Minister Ahern Announces the Signing of Regulations Implementing the EU ‘Takeovers’ Directive

Mr. Michael Ahern, Minister of State at the Department of Enterprise, Trade and Employment today (Friday 19^th May 2006) announced the signing of Regulations transposing the EU ‘Takeovers’ Directive into Irish Law. The Regulations, entitled European Communities (Takeover Bids (Directive 2004/25/EC)) S.I. No. 255 of 2006, to come into effect on 20 May, 2006, the due date for transposition under the Directive.

Minister Ahern said; “For the first time under this Directive, minimum EU rules concerning the regulation of takeovers of ‘listed’ companies whose shares are traded on a regulated market are laid down. It is one of the key measures adopted in the EU as part of the Financial Services Action Plan (FSAP). It aims to strengthen the Single Market in financial services by facilitating cross-border restructuring and enhancing minority shareholder protection”.

“The Directive requires that each Member State designate a supervisory authority competent to supervise bids and generally carry out the obligations provided for in the Directive and ensure that the provisions adopted pursuant to the Directive are applied. The Directive also requires that that Authority exercise its functions impartially and independently of all parties to a bid”, the Minister added.

The Regulations designate the Irish Takeover Panel as the supervisory authority for purposes of the Directive. The Panel has been operating domestically in such a supervisory capacity since 1997 on foot its statutory establishment in the role by virtue of the Irish Takeover Panel Act 1997.

A comprehensive regime for the supervision of takeovers currently applies in Ireland under the Irish Takeover Panel Act 1997 and in the rules made by the Takeover Panel pursuant to the Act. The bulk of this regime will continue to apply. The Regulations cater for those areas not already dealt with in the existing Irish regime or areas of that regime that need to be adjusted on foot of the requirements in the Directive.

Concluding Minister Ahern said: “I am particularly pleased that Ireland will be among those Member States who will have the Directive in operation by the due date, an important consideration when you consider the cross border elements of the measure”

Note for Editors

The Takeovers Directive was adopted on 21 April 2004 and must be implemented by all Member States no later than 20 May 2006. The Takeovers Directive lays down, for the first time, minimum EU rules concerning the regulation of takeovers of companies whose shares are traded on a regulated market. It is one of the measures adopted under the EU Financial Services Action Plan. (The FSAP is the legislative framework for developing the Single Market in financial services. Its programme of measures intends to fill gaps and remove remaining barriers in order to provide a legal and regulatory environment that supports the integration of financial markets across the EU.) It aims to strengthen the Single Market in financial services by facilitating cross-border restructuring and enhancing minority shareholder protection.

The Takeovers Directive contains:

General principles that apply to the conduct of takeover bids;
A regulatory framework for bodies that supervise takeover bids;
Basic rules about takeover bids (for instance, about when a takeover bid must be made and the price that must be paid to shareholders, the contents of offer documents prepared by a takeover bidder, requirements to inform employees and the time period a takeover bid will be open for);
Provisions restricting barriers to takeovers (such as action that might be taken to prevent a takeover by a company or its board of directors);
Disclosure requirements for companies whose shares are traded on a regulated market; and
Provisions dealing with the problems of, and for, residual minority shareholders following a successful takeover bid (known as “squeeze-out” and “sell-out”).

The Directive has a narrower focus both as regards the range of companies and transactions covered compared to the current regime applying to takeovers here under the Irish Takeover Panel Act and the Rules made by the Irish Takeover Panel under the Act for the exercise of their supervisory functions under the Act.

The Directive only applies to companies admitted to trading on a regulated market (in an Irish context this essentially means companies on the Official List of the Irish Stock Exchange) whereas the 1997 Act applies to a wider cohort of listed companies. In terms of transactions the Directive only applies to takeover bids whereas the Act covers other transactions as well – for example substantial acquisition of shares and offers other than takeover bids.

The Regulations cater for those areas not already dealt with in the existing Irish regime or areas of that regime that need to be adjusted on foot of the requirements in the Directive. The main changes are as follows;

Shared Jurisdiction

The Directive (Article 4) provides for supervision of certain cross border takeovers to operate on a shared responsibility basis. The Regulations set out how the regulatory framework rules of the Directive will apply in the case of the Irish Takeover Panel.

Threshold for triggering ‘squeeze out’ and ‘sell out’ rights

These are the rights empowering, in the case of ‘squeeze out’, an offeror to acquire the shares of minority shareholders when it has acquired a specified percentage of the takeover target’s securities and, in the case of ‘sell out’, enabling the minority shareholders to require the majority shareholder to buy their securities following a takeover bid in the event of the majority shareholder not exercising its squeeze out right.

The Directive sets the common minimum threshold for triggering ‘squeeze out’ and ‘sell out’ rights at 90%. The level set under existing Irish legislation is 80%, so through these Regulations, our threshold will now rise to 90%. The new threshold will only apply to companies subject to the Directive.

“Opt in” “opt out”

The Takeovers Directive gives Member States the option of overriding certain steps that may be taken by companies both prior to and during a takeover bid which have the aim of frustrating a bid:-

Pre-bid defences (known in the Takeovers Directive as “breakthrough provisions” and contained in Article 11) - Such defences include differential share structures under which minority shareholders exercise disproportionate voting rights; limitations on share ownership and restrictions on transfer of shares set out in the company’s articles or in contractual agreements.

As permitted by the Takeovers Directive, the Regulations do not apply the breakthrough provisions. However Part 3 of the Regulations do provide, as required by Article 12 of the Directive, for companies with voting shares traded on a regulated market to opt in to these provisions should they wish to do so. Having opted in, the company can opt out again under the rules of the Directive.

Post-bid defences (article 9) – Management of a target company are prevented from taking action to frustrate a bid (such as sale of key assets of the company) without the approval of shareholders at the time of the bid.

This type of defensive action is banned under the existing Irish Takeover regime and is being retained in the new regime.

New disclosure requirements

Provisions related to disclosures by companies are contained in the Companies Acts and in Regulations made under the European Companies Act 1972 in 2005 (SI 116 of 2005). These provisions are being amended in Part 4 of the Regulations to include the new disclosure requirements in the Takeovers Directive, concerning matters such as the share and control structures of companies which will have to be included in the directors’ report. The Part 4 provisions will only apply to companies whose shares are traded on a regulated market

Rule Changes

To ensure compliance with the Directive some of the Rules of the Takeover Panel for the supervision of takeovers have had to be amended. These amendments are provided for in the Schedule to the Regulations.

Overview

The primary objective in the transposition exercise was to preserve the existing Irish Takeovers regime except of course in those instances where amendments are required by virtue of the fact that the provisions of the Act and the Directive are not in harmony. In other words; -

to retain the existing Irish Act where it already provides what is required by the Directive.
where the Directive is silent or permissive to retain the analogous provision of the Act, but
where the Directive is more onerous/wider than the Act provides for or where the Act conflicts with the Directive, to include such provisions in the present Regulations to apply only to the companies the subject of the Regulations.

This approach is also designed to ensure that the differences between the Takeover regime for ‘Directive’ and ‘non Directive’ companies is minimised to the greatest degree possible.

ENDS

TC 222

Last modified: 19/05/2006

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