What protections do directors of a target company have against a hostile approach?
Mergers & Acquisitions (2nd edition)
Please refer to the relevant Offshore Chapter for detail regarding each offshore jurisdiction.
In public M&A transactions, the board of directors and the members of the supervisory board have to maintain neutrality when a public bid has been announced and they are in principle not allowed to take measures to deprive the shareholders of the opportunity to make a free and informed decision on the bid.
However, there are several options of defence against a hostile approach, whereby in particular the target’s organisational structure or capital structure can be organised in line with a defensive strategy. The target also could look for a ‘white knight’ investor to fend off unwanted advances.
Staggered terms of office for the two-tier boards (board of directors and supervisory board) cannot hinder a hostile takeover as such, but nevertheless could delay the establishment of complete control of the acquirer of the target. Regarding the capital structure, the acquisition of own shares is – under detailed restrictions and subject to limited amounts – admissible pursuant to the Joint Stock Corporations Act and also employee stock-ownership plans are possible. A share buyback programme would be possible but since shares that are repurchased cannot exceed 10% such defence measure is only limited.
A further possible defensive measure is lowering the threshold that triggers a mandatory bid obligation from the statutory 30% to a lower percentage, while increasing the majority to remove supervisory board members to a higher majority (e.g., 75%), making it more difficult to change the supervisory board members.
Target directors need to act in compliance with their fiduciary duties in the best interests of the company and its shareholders (see question 9 above) and the Code prohibits a target board from taking action to frustrate an offer or which denies the target shareholders the opportunity to decide on the merits of an offer without shareholder approval during the course of an offer or prior to an offer if the directors have reason to believe a bona fide offer is imminent or do certain other things prohibited by the Code (including issuing shares, granting options in respect of unissued shares, creating or issuing securities carrying rights of conversion or subscription for shares, selling or acquiring assets of a material amount or entering into contracts other than in the ordinary course of business). Paying an interim dividend otherwise than in the normal course, during an offer could effectively frustrate an offer and the target company must consult the Panel in advance. If the target company is seeking shareholder approval for a proposed action, the board must obtain competent independent advice as to whether the financial terms of the proposed action are fair and reasonable, and provide shareholders certain details about the proposed transaction as well as the substance of the independent advice.
What a board can do is essentially say “no” to the hostile offer and urge shareholders to reject the offer on the basis that it undervalues the target company and may take other action to defend the target company against a hostile bid (whilst complying with its fiduciary duties under the Companies Act 2006 and the Code requirements) including disclosing new information (whether that is presenting profit forecasts, asset valuations and providing preliminary or final results). Poison pills, which are common in the context of US public deals, are not typically seen in UK deals, even if they would be possible taking into account the Code and the Companies Act 2006 requirements as institutional investors in UK public companies do not favour defensive measures and are unlikely to vote in favour of them.
The other protection afforded to target boards in a hostile takeover situation is the so called “put up or shut up” regime. This regime under the Code requires any publicly named potential bidder, no later than 5.00 pm on the 28th day following the date of the announcement in which it is first identified, to either make an announcement of a firm intention to make an offer or announce that it will not make an offer. If the bidder makes the latter announcement it will be precluded from making an offer within six months of making the announcement (see question 16 above).
The target company’s management, which resists to an acquisition, may opt to share only publicly available information with the acquirer. This would increase the risk for the latter to acquire unwanted debt and other problems due to the limited knowledge and insufficient information.
Furthermore, resignation of the key officers and management could destabilise the target company and threaten the smooth continuance of its operations.
In addition, the management agreements, which govern the relationship between the company and the respective director, may contain certain clauses, protecting the director’s interest during change of control over the target company, such as a “golden parachute” clause, which ensures payment of compensation to the director. Given that such clauses may constitute a significant financial cost for the target company, typically the potential acquirer would investigate key management agreements in the course of the due diligence process.
Article 18.104.22.168.19 of Decree 2555 of 2010 provides that, if pursuant to Colombian securities law a public tender (Oferta Pública de Adquisición – OPA) must be launched to acquire a listed company, after the public tender is effectively launched, the negotiation of the affected shares is suspended and certain obligations must be borne by the publicly held company target of the hostile acquisition, as follows:
From the publication of the suspension of the shares´ negotiation object of the public tender until the publication of the results of the public tender, the listed company must refrain from performing the following activities, except if they correspond to the execution of decisions previously made by the competent corporate bodies:
- The issuance of shares or convertible securities.
- Directly or indirectly carry out operations on the shares if they may disturb the public tender.
- Dispose of, encumber or undertake any transaction that implies a final disposition of any asset or group of assets that represent a percentage equal to or greater than 5% of the total assets of the listed company, as well as lease real estate or other assets that may disturb the normal development of the public offer.
- Carry out operations with the purpose or effect of generating a substantial variation in the price of the shares.
- Any other action outside the ordinary course of business of the listed company or undertaken with the purpose or effect of disturbing the public tender.
The target company’s affiliates must refrain from carrying out, directly or indirectly, operations that may disturb the public tender.
In accordance with the above provision, the directors of the listed company affected by a hostile takeover will not be able to carry out any of the defensive measures listed above, unless the directors are executing decisions that have been previously approved by the competent corporate bodies. Thus, in Colombia, unless it exits a prior authorization for such purpose, directors cannot defend the listed company from hostile takeovers.
The target company can take any defensive measures that could jeopardize the offer without the prior approval of the shareholders’ meeting (unless otherwise provided by the target’s by-laws), provided that it does not infringe on shareholders’ powers and does not act contrary to the target’s corporate interest.
Such measures can include for instance disposal of assets, capital increase, launching a tender offer and issuance of warrants.
The target company may use anti-takeover defences to thwart a transaction, but more generally will use such defences to negotiate a higher price or to postpone an acquisition attempt until competing bidders are involved.
Subject to certain limitations, the Takeovers Code prevents directors from undertaking defensive tactics in relation to a takeover. However, there is no restriction on directors actively soliciting competing bona fide offers from third parties.
Pursuant to the Capital Market Law, the target’s board of directors is obliged to appoint an independent financial advisor registered with FRA to evaluate any tender offer received in respect of the listed shares. The board should also opine on the valuation report issued by the financial advisor.
It must be noted however that pursuant to the Capital Market Law, the board is prohibited from taking any actions during the validity term of the offer that could result in, inter alia, increasing the liabilities the target company.
The adoption of any form of poison pills post-notification of a hostile tender offer is not allowed under Egyptian law.
There are no stakebuilding rules applicable under Cayman Islands law. However, transfers of equity securities in an unlisted company are usually subject to the consent of the Board.
To the extent that the target’s constitutional documents do not include anti-takeover provisions, the directors of the target will be limited in their ability to resist a change of control by their fiduciary duties to the company – the directors will be obliged to consider the terms of the acquisition in good faith and act bona fide in the best interests of the company as a whole in relation to any acquisition proposal. As noted in question 22 above, depending on the scope of the fiduciary duties imposed on the manager(s)/managing member(s) of an LLC, they may also be obligated to consider any bona fide offer.
In addition, if the target is listed on the CSX, the Code provides that at no time after a bona fide offer has been communicated to the board of the offeree company, or after the board of the offeree company has reason to believe that such an offer might be imminent, may any action be taken by the board of the offeree company, without the approval of the shareholders in general meeting, which could effectively result in any bona fide offer being frustrated or in the shareholders being denied an opportunity to decide on its merits.
Protection of directors of a company against a hostile acquisition is rather limited; in fact, they are subject to the passivity rule, under Art. 104 of the Consolidated Financial Act, which prohibits directors from taking actions that could frustrate the bid, unless they have authorisation to do so by resolution of a shareholders’ meeting.
Moreover, clauses in the company’s by-laws or contracts can make it more difficult or uneconomic to change the composition of the board of directors. For instance, companies can provide golden parachutes, which set a pay-out for a director if he or she is terminated or forced out from the company before the end of his/her contract.
By-laws can also provide for loyalty shares, which double the voting rights of shareholders that have held shares for a minimum of two years.
The practical options open to a target to resist a change of control are largely limited by the rule against frustrating action, which prevents the target’s directors from taking steps to frustrate an offer either during the course of an offer or at any earlier time where the board has reason to believe that the making of an offer is imminent unless approved by shareholders or with the consent of the Panel. As Companies that are liable to predatory action in the form of a bid would need to plan ahead and prepare for the eventuality of a bid being made (e.g. it should be possible to adopt a poison pill, provided it is adopted prior any offer being imminent although they are untested in practice).
Certain Brazilian corporations have included poison pills in their bylaws (which are locally described as provisions that target at forcing a buyer to acquire 100% of the capital stock of the company - including non-voting shares and/or forcing the buyer to appraise the shares of the company in accordance with certain methods which tend to make the pricing higher. When examining unsolicited bids, the members of the board of a Brazilian company ideally should act as it is expected for professionals at their level. This means that financial and legal assistance should be sought in the form of legal and fairness opinions as well as in the form of appraisal reports. Truth to be said, however, this is a very incipient market for the time being in Brazil.
In the case of a hostile bid, the bidder will not have access to inside information of the target company by its board of directors nor will it have the possibility of carrying out a due diligence. Similarly, the directors of a target company in a hostile bid may take several defensive measures such as, issue of shares.
There are restrictions on the target board taking defensive actions that might frustrate the willingness or otherwise of a buyer to make a bid or complete a bid that has already been made.
Prior to a prospective target being informed that a bid will be made or the offer is issued, there are few restrictions on the implementation of defensive measures against a possible future hostile approach. Nevertheless, the board of directors must always act in compliance with their fiduciary duty towards the company and its shareholders, as further described under question 9. Still, a prospective target’s board may, seek to introduce various pre-bid defences, e.g. seeking to amend the target’s articles of association by including special voting rules, lower mandatory bid levels and set out special criteria that shareholders must fulfil in order to own shares in the company, introducing different classes of shares, for example non-voting preference shares. In addition, change of control provisions in the company's commercial contracts can provide protection from hostile takeovers. More advanced US-style shareholders’ rights plans or other poison pills are currently not common in the Norwegian market. Also note that Oslo Stock Exchange will monitor and may restrict such resolutions/measures if found not consistent with the criteria for listing.
For Norwegian companies listed on a regulate market, the STA substantially reduces the possibility of the target's board to adopt active measures to defend against a takeover bid after the target has been informed that a voluntary or mandatory offer will be made. Under such circumstances, and until the offer period is expired, the board may not resolve on issuance of shares or other financial instruments, merger of the target or subsidiaries, sale or purchase of substantial business areas or other disposals of material significance to the nature and scope of the target’s operations; or purchase or sale of the target’s own shares. With that being said, the restrictions do not apply to disposals that are a part of the target company's normal business operations, or where a shareholders' meeting authorises the board to take such actions with takeover situations in mind. As a result, a fairly large number of Norwegian listed companies have adopted defensive measures aimed at preventing a successful hostile bid. Further, the board still have the possibility to try to persuade the shareholders to reject the bid or making dividend payments. The board will further, be entitled to seek white knights or white squires, exploring other alternatives, communicate the target’s potential by announcing financial forecasts not previously disclosed, initiating PAC-Man defences and resisting due diligence access. The board could also question the value of any consideration offered by the bidder, and as part of this question the bidder’s operational performance or financial position.
The restrictions in the STA on the board's actions in a post-bid situation is not applicable for companies not listed on a regulated market.
Finally note that situations where a target’s board seeks to frustrate a takeover process through such measures have rarely been tested by Norwegian courts.
As noted in question 5, hostile acquisitions are not possible in practice in Myanmar.
Defense mechanisms prior to the submission of a public bid are legally possible and certain can rely on the company’s articles. Such defenses would include calling upon callable shares, or converting bonds to shares or preferred shares to common voting shares, or relying on an employee call option program to change shareholders control; or agreeing large bonuses in favor of directors to be received in case of a takeover. This makes the acquisition more expensive, and less appealing to the acquiring company.
However, after a takeover bid has been submitted, the directors are bound by their fiduciary duty and can only take defense measures already approved by the GA. The Law endorses the principles of Directive 2004/25 in accepting the prevalence of the shareholders vis a vis the BoD in cases of takeover bids. To be noted that any share transfer or voting restrictions in the articles and in eventual shareholders agreements are deactivated during the period of acceptance. Apart from that, the BoD shall draft a public document setting out its justified opinion on the bid, which is submitted to the HCMC and distributed to the shareholders along with an underlying financial advisors’ report.
In Germany, the ability of directors to receive a golden parachute arrangement is restricted. As the acquirer may be in a position to remove the directors under certain circumstances the main protection of the directors is their service agreement. A service agreement continues to be in effect upon removal of the director and needs to be fulfilled or compensated by the company.
The board of directors has some options to frustrate a bid, although the possibility to act can be restricted once it has been informed by the FSMA about the public offer. The most common defense measures are:
- proceeding with a share capital increase within the limits of the authorized capital (if authorized to do so);
- proceeding with an acquisition of the target’s own shares;
- selling the target company’s “crown jewels”;
- issuing warrants and convertible bonds.
24.1 Any acquisition of voting shares in any Vietnam-domiciled public company (whether listed or unlisted) resulting in the acquirer (aggregated with its related entities) holding ≥25% of issued and paid-up voting share capital must be implemented by way of a “mandatory public offer”, approved by the State Securities Commission and implemented in accordance with specifically legislated rules and procedures.
24.2 Once any shareholder (aggregated with its related entities) holds ≥25% of issued and paid-up voting share capital, then the following types of further acquisitions must also be implemented by way of a “mandatory public offer”:
- any acquisition by that shareholder (aggregated with its related entities) of between ≥5% and <10% of issued and paid-up voting share capital, implemented within 12 months of any previous MPO transaction; and/or
- any acquisition by that shareholder (aggregated with its related entities) of ≥10% of issued and paid-up voting share capital, implemented at any time.
24.3 Where any offeror proposes to implement any MPO, it must firstly prepare an application dossier containing certain prescribed minimum information and documents, setting out in detail the particulars of the proposed public offer (the MPO Dossier). The offeror must submit the MPO Dossier to the target company, simultaneously with its submission of the MPO dossier to the SSC.
24.4 The MPO cannot be implemented unless and until such time as the SSC issues its approval. Within 10 business days of receiving the MPO Dossier, the Board of Management of the target company must issue to the SSC its written opinion in relation to the proposed public offer. Before deciding whether or not to approve the MPO, the SSC will in practice have regard to the opinion of the Board of Management of the target company.
24.5 The abovementioned requirements for the implementation of an MPO can, however, be exempted, if an exemption is approved by ordinary resolution of the General Meeting of Shareholders of the target company (which normally require the affirmative votes of ≥51% of the issued and fully paid-up voting shares being represented at the relevant AGM or EGM and being eligible to vote on the proposed resolution).
24.6 Aside from the MPO requirements, Board of Management members of public companies would only have informal means available to them in order to resist the implementation of hostile acquisitions.
Directors of the target are not required to enter into negotiations with or grant due diligence access to a potential bidder if they deem the approach not to be in the interest of the company (see question 6). Further, some level of protection is obtained through share transfer and voting rights restrictions in the articles of incorporation. On the other side, Swiss corporate law does not allow for staggered boards as directors must be elected on an annual basis.
Swiss takeover law prevents directors of the target from taking frustrating actions without shareholders' approval after a tender offer has been formally announced. Frustrating actions are defined as those that significantly alter the assets or liabilities of the target company as further specified in the TOO. In particular, the target board is prohibited from acquiring or disposing of treasury shares or respective derivatives, and from issuing any conversion or option rights, unless such transactions are made in the context of pre-existing employee share programs or obligations under pre-existing instruments (such as pre-existing convertible bonds). Further, the TOB has the authority to object to defensive measures that manifestly violate statutory corporate law.
From the corporate standpoint, certain protections can be provided by foundation documents of an entity. In certain cases it is possible to provide for the maximum member’s share in the company in question or provide that any sale of shares to a third party requires other members’ consent. These options, however, are working mostly for non-public companies.
Under Russian labour law, unilateral termination of employment of the sole executive body (CEO) (as well as its deputies and the chief accountant) at the initiative of the target company triggers the right of the sole executive body (its deputies and the chief accountant) to receive compensation (a certain equivalent of ‘golden parachute’) in the amount of at least 3 (three) monthly salaries.
The above provision, while establishing the minimum compensation, does not restrict the maximum amount of the compensation.
Despite the above, and given the fact that the practice of payment of ‘golden parachutes’ to management has been strongly criticised (e.g. the case of Ashurkov, Savchenko vs OAO ‘Rostelekom’ (case No. A56-31942/2013)), the Supreme Court of the Russian Federation has established that there should be a balance between the interests of the management and the interests of the shareholders, and the amount of ‘golden parachute’ should not infringe the rights and lawful interests of the shareholders and of the company itself.
The above position, among other things, has resulted in imposition of a limit of 3 (three) monthly salaries on compensation payable to sole executive bodies (their deputies and the chief accountant) of state corporations, state companies or companies at least 50% of which is owned by the Russian Federation or municipal entities.
Directors may use poison pills (although very rare and difficult to implement in practice).
The QFMA requirements make no provision of protections directors have against hostile takeovers. However the QFMA requirements are all based on the fact that a takeover/merger are consent based. For example, the QFMA Mergers & Acquisition Rules contemplate a merger agreement being entered into. Also many requirements (such as the requirement to have a valuation) cannot be carried out if the target company does not co-operate.
U.S. law does not have a general prohibition on “defensive measures” or “frustrating actions”, and the board of directors of a target company has several lines of defense against an attempted hostile takeover. First, the organizational documents of the target corporation may provide various structural defenses. Most notable among these is a staggered board, in which directors are separated into multiple classes with multi-year terms (normally three classes with three-year terms). Directors on a staggered board typically can only be removed for cause, effectively precluding a hostile bidder from launching a proxy fight to replace the entire board at once, which has the effect of requiring the hostile bidder to win two proxy fights to gain a majority of the target board. Among major U.S. public companies, staggered boards have become significantly less common over time due to institutional investor pressure to eliminate them. Other structural defenses include prohibiting action by shareholders by written consent, requiring advance notice for the submission of director nominations and proposals by shareholders, limiting or preventing the ability of shareholders to call special meetings, limiting shareholders’ ability to alter the size of the board, requiring that all shareholders receive the same consideration and requiring a supermajority vote of shareholders to approve changes to organizational documents or to approve a transaction.
Many states also have statutes that provide some protection against hostile bids, although corporations generally have the ability to opt out of their coverage. In states with business combination statutes, such as Delaware’s DGCL § 203, a company cannot merge with a person that holds a certain percentage of its stock for a certain period of time after such shareholder crossed the threshold ownership percentage unless certain criteria, such as approval by the board and a supermajority of shareholders, are met. Control share acquisition statutes prevent shareholders that acquire more than a certain percentage of a target company’s stock from voting those shares unless the other disinterested shareholders approve. Finally, as discussed in Question 10, several states have constituency statutes that allow directors to consider the impact of a transaction on stakeholders other than shareholders.
A target company can also adopt a shareholder rights plan, colloquially known as a “poison pill”. Poison pills are options granted to target company shareholders that allow them to purchase shares of the buyer or additional shares of the target, in either case at a steep discount, upon certain triggering events such as a potential buyer acquiring a certain percentage of the target’s stock (typically 10%-20%). A rights plan generally deters potential buyers from exceeding the threshold in order to avoid the severe dilution that would result from the rights being triggered. Since the rights under a rights plan can be redeemed by the target company board, a hostile acquirer would need to either reach agreement with the target company board or obtain control of the target company board in order to redeem the rights by convincing the target shareholders to replace the incumbent directors (most commonly through a proxy fight).
In addition to the structural and statutory defenses outlined above, a target’s board may also pursue alternative strategies such as mounting a public relations campaign, affirmatively trying to draw the attention of antitrust or other regulators or pursuing alternate transactions. In all cases, a board attempting to defend against a hostile bid must be mindful of its fiduciary duties, as courts in many jurisdictions subject defensive tactics to enhanced scrutiny.
In general, it shall be noted that the target company may not without the approval of the general meeting take any measures that are intended to impair the preconditions for the submission or implementation of a takeover offer. However, the target company is always permitted to look for a “white knight”. In a hostile context (i.e. where the offeror is not seeking the recommendation of the target company’s Board of Directors), the process typically involves a significant public angle and may accordingly involve actions by the Board of Directors that relate to public communications and may be of a defensive nature. Furthermore, if the target Board of directors ensures that the stock market is well informed of e.g. the company’s business, financial conditions, result of operations and prospects, on a continuous basis, it somewhat reduces the likelihood of a hostile approach.
As noted in Question No. 23 above, hostile takeovers are not common in the Philippines and consequently, there is no significant history regarding protections available to directors and the principal shareholders. That said, available defenses can be: (i) white knight defense; (ii) issuance of shares to a friendly third party, etc.
There are no specific protections provided by Guernsey law, however there are various methods available to the target to defend itself against a hostile bid. These include the so called ‘white knight’ defence whereby a preferred third party makes an alternative offer for the target company.
The Takeover Code (where applicable) contains certain restrictions on defensive actions which the target may take. These are contained at rule 21.1 of the Takeover Code and mainly prevent the target from taking frustrating action unless consented to by the shareholders in general meeting. These actions may include:
- Issuing shares or granting options;
- Selling treasury shares;
- Selling or acquiring assets of a material amount;
- Entering into contracts other than in the ordinary course of business; or
- Creating defences that make the target unattractive.
In addition to the Takeover Code's provisions, the following must be considered:
- Directors' duties. Directors' fiduciary duties in Guernsey law are based on common law principles and have not been codified in statute. Directors must act in the best interests of the company at all times and must use their powers for a proper purpose.
- Market abuse. The offence of market abuse may be committed if the board does any of the following (section 41A to 41G, The Protection of Investors (Bailiwick of Guernsey) Law, 1987):
a. acts on information that is not generally available to the market and which may affect the price of the target's shares;
b. behaves in a manner likely to create a false impression of the supply or demand for, or the price or value of, the target's shares; or
c. behaves in a manner generally regarded as distorting, or likely to distort the market in the company's shares.
- Insider dealing. If the directors are in the possession of price-sensitive information and seek to block a bid by acquiring shares or encouraging others to do so, the provisions of the Company Securities (Insider Dealing) (Bailiwick of Guernsey) Law, 1996 will be relevant. A director in breach of these obligations will commit the offence of insider dealing.
- Investment fund restrictions. Since most listed companies in Guernsey are regulated investment funds, the constraints arising from regulatory rules or the fund's own investor documents must also be considered.
Many listed companies have adopted pre-warning types of anti-hostile takeover plans. These companies have adopted and disclosed rules that potential acquirers need to follow when they desire to acquire shares of such company in excess of a certain percentage, and that warn that if the acquirers do not comply with such rules, the company will take defensive measures. The intention of these rules is to secure the time and an opportunity for its shareholders to obtain sufficient information from the potential acquirer and to carefully consider its proposal. In addition, in many cases, pre-warning types of anti-hostile takeover plans allow the target company to take defensive measures against acquisitions that are determined by it to have the potential to cause clear harm to its corporate values even if the acquirer complies with the rules. Notwithstanding the above, it is not necessarily clear under what situations a target company will be allowed to take defensive measures under a pre-warning type of anti-hostile takeover plan.
Regardless of whether a target company has adopted such an anti-hostile takeover plan, in the tender offer process, the target company has the right to submit questions in its position statements to the potential acquirer, and the potential acquirer must respond (or explain its reason for not responding) within 5 business days. Also, there are other defensive measures available, for example, the acquisition of shares by a white knight. But, directors should be cautious in implementing such measures to avoid breaching their duties to the company.
Isle of Man
There are no specific provisions contained in Manx law for the protection of directors of a target company against a hostile approach.
There are various methods available to the target company to defend itself against a hostile takeover, including seeking a third party to make an offer for the target company. Provided that the target company’s directors act in a way that they believe, in good faith, would be most likely to promote the success of the target company and to preserve the interests of its shareholders and other stakeholders and they are acting within their powers, there should not be any legal objection to the target company defending itself against a hostile takeover.
The bye-laws of a Bermuda company can provide directors with the power to protect against hostile approaches. One such approach is to dispose of a company's unissued shares, so long as they are empowered to do so by the target company’s bye-laws and that these actions are supported by Bermuda common law. The bye-laws of a Bermuda company may provide that the unissued shares will be at the disposal of the board, which may dispose of them to such persons and upon such terms and conditions as the board may determine.
An example of a protection which illustrates the director’s ability to protect the company against a hostile approach is the poison pill strategy. Such a strategy permits the directors to issue shares to all shareholders, except for the acquirer, at a discounted purchase price. This provides investors with instantaneous profits. Using this type of poison pill also dilutes shares held by the acquiring company, making the takeover attempt more expensive and more difficult.
A company’s bye-laws may be drafted to include such defensive measures in such form as the shareholders decide are appropriate or necessary. The directors’ use and application of such provisions are subject to the following considerations.
Common Law and Directors’ Duties
Under Bermuda common law, directors have wide discretion in the conduct of a company's affairs as long as they act both in what they believe to be the company's interest and within their powers. Although the interests of the company as a separate body corporate, distinct from its shareholders, have to be advanced, the interests of current shareholders will normally be the principal factor in the directors' decisions. Directors may also take into account the long term interest of the company, future shareholders, employees and the creditors in deciding what actions to take.
Section 97 of the Companies Act sets out the duty of care of the officers and directors of a company. Directors must act honestly and in good faith with a view to the best interests of the company, and maintain a standard of care which is that of the reasonably prudent person in comparable circumstances. This is often a subjective test. Although directors may rely on the advice of professionals, they retain a residual duty to make certain basic assessments of any given factual situation. They have a duty of loyalty, and must not put themselves in conflict with the company.
Under Bermuda law, as under the laws of other jurisdictions, “advance defensive preparations” are more easily upheld than are measures taken as a result of a takeover bid. The Bermuda courts will carefully scrutinize actions taken in response to a proposed change of control transaction, on the grounds that a company has no legitimate concern of its own with the exercise by a shareholder of the rights to sell his/her shares. This does not mean that directors may not resist a bid in the absence of advance preparation although it does mean that there are relatively narrow limits to the methods by which they do so. Thus, the directors may present their views on the wisdom of accepting an offer, provided that the advice is based on full information, fairly presented and is not influenced by the personal interest of management.
While directors must fulfill the requirements of the Companies Act by acting honestly and in good faith with a view to the best interests of the company, however, as a practical matter, directors must also act with a view towards value maximization of shareholdings. Actions taken primarily for the collateral purpose of entrenching management or of maintaining the proportional interest of the shareholders via shareholders rights plans, or for any other improper purpose, may be an abuse of the directors’ power and may not stand up in court. However, actions taken in the best interests of the company and the current shareholders will not be so sanctioned.
In general, the Bermuda courts will not interfere in directors' decision making unless it has been proved by an aggrieved party that the directors have breached their fiduciary duty. There is no statutory provision regarding enhanced duties with respect to takeovers, and so any enhancement of duty arises out of the more conscious and cautious application by the directors of their ordinary duty.
British Virgin Islands
Under the Act there are no applicable stakebuilding rules, however, as any transfer of shares in any BVI company is subject to the consent of the directors, the target company will be able to resist a hostile approach provided they are complying with their duties to act in the best interests of the Company. To the extent that the target’s constitutional documents do not include anti-takeover provisions or “poison pill” type provisions, such as staggered boards or limited director removal rights, the directors of the target will be limited in their ability to resist a change of control by complying with their fiduciary duties to the company. The directors will be obliged to consider the terms of the acquisition in good faith and act bona fide in the best interests of the company as a whole in relation to any acquisition proposal.
There are no specific provisions under Jersey law for the protection of directors of a target company against a hostile approach.
Since hostile takeovers are not an issue in the Turkish corporate environment, U.S. style defensive measures (e.g. poison pills, etc.) have not emerged in Turkey.
Directors owe a duty of care and duty of loyalty to the company with respect to each transaction and must always observe the best interest of the company.
There are no specific provisions under Nigerian law for the protection of the directors of a target company against a hostile approach. However, the Directors do have an opportunity not to recommend the offer to the shareholders in the Directors’ circular. In doing this, the Directors must take cognisance of their fiduciary obligation and act in the best interest of the company.
Directors of a public target company may apply protection measures subject to the restrictions set out in the Civil Code and the Capital Market Act. Protection measures may include the increase of the company’s registered capital, acquisition of the company’s own stock, so-called poison pill defense (limiting the maximum level of votes that can be acquired in the company, or facilitating the dilution of the acquirer by the other shareholders at a discounted price), financial assistance or other restrictions in the company’s bylaws, or the inclusion of change of control clauses in the company’s business critical contracts.
As for the restrictions on financial assistance, we refer to point 19 above.
Furthermore, the Capital Market Act restricts the possibility for the company’s management board to apply protection measures as follows: if a public target company’s articles of association so provide, the directors of the target company must remain neutral and cannot take measures to prevent or disturb the acquisition (such as a capital increase or the acquisition of the company’s own stock). Notwihstanding this restriction, the directors may (i) encourage that a counter-offer is made in case a compulsory public takeover bid, or (ii) decide to implement a resolution of the supreme body made before the announcement (or information) of the public takeover bid, provided that it constitutes the ordinary course of business of the target company, or (iii) take the measures specified in the resolution of the supreme body made at a meeting convened after the announcement of the public takeover bid.