Corporate / M&A

Seeking Fair Value: Changes to the Polish Mandatory Takeover Rules

After almost a decade with the current rules on takeovers, a proposal for changes to the system is well advanced. The author looks at the main changes concerning mandatory bids and pricing, and what they mean for the M&A market and investors.

Takeover rules in Europe have always been a hot top­ic, and despite a con­sid­er­able effort to approx­i­mate the rules across EU coun­tries, a dif­fer­ence in approach between mem­ber states is still vis­i­ble. Cur­rent­ly Poland is tak­ing a long-await­ed step to tight­en the reg­u­la­tion and bring it in line with the Direc­tive 2004/25/EC on takeover bids.

Current status

Pol­ish pub­lic takeover reg­u­la­tions cur­rent­ly pro­vide for a num­ber of sit­u­a­tions in which the buy­er of shares in a list­ed com­pa­ny is oblig­ed to make a takeover bid to the pub­lic. Such oblig­a­tions arise if the bid­der intends to acquire a sig­nif­i­cant port­fo­lio of shares in a short time, or if the intend­ed acqui­si­tion will lead to cross­ing the 33% or 66% vote thresh­old in a pub­lic com­pa­ny. A share­hold­er cross­ing the 33%% thresh­old is required to bid for shares car­ry­ing up to 66% votes, while cross­ing the 66% mark trig­gers a bid for all shares in the com­pa­ny.

New consequences

The pro­posed pro­vi­sions change the low­er thresh­old from 33% to 33 1/3% of votes, which does not look like a mean­ing­ful dif­fer­ence. What is impor­tant, how­ev­er, is that cross­ing this 33 1/3% thresh­old will lead to an oblig­a­tion to make a bid for all out­stand­ing shares in the com­pa­ny. This would cor­re­spond with the gen­er­al under­stand­ing that, in a pub­lic com­pa­ny, a 33 1/3% stake often con­veys con­trol.

It’s all about the money

Nat­u­ral­ly, the pro­vi­sions on takeovers safe­guard the inter­est of the investors if a cer­tain min­i­mum price in the bid is guar­an­teed. As a rule, this price should not be low­er than the aver­age mar­ket price cal­cu­lat­ed for a cer­tain peri­od pre­ced­ing the offer, or than the high­est price paid by the bid­der dur­ing a cer­tain time.

With respect to the price paid by the bid­der, the cur­rent pro­vi­sions refer to a price paid in a direct acqui­si­tion only. This leaves out indi­rect acqui­si­tions, where an enti­ty hold­ing shares in a pub­lic com­pa­ny is acquired by the bid­der.

The pro­posed change makes the reg­u­la­tion tighter by includ­ing prices paid also in indi­rect acqui­si­tion; that is, where the bid­der acquired shares in a pub­lic com­pa­ny by pur­chas­ing a com­pa­ny that held such shares. In such case, the bid­der must obtain a val­u­a­tion pre­pared by an audi­tor deter­min­ing the fair val­ue of the shares in a pub­lic com­pa­ny that were acquired indi­rect­ly. Such price would serve as an addi­tion­al bench­mark for deter­min­ing the price in the ten­der offer.

Will it work?

The draft pro­vi­sions, if adopt­ed, will sure­ly increase trans­paren­cy and pro­vide bet­ter safe­guards for minor­i­ty investors, while lim­it­ing cer­tain struc­tur­ing solu­tions used in pub­lic takeovers in Poland.

Sit­u­a­tions where a large por­tion of the shares (up to 65.9%) are acquired indi­rect­ly and a small por­tion in a ten­der offer with a sig­nif­i­cant reduc­tion (at a price not nec­es­sar­i­ly match­ing what is paid to the main sell­ing share­hold­er) will no longer be pos­si­ble.

This may increase the cost of acqui­si­tions on the bid­der side, but should pro­vide more com­fort for insti­tu­tion­al investors hold­ing minor­i­ty stakes. The pro­posed ideas are not new and have been dis­cussed for quite some time, but ear­li­er attempts at chang­ing the reg­u­la­tions stalled. It remains to be seen if this pro­pos­al is vot­ed into law. If so, how pub­lic trans­ac­tions are struc­tured in Poland will change.

The draft provisions, if adopted, will surely increase transparency and provide better safeguards for minority investors, while limiting certain structuring solutions used in public takeovers in Poland.