18 August 2006 |  Print this Article | Share on Facebook | Share on linkedin

New law on takeover bids – in the aftermath of the battle between Arcelor and Mittal Steel

As a result of a hostile takeover bid on 27 January 2006 by Mittal Steel on Arcelor, the Luxembourg parliament has adopted the law of 19 May 2006 pertaining to the implementation of Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (the “Takeover Law”).

Previously to the Takeover Law, Luxembourg corporate law did not provide specific rules on takeover bids. The main objective of the Takeover Law is to create a legal framework for takeovers in Luxembourg, specifying the rights and obligations of shareholders (including minority shareholders) in view of a takeover bid and safeguarding employee rights.

Key features of the Takeover Law:

Definition of takeover bid and scope

- The Takeover Law applies to all takeover bids of securities carrying voting rights in target companies headquartered in the European Union or the European Economic Community, and when all or part of the securities are listed on a regulated stock exchange.

- A Takeover bid is defined as a public offer made to the holders of the securities of a company to acquire all or some securities, with the objective of gaining control.

Supervision by the CSSF

The CSSF is the competent supervising authority (1) for takeover bids in which the target company has its registered office in Luxembourg and the company’s securities are admitted to trading on a regulated market in Luxembourg and (2) for takeover bids in which the target company has its registered office in another Member State and its securities are admitted to trading in Luxembourg. The decision to make a bid must be made public by the offeror immediately after its decision is taken and the CSSF must be informed of the bid before such a decision is made public. The offer document must contain at least (i) the terms of the bid, (ii) the identity of the offeror, (iii) the securities, (iv) the consideration offered for each security or class of securities, etc.

The time allowed for the acceptance of a bid may not be less than 2 weeks nor more than 10 weeks from the date of publication of the offer document. The offeror may however extend the acceptance period by giving notice at least 2 weeks before the closing of the bid. The acceptance period may in no case exceed 6 months after the publication of the offer document.

Acquisition of control triggers mandatory bid

The Takeover Law requires any person gaining control of a company (i.e. 33,33% of the voting rights) either alone or in concert with others to launch a bid. The obligation shall however no longer apply where control has been acquired following a voluntary bid in accordance with the Takeover Law to all the holders of securities. The mandatory bid must be addressed to all the holders of securities at the equitable price (i.e. which is the highest price paid for the same securities by the offeror over a period of 12 months before the bid). It should be noted that when the 33,33% threshold is exceeded by means other than active acquisition, such as redemption of shares there is no obligation to make an offer. The CSSF has stated that “if a portion of voting rights, initially situated under the threshold, exceeds the latter due to reasons other than the acquisition of shares, the mandatory bid rule contained in article 5 (1) of the Takeover Law is not triggered” (see CSSF press release of 2 June 2006 in PDF format).

Mandatory buy-back

A holder of securities may force any person holding (following a bid tendered to all the holders of securities of a target company) more than 90% of the voting rights in a company to repurchase its securities at a fair price (a price ensured by the CSSF).

Squeeze-out mechanism

An offeror who holds 95% of the voting securities can force the holders of the remaining securities to sell at a fair price. The squeeze-out right must be exercised within 3 months from the end of the acceptance period for the takeover bid.

Consideration

The consideration may either consist of securities or cash or a combination of both. If securities are offered, they must be considered “liquid”, meaning that in general at least 25% of the offeror’s capital must be publicly traded. Where the offeror has acquired at least 5% of the voting rights in cash, he must give the option to any other shareholder to exchange its shares for cash.

Reaction of target company’s management and involvement of employee representatives

Once the offer is made public, the target company’s management has the obligation to inform the employee representatives. The Takeover Law and the Directive provide that the board of directors of the target company must obtain the authorization of the general meeting of shareholders before undertaking any defensive action, especially issuing new shares, besides looking for alternative offers. However, Luxembourg has adopted the option contained in the Directive by granting its companies the reversible option of requiring prior shareholder approval. It would seem to be possible under Luxembourg law to use a company’s authorized capital as stated in the articles of association provided it is not against the interests of the company, to fend a takeover bid.

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