On the 1st of April 2008 Act No. 104/2008 Coll., on Takeover Bids and on Amendments to Certain Other Acts, came into effect. The law comprehensively regulates takeover bids for ownership interests in joint-stock companies with registered offices in the Czech Republic whose securities have been admitted to trading on the regulated market in the Czech Republic, as well as other issues relating to takeover bids with a foreign element. The Act impacts also on procedures associated with the so-called squeeze-out of minority shareholders.
The main reason why the new Act was passed is the transposition of the Directive on Takeover Bids (Directive 2004/25/EC of the European Parliament and the Council) that required new regulation of the price offered in mandatory bids, the obligation to sell-out and the so-called breakthrough rule. In addition, the Act eliminates some defects and ambiguities in the pre-existing version of the Commercial Code and makes the regulation where strict regulatory demands were not sufficiently justified, more liberal. The Commercial Code will continue to provide only a general framework for regulation of public bids for acquisition of shares made to shareholders, which are not aimed at acquiring control over a company. This concerns acquisition of a minority interest, acquisition of other shares by the majority shareholder, or, as the case may be, mandatory bids, for example in a case of delisting. In respect of voluntary bids, the regulation will apply only if the number of contacted shareholders exceeds 100 and the volume of demanded securities exceeds 1% of the issue.
On the other hand, the Act on Takeover Bids regulates only those takeover bids submitted as a public bid aimed at acquiring control over the target company. Voluntary bids will not be affected much – the bidder's obligation to state in the bid its plans regarding the target company and resources for funding of the bid and to obtain the opinion of the Board of Directors, Supervisory Board and employees of the target company, still remains in effect. In the case that the bidder acquires a majority share in the target company, it is possible for it to break through any limitation of voting rights (the so-called breakthrough rule) on the condition that the statutes of the target company permit it. Other major changes implemented relate to the process of evaluation of bids by the Czech National Bank ("CNB").
As regards mandatory bids, the current bid obligation applicable in a case where 2/3 or 4/3 of the registered capital or of the voting rights of the target company were exceeded, has been repealed. A limitation has been introduced on the obligations related to the control exercised in concert with other entities. Acting in concert (in order to distinguish this from the regulation set forth in the Commercial Code, the expression "establishment of a group of collaborating persons/entities" has newly been introduced) constitutes the duty to submit a bid only if all persons/entities acting in concert, i.e. each of them, acquired a controlling interest when adding up all their ownership interests. If any of them had already controlled the target company, the obligation does not apply. Similarly, the obligation does not apply if the collaboration was terminated and one of the members of the group retained the interest in voting rights of the target company that such member had already had.
The bid obligation applies if a company is controlled but only if the controlling share exceeds 30% of the voting rights, and such bid must be approved by the CNB. The price offered in case of mandatory bids is now not set forth primarily by an expert but is rather based on the price for which the controlling interest was acquired, or, alternatively the highest price that the bidder or the person/entity collaborating with the bidder paid for securities in the target company within the past 12 months before the bid obligation arose (premium).
The Act sets forth certain exceptions when the premium based price will not apply. In such cases, the price will be set forth by the CNB that will no longer have the right to reject a bid due to insufficient justification of the price. Important will be how the approach taken by the CNB as regards granting exceptions shall be further specified; this is expected to be determined in the next couple of months.
If the premium cannot be determined (in case of an indirect acquisition of control), the price must correspond at least to the weighted average of prices achieved in transactions with the same securities on the regulated market during a period of six months before the obligation to submit the bid has arisen. In such cases, exceptions can be applied more frequently since the weighted average from the market can be affected by low liquidity of the market or price manipulation on the market.
In addition to changes in takeover bids, the Act has implemented considerable changes in provisions regulating the concept of 'squeeze-out'. Minority shareholders can now be squeezed-out any time after the "super controlling" share is acquired, and not only during a period of three months after the acquisition of such interest as required by the pre-existing law. CNB has to approve the conditions for squeezing-out, now only in case of listed companies.
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