Acting in Concert

Acting in concert is one of the building blocks of the European approach towards takeover bids and plays a crucial role in the mandatory bid regime. We address the concept of concerted action and its implications in a recent paper, due to appear in the book Unfinished Business? Two Decades with the EU Takeover Directive edited by Martin Winner, Susan Emmenegger, Andres Recalde, and Rolf Skog (CUP). Our paper reassesses the functions of concerted action in the EU legal framework and in its national implementations twenty years after the Takeover Bid Directive. What emerges confirms that the low intensity of harmonisation in EU takeover law paves the way to diverse legal treatments of similar situations, to the detriment of cross-border investments and market integration.    

The original role of acting in concert lies with its anti-elusive function, as a rule aimed to aggregate the shareholdings held by different persons that act in a coordinated manner. Thanks to the equivalence between concerted and individual purchases, buyers cannot circumvent the duty to launch a bid when they jointly acquire shares above the relevant control threshold. This explains the extraordinary broadness with which the Takeover Bids Directive defines the notion of acting in concert, in the sense of including any kind of oral or tacit agreement, or gentleman's agreement, whose object is the acquisition of control of the company. In the expressive words of the UK Takeover Panel, where the mandatory bid system originated, concert can consist of a ‘nod or a wink’.

However, this anti-elusive function has been implemented in different ways at national level, which confirms the limited ability of the Takeover Bids Directive to harmonize takeover law in Europe. The overall picture shows that Member States have followed different approaches on the crucial matter of acting in concert and shareholder coordination as well as, indirectly, on the mandatory bid system itself. In this regard, although every country has followed its own path, EU jurisdictions can basically be divided into two groups. The first group has maintained the Takeover Bids Directive approach, which links the mandatory bid rule to holding shares and acquiring control as a result of an acquisition. In these countries, shareholder agreements or other forms of coordination are not sufficient, on their own, to trigger the mandatory bid rule, as an acquisition by at least one of the concerted parties is needed. The second group of countries has expanded the role of acting in concert beyond the Directive’s provisions, instead. Here, a bid is required regardless of an acquisition of shares, as long as a group of shareholders coalesce to adopt a common (lasting) policy with regard to the listed company. The paper considers different possible justifications for this extension of the mandatory bid system and concludes that the most credible one lies in its practical function to reinforce the traditional anti-elusive function of concert by avoiding the difficulties that usually affect the demonstration that a concert exists. The extension to agreements without acquisitions prevents those acquiring shares in a concerted manner from subsequently formalising their agreement or understanding for the joint exercise of their voting rights.

The paper shows that national laws implementing the Takeover Bids Directive often fall short of providing sufficient legal certainty for investors. This applies to most Member States, but linking the mandatory bid rule to concerted action alone, even in the absence of an acquisition, exacerbates such uncertainty. As a consequence, the risk persists that ordinary cooperation or coordination among shareholders on corporate governance matters, particularly when they involve the board of directors, may end up being considered as concerted action and trigger a mandatory bid. Although ESMA, at the request of the European Commission, has tried to limit this risk by formulating a white list of forms of shareholder cooperation that should not be considered as concerted action, the effects of this list are rather limited. This is because the white list essentially refers to ordinary forms of cooperation that should not be controversial in any case and does not clarify the most controversial matters, such as the joint filing of slates of candidates to the board. This legal uncertainty is a counterproductive and unfortunate consequence considering the purpose of the Takeover Bids Directive and of other recent EU legislative initiatives in the field of company law, which aim precisely to facilitate the engagement of large investors in relation to the management of the companies in which they invest.

In conclusion, the concept of acting in concert, which historically emerged as an anti-avoidance rule for mandatory bids in relation to situations exclusively involving the acquisition of control of listed companies, has been subject to a persistent process of expansion in many national legal systems, to the point of jeopardising ordinary situations of cooperation and collaboration among shareholders that do not affect the control and management of the company. In the absence of European harmonization, which is currently unrealistic, one can only rely on the restraint and reasonableness of national legislators and supervisory authorities in defining and applying this concept, whenever an acquisition of shares is missing.

Javier García de Enterría is Professor of Commercial and Corporate Law at CUNEF (Madrid) and Consultant (and former partner) of Clifford Chance.

Matteo Gargantini is Assistant Professor of Business Law at the University of Genoa and Genoa Centre for Law and Finance.

The full paper is available here.