Reflecting on Concerted Action in Relation to Mandatory Takeover Bids: Shareholders' Agreements and the Concerted Exercise of Voting Rights

Acting in concert is one of the most relevant, but also one of the most controversial concepts in the regulation of mandatory bids. The Takeover Bid Directive expressly defines it, but its implementation has varied considerably across EU member states. Acting in concert is generally defined in very broad terms, as it includes any type of agreement or understanding, express or tacit, verbal or written, and even simple gentlemen's agreements. But this fact has created serious problems of delimitation of the concept on many markets, due to the risk that certain forms of association or cooperation between large institutional investors in matters related to the corporate governance of a company may qualify as acting in concert and activate, no more no less, the corresponding obligation to formulate a takeover bid for the entire share capital of the company. These concerns, which were immediately noticed by the European institutions, led ESMA to publish a Public Statement, last updated in January 2019, and titled ‘Information on shareholder cooperation and acting in concert under the Takeover Bids Directive’. It offers a list of activities that, by themselves, would not constitute a concert (‘safe harbours’).

But the underlying problem goes far beyond what the simple technical definition of the concept would be, as often seems to be assumed. Doubts are mainly raised by the coexistence of two different models of mandatory bids regimes on the European continent, and by the different regulatory role that acting in concert plays in each of them.

The traditional and orthodox mandatory bid system, which derives from the UK Takeover Code and is also embedded in the Takeover Bid Directive, only requires the launching of a takeover bid in cases of acquisition of shares (or other securities or similar instruments), but not when various shareholders who have acquired their shares independently (not in a concerted manner) subsequently ‘come together’ by agreeing on the exercise of their voting rights. In such a system, acting in concert fulfils a simple accessory and instrumental function, as it is designed to prevent the corresponding mandatory bid obligation from being avoided through the easy expedient of dividing up the acquisition of the controlling stake among various subjects acting with the shared and common purpose of taking over the company. Hence, in these cases, since the concerted parties generally act with the deliberate purpose of avoiding the mandatory bid obligation, the notion of acting in concert must necessarily be defined in the broadest possible terms, as the Takeover Bid Directive does, to encompass any kind of agreement or understanding, even if informal or tacit, and even a ‘nod or a wink’ (in the expressive terms used by the UK Takeover Panel).

But some European countries, taking advantage of the limited imperative content of the Takeover Bid Directive and its nature as a minimum harmonisation directive, have extended the obligation to launch the mandatory bid to cases of simple agreement or concert in the exercise of voting rights by shareholders who together exceed the corresponding threshold, therefore without the requirement that shares be acquired. This is clearly a questionable regulatory choice, as in these cases no control premium is paid and therefore there is no risk of discriminatory treatment among shareholders. And this model clearly interferes with the majority principle that governs the adoption of resolutions in public companies and with the natural process of formation and changes of majorities within companies. Yet where this regulatory model applies, the notion of concerted action fulfils not an instrumental and accessory function, but on the contrary a substantive one.  Its object is precisely to define the fact that triggers the mandatory bid. And for the same reason it cannot—or should not—be defined in excessively broad terms. An obligation so exorbitant as that of promoting a mandatory bid should logically be limited to strong and stable voting arrangements that are binding for the parties and affect the governance and control of the company, because such arrangements are the only ones that can be considered equivalent—even applying a broad, functional perspective—to a control position linked to the ownership of the shares.

In a recent work of mine these questions are addressed on the basis of the example provided by the Spanish regulation of takeover bids. This regulation provides a double definition of concert: a broad one that substantially corresponds to the definition of the Takeover Bid Directive, and a much narrower one which refers to the signing of a genuine shareholders agreement. And although numerous legal scholars have advocated a joint interpretation of the two definitions, I argue that the former definition should be limited to mandatory bids triggered by the acquisition of shares, while the latter should operate exclusively in relation to mandatory bids triggered by a voting agreement.  The Spanish example illustrates the different meaning of acting in concert in the two mandatory bid models and the inconvenience and risks of using a common notion.

Javier García de Enterría is a consultant at Clifford Chance SLP and a Corporate Law professor at CUNEF (Madrid)