.
a) Statutory takeover squeeze-out
The statutory takeover squeeze-out enables a controlling shareholder who, after completion of a takeover bid, holds at least 95% of the target’s shares, to acquire the remaining minority shareholders’ shares within three months after the expiration of the offer term. Fair value must be paid to the minority shareholders for their shares. Fair value is defined as the price offered in the takeover bid.
In addition to the 95% shareholder’s right to implement a statutory squeeze out, minority shareholders in the target company in which a controlling shareholder holds at least 95% of the shares, have the right to sell to the controlling shareholder their 5% shares for fair value, within three months after the expiration of the offer term. If the controlling shareholder opposes implementing the squeeze out, the minority shareholders can request from the competent commercial court the implementation of the statutory takeover squeeze-out.
Once the statutory takeover squeeze-out starts to apply, it will significantly speed up the current squeeze-out procedure, which can be prolonged due to the minority shareholders’ right to challenge the general meeting’s decision on the squeeze-out in court proceedings that can be lengthy and last for a number of years. In the statutory takeover squeeze-out procedure, there will be no danger that a squeeze-out can be prolonged by mounting a challenge to the general meeting’s decision since the general meeting’s decision on the squeeze-out is not required.
b) Voluntary squeeze-out
Besides the statutory takeover squeeze-out, the standard voluntary squeeze-out can be exercised by the 95% majority shareholder: namely, a shareholder holding at least 95% of the registered share capital of a Croatian joint stock company, has the right to propose to the general assembly that it adopts a resolution requiring the transfer of all remaining shares of the minority shareholders to the principal shareholder. The principal shareholder determines the amount of the payment (in cash) to be paid to minority shareholders for their shares. The adequacy of the payment must be reviewed by one or more auditors appointed by the court. The minority shareholders can separately challenge the general assembly’s decision on the squeeze-out and the adequacy of the offered amount / payment for the shares.
Only those that are contemplated in a shareholders agreement.
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.
Under the Business Corporations Act, the majority shareholder that directly or indirectly owns 90% of the shares in a joint stock company or 90 % shareholding in a limited liability company preserves a right to squeeze out the minority shareholder(s) with a simple majority vote. The squeeze out is conditional upon a payment of fair compensation to the minority shareholder(s). The minority shareholders have no means to block the squeeze-out but preserve a right to file an application for a review of a compensation by a court and evening up of the compensation (according to the court practice, it is usual to even up of the compensation).
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.
100% control can be achieved contractually under a statutory merger/consolidation, equity acquisition or upon the terms of a scheme of arrangement, each as described in our answer to question 5 above. 100% control may also achieved by a bidder availing themselves of the statutory squeeze-out provisions as more particularly described in our answer to question 5 above.
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. Please note that this threshold is likely to be increased to 10% of the share capital and 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.
Under Law 4548/2018, a majority shareholder that maintains 95% or more of the share capital has the right to enable the acquisition of the remaining share capital. A squeeze-out right is available to majority shareholders who, following a takeover bid, hold 90% or more in a listed company, for a consideration equal to that of the takeover bid. No significant amendment has been brought by the new company law.
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.
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.
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.
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.
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.
The mechanism to compulsorily acquire minority stakes could involve a Drag Along clause, also known as “obligation of joint sale”. This clause enables a majority shareholder to force a minority shareholder to join in the sale of its shares in the acquisition of the target company. The Drag Along clause activates at the moment an offer of acquisition is received from a third person to the majority shareholder. If the offer involves more shares than the majority shareholders has, the Drag Along could be activated to force the minority shareholders to sale their own shares and the buyer would obtain all the shares of the target company.
In addition to the Drag Along mechanism, another mean to compulsorily acquire minority stakes is the Tag Along clause. This clause gives the minority shareholders the right to sell its shares when a majority shareholder decides to sell its participation in the company to a third party. Consequently, the Tag Along right allows the minority shareholders to join the transaction under the same terms and conditions offered to the majority shareholders that intends to sell its shares. This clause eases the way out of the target company of those minority shareholders that do not agree to the change of control.
However, the Drag Along and Tag Along rights will exist only if they are provided in a shareholders agreement, as they are not legally regulated.
At present, Philippine laws do not have any mechanism for the compulsory acquisition of minority stakes.
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.
A squeeze-out mechanism is triggered if a company – directly or indirectly – holds 90% or more of the share capital of the target.
In such case, such company has to notify the target within 30 days from the date it reached such threshold and exercise the squeeze-out right within 6 months from such notification.
The offer to the other shareholders shall be in cash, bonds or quotas/shares in the acquirer’s share capital and based on an independent valuation. The consideration – in the amount equivalent to the higher range of the independent valuation – shall have to be deposited for the benefit of the minority shareholders.
If the majority shareholder does not acquire the minority shareholders’ shares, the latter are entitled to sell-out their shares.
In the particular case of public companies, the acquirer also benefits of a squeeze-out right. The squeeze-out operates under the same rules as the sell-out detailed in our answer to the preceding question: the acquirer will only be able to trigger it if its shareholding crosses the thresholds set out above and in any case only within 3 months after the PTO.
The acquirer controlling 90% of the voting rights of the target may also approve a delisting of the shares, in which case a specific public offering process will apply.
Squeeze-out rights are provided only for listed companies and only under strict conditions.
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.
The prescribed percentage in terms of the Takeover Regulations is 35% of the voting securities of a company; at which point, the offeror (and persons acting in concert with the offeror) is deemed, for the purposes of the Takeover Regulations, to have obtained control of the target company and will be required to make a mandatory offer.
In addition, in terms of section 124 of the Companies Act, if an offer for the acquisition of any class of securities of a regulated company has been accepted by the holders of at least 90% of that class of securities (other than any such securities held by the offeror before making the offer), the remaining minorities can be expropriated at the same price in terms of the compulsory acquisition and squeeze-out regulations.
The Swedish Companies Act provides for a squeeze-out mechanism including both a right for the minority owners to sell and for the majority owner to purchase minority shares in a company in case a shareholder’s ownership, directly or indirectly, exceeds 90 per cent of the shares in the company.
Upon completion of a tender offer, the bidder has basically two 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. On the other hand, the Swiss Merger Act allows an offer or 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. In case of a squeeze-out merger, minority shareholders have, however, appraisal rights.
Currently, there is no squeeze-out mechanism available in Thailand.
See paragraph 25 above.
Yes, such a mechanism is available under section 235 of the Companies Act, where a scheme or contract involving the transfer of shares in a company (the transferor company) to another company (the transferee company) has, within a prescribed time frame been approved by the holders of not less than nine-tenths in value of the shares whose transfer is involved, the transferee company may, within the prescribed time frame give notice to any dissenting shareholder that it desires to acquire his shares. Thereafter, unless if the NCLT on an application made by the dissenting shareholder to the Tribunal, orders otherwise, the transferee company shall be entitled to and bound to acquire those shares on the same terms as those offered to the approving shareholders.
No. No such mechanism exists in Vietnam.
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.
If a company’s shareholder meeting has adopted a resolution to merge or divide the company, a dissenting minority shareholder may require the company to repurchase all the shares held by the dissenting minority shareholder.
In a public acquisition, if an acquiror has obtained over 90% of the shares of the target company, then, barring a waiver from the CSRC, the acquiror is required to acquire the remaining minority shares and delist the target company.
27.1 For the purpose of preserving the rights of minority shareholders, the CML provides for instances where the FRA may require that the majority shareholders launch an MTO to acquire the minorities.
For example, CML provides that if a party, alone or through related parties, acquires 90% or more of the issued shares and voting rights of a Publicly Traded Company, any of the remaining shareholders holding 3% of the issued shares or a number of shareholders of at least 100 representing not less that 2% of the free float may, during the 12 months following the acquisition by the majority shareholder of the above mentioned percentage, request FRA to notify the majority shareholder to launch a tender offer to acquire the minority shareholders. If such a request is accepted by the FRA, it shall notify the majority shareholder who shall be obliged to submit a mandatory tender offer file during the period determined by FRA.
Furthermore, the CML obliges the majority shareholders and/or entities having actual control of a Publicly Traded Company to disclose to FRA certain specific actions that may affect the minority shareholders’ rights prior to their execution, including for example a decision to merge the Publicly Traded Company in another company under their control or a decision to dispose of its principal assets to another company. The FRA is granted the prerogative under the CML to assess such actions and their implications on minority shareholders and may decide that an MTO should be launched by the majority shareholder and/or the entities controlling the Publicly Traded Company.
27.2 There are other examples where the majority shareholders are also obliged to buy out the minority. Pursuant to Companies Law, the shareholders who have voted against a resolution approving a merger may during a period not exceeding thirty days from the publication of the merger decision request that their shares be bought out. The value of shares or quotas in the company may be determined by agreement of the parties or determined by the court taking into consideration the value of the assets of the relevant company.
In case of a voluntary decision to delist taken by a 75% vote of the shareholders of a Publicly Traded Company in an extraordinary general shareholders meeting, shareholders who object to such a decision in accordance with the provisions of applicable law may force the company to buy their shares at a price determined in accordance with the Listing Rules.
27.3 Finally, other than the above mentioned cases, where the minority shareholders may force the majority shareholder to acquire their shares, there are no statutory provisions under Egyptian law that explicitly oblige minority shareholders to sell their shares to a majority shareholder. In other words, there are no squeeze out mechanisms under Egyptian law.
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 clause 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.
In Hong Kong, the scheme of arrangement, and tender offer and compulsory acquisition, are the two mechanisms that have been commonly used to compulsorily acquire the minority stake of an Offshore Target Company.
In the context of an offer, where a bidder has acquired not less than 90% of the shares to which the offer relates and not less than 90% of the voting rights carried by such shares, the bidder can “squeeze out” the minority shareholders and acquire their shares provided that it does so within three months from the last day from which the offer can be accepted. Alternatively, if the bidders has holds not less than 90% of all shares in the company and which carry not less than 90% of the total voting rights in the company, minority shareholders can require the bidder to acquire their shares in the company within one month of that right arising.
Where the 90% thresholds under an offer are not met, a Scheme may be used instead, which requires the approval of (i) a majority in number representing at least 75% in value of the shareholders voting at the meeting and (ii) the High Court. Upon the court sanctioning the Scheme, it becomes binding on all shareholders.
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.
Under Hungarian law, squeeze-out mechanisms are available only in case of public companies limited by shares (Nyrt.). The Capital Market Act provides majority shareholders with the possibility to exercise a statutory call option right vis-à-vis minority shareholders if (i) the shareholder indicated in its request for the approval of the public takeover bid that it wishes to exercise a call option right, (ii) the shareholder holds an interest of at least 90 % within three months following the successful completion of the public takeover process and iii) the shareholder verifies that it has sufficient funds available to pay the consideration for the shares to be acquired.
For statutory put option rights of minority shareholders, please refer to point 26 above.
The authority can compel majority shareholders to acquire the shares owned by minority shareholders, as suggested in Article 38.
Yes, at the proposal of the majority shareholder possessing at least 90 percent of the share capital in a public limited company the general meeting of a public limited company may adopt a resolution to transfer shares of the other minority shareholders to the majority shareholder against the payment of appropriate cash compensation (exclusion of minority shareholders or minority shareholder squeeze-out).