Seeking Fair Value: Changes to the Polish Mandatory Takeover Rules
→ Pawel Halwa
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.
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.
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.