23 May 2017

Dutch government announces action on response measures

Government view on response measures

The European M&A market is seeing an increase in takeover activity – recent Dutch examples are the bids for AkzoNobel and Unilever. This increase has led to a wide public debate on the use of response measures in the Netherlands. And more specifically, the effectiveness of the measures that management and supervisory boards of Dutch listed companies have at their disposal to respond to bids and takeover activities.

The Dutch Minister of Economic Affairs has now responded to the debate in a letter to Parliament setting out the government’s views. The government values an open attitude towards takeovers given their importance to the Dutch business and investment climate. But the government recognises that takeovers may also pose risks to the economy, in particular where they are hostile. Given companies’ current options to respond to takeovers, and to ensure long-term value creation, the government believes that a certain shift in the balance of responsibilities among stakeholders is appropriate. Its objective is to build in extra safeguards for long-term value creation and a balancing of the interests of all stakeholders. As this shift could also impact the business and investment climate in the Netherlands, a proportionate approach is essential, according to the government.

Proposed lines of action

The letter sets out four lines of action to be taken by the government:

  1. Give more time and room to the management board. The government wants to offer management boards more room and time to consider the effect that a takeover or a fundamental strategy change proposed by shareholders will have on all of the company’s stakeholders.
  2. Hold discussions with Dutch institutional investors. The government is going to discuss with Dutch institutional investors whether they are experiencing any obstacles in their Dutch holding interests and, if so, whether and how these can be removed.
  3. Accelerate the review of transactions involving vital industries. Priority will be given to completion of the “ex-ante” analyses of the vital sectors, currently being undertaken by the National Coordinator for Counterterrorism and Security (NCTV) and the individual government departments. A draft bill aimed at preventing undesirable control in the telecommunications sector has passed the consultation phase and the consultation feedback is currently being considered. If necessary, additional steps will be proposed to safeguard national security.
  4. Support European discussion on reciprocity. The Netherlands supports a discussion within Europe on reciprocity with third countries outside the EU. This concerns the importance of a level international playing field.

More time and room to assess stakeholder impact

If a takeover bid is announced or in situations where the company’s continuity or independence is at stake, the government believes that management boards should be allowed sufficient time to prepare a careful response. In this response, management boards must take into account the interests of all of the stakeholders concerned. A weighing-up of these interests by the management board is also one of the core principles of the Dutch Corporate Governance Code.

A carefully considered response is in the interest of the company’s business and promotes long-term value creation. In order to enable management boards to respond carefully, the government has considered the following options:

Option A – Introducing a statutory one-year response time
The government is considering creating a statutory basis for the response time mechanism which is currently part of the Corporate Governance Code. The response time will have a maximum duration of one year. This measure ensures that in the case of a hostile takeover the decision-making on appointing and dismissing managing and supervisory directors and on the company’s strategy can be suspended.

Option B – Introducing a higher minimum acceptance level for public offers
The bidding rules could be adjusted by introducing a higher statutory minimum acceptance level for bids. This would make it harder to complete a hostile takeover of a Dutch company, because the bidder would have to offer a higher price or reach agreement with the target company’s management board.

Option C – Simplifying the process of issuing preference shares
Specifically, the rules on adopting shareholder resolutions on issuing of protective preference shares could be adjusted. For example the required percentage of votes at the general meeting could be increased.

Option D – Amending the Dutch Public Takeover Bids Decree
A minimum cooling-off period could be introduced in the Public Takeover Bids Decree. Presently, the only provision is a maximum 12-week time limit for submitting an offering circular. The idea behind this is that the bidder may only submit the offering circular after the management board has been given an opportunity to respond. The minimum cooling-off period for the management board to respond would then be added to this maximum time limit.

The government is currently inclined to choose option A and create a statutory response time, because this addresses not only hostile takeovers but also shareholders activism and reaches beyond listed companies.

What next?
The government considers its four lines of action a well-balanced set of measures. Companies are being facilitated in taking action as they see fit. The government is in favour of introducing additional legislation to enable a more careful weighing of the interests of all stakeholders in the case of a takeover.

On 1 June 2017 a hearing in Parliament will take place attended by the government, interested parties and experts.

An unofficial English translation of the letter of the Minister of Economic Affairs can be viewed here.