The law of July 21, 2012 on the mandatory squeeze-out and sell-out of securities of listed companies came into force on October 1, 2012.
The law complements the existing provisions under the legislation of May 19, 2006 on takeover bids which transposed the EU Takeover Directive (2004/25/EC) into Luxembourg law, but has a much broader scope of application.
What securities and companies are covered?
The law, which only applies to companies with their registered office in Luxembourg, defines securities covered by the legislation as “transferable securities carrying voting rights in a company, including depositary receipts in respect of shares carrying a possibility to give instruction for a vote”.
The securities must be currently admitted to trading on at least one regulated market in an EU member state, or have previously been traded on a regulated market within the EU, provided that they were withdrawn from trading not more than five years ago [1]; or were offered to the public, triggering the obligation to publish a prospectus in accordance with Article 3 of the Prospectus Directive (2003/71/EC) of November 4, 2003 or for which the obligation to publish a prospectus did not apply under this Directive, where the offer did not start more than five years earlier.
The law expressly excludes collective investment companies that operate on the principle of risk-spreading and whose shares or units may at the holders’ request be repurchased, directly or indirectly, out of the company’s assets. It also excludes takeover bids made in accordance with EU Directive 2004/25/EC of April 21, 2004 regarding takeover bids up to six months after the expiry of any deadline laid down for any ensuing rights resulting from such a bid.
What notifications must majority shareholders make?
Under the new law, certain specific notification requirements apply to any shareholder once it becomes a ‘majority shareholder’, defined as any company or individual that alone or in concert with others holds securities representing at least 95 per cent of the capital carrying voting rights and 95 per cent of the voting rights of the company. The company in question must also comply with certain notification requirements.
The majority shareholder shall notify the concerned company and the CSSF no later than four working days after they becomes a majority shareholder, the holding of a majority shareholder falls below 95 per cent of the capital carrying voting rights and/or 95 per cent of the voting rights, or the majority shareholder acquires additional securities of the company. This is called a majority notification.
The information to be provided comprises [2] the exact percentage of its shareholding in the company, a description of the operation that leads to the majority notification, the date on which this operation became effective, its identity, and the way securities are held. Upon receipt of such a notification, and no later than three working days later, the company in question must make public all the information it contains.
Mandatory squeeze-out
A majority shareholder may require the remaining shareholders to sell him their securities in the company at a fair price, provided that they are capable of fulfilling any cash consideration in its entirety.
The squeeze-out procedure starts with the majority shareholder notifying the CSSF of its intention to exercise and complete such a procedure. The majority shareholder must then inform the concerned company and publish its decision, revealing at least the identity and contact details of the majority shareholder, the name of the expert responsible for determining the fair price, the methods of payment, and other conditions governing the mandatory squeeze-out.
For the squeeze-out to be carried out at a fair price, the majority shareholder must appoint an independent expert and, within one month of the notification to the CSSF of its intention to exercise the squeeze-out procedure, transmit the proposed price and a valuation report of the securities to the CSSF and to the company, and publish it without delay.
The law allows the minority shareholders to object to the squeeze-out plan within a month following publication of the proposed price, by registered letter to the CSSF. Copies of this letter must be sent within the same time limit to the majority shareholder and to the company.
Mandatory sell-out
A minority shareholder may require majority shareholders with 95 per cent of the capital carrying voting rights and/or 95 per cent of the voting rights to purchase their securities in the company at a fair price. Minority shareholders have this right within three months of the publication of a majority notification by the majority shareholder, and at least two years after the previous mandatory sell-out by a minority shareholder.
The minority shareholder must inform the majority shareholder of their intention to exercise the sell-out right by registered letter (copied to the CSSF and the company) stating at least the identity of the minority shareholder, the evidence of their shareholding, and the number and the class of the securities they hold.
The various notifications, the determination of the fair price and the ability of the minority shareholders to object to that price are the key steps of the sell-out procedure and are similar to those applicable to the squeeze-out procedure.


[1] Transitional provision: for a period of three years from the entry into effect of the law, the squeeze-out and sell-out rights may be exercised for such securities, provided that the removal from trading on a regulated market occurred on or after January 1, 1991.
[2] Transitional provision: a shareholder that was a majority shareholder at the time the law entered into force was obliged to notify the company in question and the CSSF by December 1, 2012, indicating the exact percentage of its shareholding in the company, its identity and the terms of the shareholding.