engleski

Listed companies as targets in the post-accession takeovers – an empirical analysis

Listed companies have more disclosure duties then closely held companies. Among them is the duty to disclose changes in the corporate structure. If someone acquires a substantial block of shares with voting rights, this should be disclosed to the issuer as well as to the public. This in turn allows the market to react ; the fact that one investor is passing one or more thresholds requiring him or her to disclose it, might be a signal that a takeover bid is about to be launched. But investor(s) who plan to take over the target company might be faced with a opposing board. The target company might prepare itself for the hostile takeover, either by looking for the better bidder (white knight) or otherwise. Since the bidder cannot offer less then the market price of share, the market also has a chance to react by raising the price of share. Higher market price of share would also mean that shareholders of the target company might count on the higher takeover premium. In order to narrow the time frame for reaction of the opposing board of the target company, the takeover bid must come as a complete surprise. This can be achieved by extensive use of cash- settled derivatives. Cash-settled derivatives represent a powerful takeover instrument, allowing the investor a hidden acquisition of a substantial participation in an issuer. The derivatives can be structured in various ways: as options, equity swaps, contracts for difference, etc. Since cash-settled derivatives do not entitle their holder to demand delivery of the shares with voting rights, they are not taken into account when calculating block of shares for the sake of the disclosure duties. Relevant thresholds are regulated by the Transparency Directive which is, by its definition, a minimum harmonization directive. This means that EU Member States can adopt stricter rules. The Transparency Directive of 2004 provides for in its Art. 13 that disclosure requirement shall also apply to a natural person or legal entity that holds, directly or indirectly, financial instruments resulting in an entitlement to acquire, on the initiative of such a holder alone and under a formal agreement the shares - to which voting rights are attached - already issued of an issuer whose shares are admitted to trading on a regulated market. Since cash settlement derivatives do not give such right under formal agreement, they are not taken into account when calculating block of shares with voting rights. This situation constitutes the biggest loophole within the European financial legislation.When the Transparency Directive was drafted, cash- settled derivatives were not anticipated as a facilitator for launching hostile bid. However, comparative practice in recent years shows that it has gained wider acceptance, either for gaining or retaining control in well-known companies such as LVMH, Volkswagen, Fiat etc. Consequently, many EU Member States changed their calculation rules. At the same time, some states opted for the adoption of alternative solutions. In the meantime, the revision of the Transparency Directive of 2004 is under way, whereas „the calculation status“ of the the cash-settled derivatives is one of the debated issues. In light of these considerations, this paper aims to examine how national legislators have dealt with the calculation status of the cash-settled derivatives in regard to disclosure duties, as well as to explore its consequences on takeover bids and the position of the EU legislator in regard to the aggregation status of the cash-settled derivatives in future Transparency Directive.

listed companies; hidden ownership; cash-settled derivatives; takeovers; equity swaps; Transparency Directive; Directive on Takeover Bids

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