Mandatory & Voluntary Takeover Bids Under Spanish Law; The Principal Elements

Spanish regulatory provisions applicable to takeover bids distinguish two basic categories of takeovers: takeover bids when control of a listed company is obtained (i.e., mandatory bids) and voluntary bids.
 
This article provides a summary review of each of these two categories.
 
1. Mandatory bids when control is obtained.
 
An entity which obtains control of a listed company has the obligation to launch a takeover bid for all of the shares of the target company and at an equitable price.
 
The bid must be submitted (generally) within one month of control of the listed company having been obtained.
 
Relevant control thresholds
 
The relevant control thresholds for purposes of takeover bids are the following:

(i) direct or indirect acquisition of a percentage of voting rights in the listed company equal to or in excess of 30%; or
(ii) holding any interest carrying less than 30% of voting rights, but appointing, within 24 months following the acquisition, a number of directors which, together with those already appointed by it, if any, represents more than one-half of the members of the board of directors.
 
Ways for obtaining control of a listed company
 
Control of a listed company may be obtained in any of the following manners:
(i) by means of the acquisition of shares or other securities that directly or indirectly carry voting rights in such company;
(ii) through shareholders' agreements (pactos parasociales) with other shareholders; or
(iii) as a result of indirect or unexpected acquisitions of a controlling interest (e.g., as a result of the merger or takeover of another company or entity that holds a direct or indirect interest in a third party listed company; the capital reduction of a listed company; the conversion or exchange of securities; changes in treasury stock).
 
Consequences of obtaining control of a listed company
 
Whoever obtains control of a listed company, individually or collectively with other shareholders acting in concert therewith, will normally be required, except in exceptional cases to launch a takeover bid. Such takeover bid must be addressed to all the holders of voting shares of the listed company.
 
Exceptions to the obligation to launch a mandatory takeover bid
 
Spanish takeover bids rules set forth the following instances where the obligation to launch a mandatory takeover bid does not apply even if control has been achieved:

(i) Where 30% of the voting rights in the target company has been obtained in the event that another entity holds, individually or collectively with other persons acting in concert therewith, a voting percentage in the target company equal to or greater than that held by the bidder required to launch the bid.

(ii) Where an indirect or unexpected control threshold being reached (due to an indirect take over for instance) if, within three months following the date on which the event triggering the obligation to submit a takeover bid occurred, the bidder transfers the number of securities required to reduce the excess over 30% of the securities of the target company and, in the meantime, does not exercise the voting rights corresponding to such excess.
 
Equitable price
 
The notion of “equitable price” is one of the key elements to be considered in the context of a takeover because is it the price at which mandatory takeovers will be required to be launched. The equitable price may not be less than the highest price that the bidder or persons acting in concert with it have paid or agreed to pay for the same securities over the 12 months prior to the announcement of the takeover bid. Moreover, when the acquisition includes any compensation in addition to the price paid or agreed, or when deferred payment has been agreed upon, the equitable price shall take into account such compensation or deferred payment.
 
In the event that the bidder as not made any acquisitions over the 12 months prior to the announcement of the takeover bid, the equitable price may not be less than that calculated pursuant to the valuation rules set forth in Spanish regulations on takeovers for delisting offers. Those valuations methods include: net book value, liquidation value (in both cases, of the target company's consolidated group), weighted average listing price of the securities during the six-month period immediately preceding the announcement of the takeover bid and other valuation methods commonly used by the international financial community (comparable transactions, discounted cash flows…).
 
There are instances where the CNMV may modify the price calculated in accordance with the above.
Such exceptional circumstances are mainly as follows:

(a) The listing price of the securities of the target company during the reference period has been affected by the payment of dividends, a corporate transaction or any extraordinary event, or shows reasonable signs of manipulation.
(b) The equitable price was lower than the trading range for the securities on the date of the acquisition when such price was determined, in which case the bid price shall not be less than the lower price in such range.
(c) The previous acquisitions include any additional compensation to the price paid or agreed upon, in which case the bid price shall not be less than the highest price that results after including the amount of such compensation.
(d) Therefore and to limit the risk of the CNMV trying to modify the equitable price calculated by the Bidder, it is key for the Bidder to submit to the CNMV, at least, one report prepared by a reputable independent accounting expert (ordinarily, one of the “Big Four” auditing firms) which supports that the offer price should be considered as an equitable price.
 
Other types of mandatory takeover bids: Delisting takeover bids
 
In addition to takeover bids where control of a listed company is obtained, the Spanish regulations on takeover bids provide for a mandatory bid in case of delisting of the target or affected listed company.
 
2. Voluntary bids.
 
Even if they are not mandatory because the relevant control thresholds for such purposes has not been reached, takeover bids may be voluntarily launched under Spanish regulations. Thus, for instance, whoever does not hold control of a listed company and seeks to acquire it, or, while already possessing a controlling interest, wishes to increase its interest in the target company, may launch a voluntary takeover bid.
 
Voluntary bids are governed by the same rules as mandatory bids, with the following special provisions:
(a) Voluntary takeover bids may be subject to conditions.
(b) Voluntary bids need not be made at an equitable price. The price may be freely set by the Bidder.
(c) A voluntary bid for less than the total number of securities may be made (which means that partial voluntary bids are allowed) by a party that, as a result thereof, will not acquire a controlling interest or by a party that already holds a controlling interest and is free to increase its shareholdings in the target company.
 
As stated above, voluntary bids may also be used to acquire a controlling interest in the target company. In that case, following a voluntary bid which results in the Bidder holding 30% or more of the voting rights in the target company, the offeror will have the obligation to launch a mandatory bid unless the exception authorised by the CNMV applies.
 
Spanish regulations provide that the obligation to launch a mandatory takeover bid in the case where control is obtained following a voluntary bid for all the securities of the target company in not required if either of following circumstances apply:

(a) the bid is made at an equitable price; or
(b) the bid has been accepted by holders of securities representing not less than 50% of the voting rights to which it was directed, excluding from such calculation those already held by the Bidder and those held by shareholders who have reached an agreement with the Bidder in connection with the bid. In such case, the Royal Decree presumes that the price was equitable.
 
Takeover laws and practice is one of the more intricate areas of corporate law generally. In Spain there is ample experience in the market for corporate control. However the takeovers that have been launched to date have not necessarily included certain key complexities which we have seen in other jurisdictions. We are confident however that our regulation and its interpretation

IÑIGO GOMEZ-JORDANA
_________________________________________________________________________________
DLA Piper International, Madrid
Partner in Corporate Finance
Senior Partner, Spain
 
Languages: Spanish (native), English (bilingual), French (advanced)
Bar: Admitted to practice in Madrid (Spain) since 1987
Membership: Madrid BAR Association, Professor, Corporate Law, Complutense University, Fulbright
Scholar, NYU Alumni, LSE Alumni, Clifford Chance Alumni, Allen & Overy Alumni
 
Iñigo has over 25 years’ experience advising on M&A, capital markets transactions, including debt and equity, and in finance and corporate transactions, especially in cross-border mergers & acquisitions and take-overs. He has taken part in some of the largest transactions arranged in Spain over the last years in these areas. On a purely advisory condition (non-transactional), Iñigo has been responsible for providing expert opinions to the industry and acted as a sounding board on corporate finance and corporate governance matters, generally. He is has been a professor of Corporate Law at Universidad Complutense de Madrid, and currently lectures at the Instituto de Estudios Bursatiles and is the author of over 40 research and periodical publications.