Take privates: the art of acquiring a listed company

Wednesday 31 January 2024

Benjamin Leisinger
Homburger, Zurich

Cintia Martins Costa
Elvinger Hoss, Luxembourg

Cecil Quillen 
Linklaters, London

Report on joint session of the Securities Law Committee, the Corporate and M&A Law Committee and the Capital Markets Forum at the IBA Annual Conference in Paris

Wednesday 1 November 2023

Session Chairs

Michael Arnold Gleiss Lutz, Stuttgart; Treasurer, Securities Law Committee
Simon Link Hengeler Mueller, Munich; Diversity and Inclusion Officer, Capital Markets Forum

Fabiola Cavalcanti TozziniFreire, Rio de Janeiro; Member, IBA Diversity & Inclusion Council
Harry Coghill Macfarlanes, London; Secretary, Private Equity Subcommittee
Jan Peeters Stibbe, Brussels; Conference Quality Officer, Securities Law Committee
Michael Qi Fangda Partners, Shanghai
David Raudkivi Russell McVeagh, Auckland; Treasurer, Capital Markets Forum

The session was organised by the Securities Law Committee (lead), the Capital Markets Forum and the Corporate and M&A Law Committee. The session explored the latest trends and best practices for practitioners when it comes to acquiring a listed company under the capital market rules of various jurisdictions.

After a brief introduction to the topic, Harry Coghill presented on the United Kingdom process. The process includes a joint announcement when an agreement is reached, which must feature specific content. It is a ‘binding document’ regarding certain aspects and must also include a statement on ‘certain funds’, and the terms and conditions. During the process, Harry Coghill explained that every bidder has access to the same due diligence documents. The target’s board has a fiduciary duty to ensure the long-term success of the company. Rather than just applying the Revlon standard used in the United States to maximise shareholder value in the short term, they are committed to the company’s long-term success.

Jan Peeters focused on the process in Belgium. He highlighted the ad hoc and market abuse regulations, as well as the need to announce when a company is up for sale. Peeters also explained generally acceptable conditions, such as the no material adverse change (MAC) clause and regulatory approvals, and outlined possible thresholds for the success of a tender. Another interesting feature presented was the option to have an ‘undertaking to tender’ that is ‘soft’ and, under certain requirements, would not act in concert with other bidders but would be subject to a disclosure requirement within four trading days.

David Raudkivi discussed key aspects relevant to take-private transactions. He covered the MAC clause and the differences between public and private transactions, particularly the high threshold required to invoke a MAC. Raudkivi also mentioned the increasing popularity of relying on breaches of covenants, especially those related to the ‘ordinary course’, and provided details on break fee clauses.

Fabiola Cavalcanti emphasised the importance of having state-of-the-art transactions. There is a regulated process in place to protect investors, which includes a mandatory public takeover offer. It is a prerequisite for closing that the mandatory tender offer is completed. Cavalcanti provided explanations of processes that can be avoided through restructuring. This may offer a more cost-effective and efficient solution. And to top it off, she gave recent examples.

Michael Qi explained the Chinese process. He emphasised that secret takeovers are not possible due to existing disclosure obligations (at 1 per cent) and prohibitions from further purchases (at 5 per cent). Qi, among others, also presented specific existing techniques, such as poison pills and other defence strategies (which are limited in China), as well as the strict liability and severe sanctions associated with insider trading.

Peeters reported on the squeeze-out mechanism. He covered relevant thresholds (and how often they were reached), reporting duties, outreach to investors to reach the thresholds, delisting and merger process after the transaction, and the option of pre-wired and not-pre-wired asset sales in connection with such transactions.

The panel had an interesting discussion about examples of sponsored transactions, the principle of equal treatment/equal price rules (where Michael Arnold highlighted the strict standard in other agreements in Germany) and specific issues such as due diligence of securitised debt structures, ‘no change of control’ clauses and the threat of termination of relevant agreements.