Developments in public company M&A and securities law (2024)

Thursday 6 June 2024

Co-Chairs

Bertrand Cardi, Darrois Villey Maillot Brochier, Paris

Jenny Hochenberg, Freshfields Bruckhaus Deringer, New York

Panellists

Harry Coghill, Macfarlanes, London

Carlo Croff, Chiomenti Studio Legale, Milan

Hilary Low, Allen & Gledhill, Singapore

Emmanuel Pressman, Osler, Hoskin & Harcourt, Toronto

Reporter

Sarah Young, Ropes & Gray, New York

Introduction

The panel offered valuable perspectives on the advancements in public company mergers and acquisitions (M&A) and securities law globally. The discussion focused on three key areas: forum shopping, public to private transaction developments and trends, and hostile activity and defences. The panel explored how these topics are reshaping the public M&A landscape and securities law across Asia, Canada, Europe and the United States.

Panel discussion

Forum shopping of listing jurisdictions

Jenny Hochenberg began the panel session by discussing the attractiveness of different listing jurisdictions. The panellists provided several examples of foreign companies seeking primary or secondary listings in the US to illustrate this growing trend, and even examples of corporations located within the US forum shopping between different states.

The panellists discussed what makes certain jurisdictions more attractive than others, focusing on factors such as proximity to investors, overall visibility, access to liquidity, proximity to the main activities, the value of environmental, social and governance (ESG) initiatives and similar efforts in different geographies and the applicable regulatory regimes. However, while relisting may appear to be an attractive option, Bertrand Cardi warned of the potential costs and associated litigation that can result from moving jurisdictions.

Hochenberg and Harry Coghill specifically discussed the trend of corporates in the United Kingdom seeking to relist to the US and how recent developments, including valuation differentials among different listing markets and increased costs to comply with heightened regulatory compliance schemes, have made relisting in the US more attractive to UK issuers. Coghill shared that London is considering ways to increase its popularity to compete with other markets like New York, including a wholesale rewrite of its listing rules that could reduce the number of listing categories to one, liberalise the dual class share structure and eliminate certain time limits and shareholder voting requirements in certain significant and related party transactions. These changes demonstrate the extent of the competition among the jurisdictions and the perceived need for certain markets to take aggressive action to remain attractive to corporate issuers.

Carlo Croff then provided insights into forum shopping among Italian companies, noting the increasing trend of high-end companies listing exclusively in the US to avail themselves of simpler listing requirements and lower costs. However, competition within Europe exists as well, with many Italian companies choosing to list in the Netherlands, which has more extensive permissive rules to enable family-owned companies to retain control. Croff also noted that the Italian authorities enacted new laws in March 2024 in response to companies choosing to list outside of Italian markets, which provide two major reforms: (1) an increase in the multiple of voting shares from three to ten votes per share and (2) allowing issuers to provide that an additional vote per share is accrued annually, up to ten cumulative votes. As Croff described, the new law is a step forward in discouraging mid-size companies from relocating to the Netherlands, but is unlikely to encourage large companies to return to Italy because of certain limitations, including that the multiple voting shares reform can only be adopted by companies that embark on an initial public offering (IPO) after the reform was enacted and that dissenting shareholders are permitted to withdraw from the company in exchange for cash. In contrast, Cardi explained that to encourage companies to list in France, listing companies get the benefit of multiple voting shares and retain the ability to sell multiple voting rights to a buyer, which enables companies to monetise sales of control. Later, Hochenberg questioned whether the fiduciary duty framework, heightened judicial scrutiny on transactions between companies and controlling stockholders and the litigation posture being averse to controllers in Delaware would dissuade Italian companies from listing in the US. Croff reasoned that it would be a factor, but the benefits of direct contact with the market and high valuations are likely to prevail. The panellists then discussed the applicability of control-related sunset provisions in various geographies.

Hilary Low noted that forum shopping is occurring in the Asian markets as well, with competition both among Asian listing markets and migration to US markets. Low explained how Singapore and Hong Kong are both popular listing jurisdictions because of their use of British principles and common law rules and that between the two geographies, Hong Kong is more attractive because it is perceived as a gateway to China. The panellists speculated that Asian companies, such as Shein, may still prefer to list in the US where the market is thought to have recovered better than Asian markets over the past few years.

In contrast, Emmanuel Pressman stated that Canadian companies typically do not engage in forum shopping and its unusual for Canadian companies to relist or redomicile. Pressman explained that Canada has well-developed corporate laws and Canadian investors are familiar with Canadian securities and positively view Canada as a jurisdiction that is friendly with the US. In addition, controlled companies are common in Canada and dual class share capital structures are permitted and well understood by the markets, making it unwise to relocate to the US where there is less deference to controlled companies.

Lastly, Hochenberg discussed the heightened judicial scrutiny of controlling stockholder transactions and the expansion of the fiduciary duty framework in Delaware, including recent groundbreaking Delaware court judgments. The panellists discussed whether these recent developments might affect foreign interest in US markets or the interest of US corporates in redomiciling in other US jurisdictions. 

Overall, the panel discussion highlighted numerous factors involved in forum shopping among different listing jurisdictions for public companies.

Take-private activity

Next, the panel discussion delved into ongoing trends relating to take-private transactions. In 2021, there was a peak in public-to-private activity, with 262 companies going private. Cardi noted that the reasons often cited for this shift include the under valuation of public companies and the growth of dry powder available to acquirors. In addition, companies may view going private more favourably as regulation and the cost of compliance and associated risks of remaining a public company increase. The panellists discussed how many companies that went public in the US during the Covid-19 pandemic are now trading at significantly lower valuations, which has resulted in an increase in the take-private activity of those targets. Pressman added that a similar phenomenon is occurring in Canada, where there is evidence of numerous companies going private within two to four years after going public.

The panellists discussed the challenges faced by companies seeking to go private, including how the interest rate market and depressed IPO market have generally slowed private equity appetite. Similarly, Low explained that deal activity in Asia remains flat due to the prolonged effect of the interest rate environment, geopolitical challenges and high valuation expectations from owners. Croff explained that Italy has seen significant take-private activity in recent years, driven by generational issues in family-controlled companies and a regulatory environment that presents few obstacles compared to other markets.

The panellists then moved on to discuss other strategic alternatives that companies can consider. Coghill provided the example of Superdry, a clothing retailer listed in London, who experienced a decrease in its market capitalisation from $1.7bn in 2017 to $4m. Due to its recent struggles, several proposals were considered, including (1) a restructuring plan under the Companies Act 2006, which would include a court approved process to compromise the creditors; (2) an equity raise structured as either a placing to the founder at $10m or an open offer at $8m; or (3) to delist Superdry’s shares. The Superdry example highlights the creative ways a company may choose to restructure.

Pressman shared that Canada is seeing the same trend, with 30 per cent of companies that recently went public already undertaking a review of the strategic alternatives. Pressman noted, however, that going-private transactions for companies now trading at significantly lower stock prices as compared to recent-year highs, present difficult questions for boards who must analyse the cause of stock fluctuations and the effect on shareholders. Pressman noted that process is important in these circumstances, and in response to a question presented by Cardi, Pressman stated that if an issuer’s IPO price is much higher than the proposed take-private valuation, it should consider empowering an independent committee to ensure that there is a clear understanding of what has caused the change in valuation and that the current valuation represents a fair valuation.

In summary, companies globally are grappling with valuations and exploring various strategies, including secondary listings, changing listings, going-private transactions and implementing novel approaches to address distress in the markets.

Resurgence of hostile activity

The last topic discussed was the increase in hostile activities globally and potential defences to such activity. Croff explained that in Italy, where most companies are controlled companies, there is limited room for hostile activity as unsolicited bids require controlling shareholder approval. Similarly, Pressman stated that in Canada, structural changes like the mandatory non-waivable tender offer conditions and a minimum 105-day offer period provide boards with more opportunities to build defences or seek alternatives and, as a result, have altered the dynamics between bidders and boards and lowered hostile activity. Coghill explained that in London there have been several unsolicited hostile bids that have been met with successful defences this year, noting in particular that shareholder support and the put-up or shut-up takeover code provision serve as effective defences.

In summary, the level of hostile market activity and the appropriate defences vary across countries and depend on country-specific regulations and market practices.

Conclusion and final remarks

Overall, the panel discussion shed light on the evolving landscape of public company M&A and securities law globally. The topics of forum shopping listing jurisdictions, the transition of numerous issuers from public to private and the resurgence of hostile activity in certain geographies were explored. The discussion underscored the importance of understanding country-specific regulations and market practices relating to public companies.

Disclaimer

The information contained in this report is of a general nature and intended to be educational. Any applicability of the rules should be reviewed with M&A counsel. Nothing in this report should be construed to constitute investment advice or securities advice in any manner, shape or form.