By Andrea Conzatti & Federico Raffaele, LL.M. Candidates, Harvard Law School, class of 2012
In the recent past, Italian authorities have made bids aimed at taking over companies listed on the Italian Stock Exchange subject to a number of legislative interventions, meant to foster market transparency and implement Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004 on takeover bids.
The aforementioned Directive was introduced in Italy by way of Legislative Decree No. 229 of November 19, 2007, which was subsequently amended in order to introduce certain provisions concerning, amongst others, the so called “passivity rule”, shareholders acting “in concert” and financial instruments in a mandatory takeover bid scenario.
Due to the complexity and to the rather innovative nature of some of these amendments (if considered within an Italian context), the Italian Securities and Exchange Commission (“Consob”) resolved to further reshape certain provisions set forth under Consob Regulation No. 11971 of May 14, 1999 (as subsequently amended) relevant to take over bids (the “Regulation”).
In considering the regulatory changes above, Consob carried out a comparative analysis of the regulatory framework of other jurisdictions and looked at best practices in place in other developed economies at an international level.
2. Most Significant Amendments to the Regulation
Consob aimed a first set of amendments at granting a higher level of protection to minority shareholders.
To such end, specific provisions concerning offers tendered by the target company’s controlling shareholders and directors were introduced. More specifically, in the newly amended Regulation Consob set forth that, in case of a successful bid, an obligation to reopen the offering period would arise so to allow those shareholders who initially opted for not selling their securities to accept the bidder’s offer in a second moment. The rationale underlying this change was to reduce the risk of having the target company’s minority shareholders sell their securities in a scenario where they considered the price as inadequate, for the mere purpose of avoiding a post-bid depreciation of their holdings.
Furthermore, Consob resolved that the public document concerning the adequacy of the offer (required under Italian law for each issuer in a public tender offer setting) should include a statement by independent directors on the suitability of said offer, aimed at strengthening the quality and the objectivity of the information available to the target company’s shareholders.
In addition to the foregoing, further amendments to the Regulation caused the notion of “relevant shareholding” to change, in order to comprise all financial instruments allowing for the holding of certain governance rights, including the right to vote on one or more different matters (such securities should thus be considered in determining whether the 30% ownership threshold – provided under Italian law as a trigger for mandatory public tender offers - has been reached). By changing such notion, Consob sought to reduce the risk of “eluding” takeover rules, given the ever increasing number of takeover bids involving Italian listed companies adopting financial instruments of this kind.
A second set of amendments was aimed at bringing greater dynamism to the market for corporate control and at dealing with possible interpretative problems potentially affecting the activism of bidders and investors.
Amongst other things, the minimum mandatory time frame for pre-emptive offers aimed at acquiring control of a target company was reduced from 25 to 15 days. Consob proposed this change as it observed that the length of the offering period might have adversely affected the competition amongst potential bidders. Indeed, the initial bidder might have suffered negative externalities, having to entirely bear the costs relating to the "discovery" of the takeover opportunity.
As to competing bids, changes in the Regulation were focused on reducing information asymmetries amongst bidders: an obligation was introduced, by virtue of which the company being targeted was required to share relevant corporate information with all bidders involved.
Last but not least, certain amendments were introduced with an aim at clarifying the regulation of offers tendered by parties acting “in concert”. In order to reduce possible uncertainties in such respect, Consob suggested that, amongst others, cases where the bidders hold strict family ties or advisory relationships should be deemed as cases where bidders are presumed to act “in concert”. On the other hand, Consob identified certain cases of cooperation amongst shareholders, aimed at exercising minority rights and at actively participating in the governance of the target company, which did not encompass the concept of acting “in concert”.