Overview

What legislation governs M&A activity in Ireland?

Mergers and acquisitions in Ireland are governed by the Irish Takeover Panel Act, 1997 the Takeover Rules 2007, the Substantial Acquisitions Rules 2007 and the EC (Takeover Bids (Directive 2004/25/EC) Regulations 2006.

The Takeover Rules apply to public companies incorporated in Ireland that trade, or have in the previous five years traded on, the Irish Stock Exchange, the London Stock Exchange, the New York Stock Exchange or the Nasdaq. They will also apply in circumstances where the Irish Takeover Panel would have jurisdiction in respect of a bid for the securities of the company under the Takeover Regulations. The EC Merger Control Regulation applies when the merger or acquisition has a Community dimension. If not, the merger or acquisition may be subject to the Competition Act 2002.

The Companies Acts 1963 to 2006 legislate for various aspects of public and private M&A transactions, in addition to governing the formation and administration of companies incorporated in Ireland and the duties of their directors and officers, including rules relating to prospectuses, financial assistance, compulsory acquisition of minority interests and minority shareholder remedies.

The European Communities (Stock Exchange) Regulations 1984, which implemented the Admissions Directive 79/279/EEC and the Interim Reports Directive 82/121/EEC designate the Irish Stock Exchange as the competent authority and empower it to administer the requirements of the Directives.

The Listing Rules issued by the Irish Stock Exchange apply to Ireland to companies admitted or seeking admission to the Irish Stock Exchange. The Irish Enterprise Exchange (the Irish Aim) was established on April 12 2005, and the IEX Rules cover admission to this market of the Exchange.

The Prospectus (Directive 2003/71/EC) Regulations 2005 and the Market Abuse (Directive 2003/6/EC) Regulations 2005 supplement the Listing Rules and contain rules regarding the content of prospectuses, and the disclosure of inside information, respectively.

The Transparency (Directive 2004/109/EC) Regulations 2007 and the Interim Transparency Rules require the disclosure of periodic and continuing information by issuers, and of major holdings and voting rights by holders.

The Investment Intermediaries Act, 1995 (for IIA authorised investment business firms) and the EC (Markets in Financial Instruments) Regulations 2007 (for Mifid authorised investment firms) state that when a party proposes to acquire directly or indirectly shareholdings exceeding 10%, 20%, 33% or 50% of an authorised investment business firm, that party and the disposing party must notify the Financial Regulator as soon as possible. The Financial Regulator then has one month to request additional information and has the ability to approve or impose conditions on the acquisition. Under the Financial Regulator's Prudential Handbook for Investment and Stock Broking Firms and its Supplementary Supervisory Requirements for Investment Firms, notification to the Financial Regulator is also required in respect of any direct or indirect acquisition or disposal of shares or other interest in any other undertaking or business by an authorised investment firm, other than for the purpose of trading book activities.

The EC (Licensing and Supervision of Credit Institutions) Regulations 1992 contain provisions relating to holdings by credit institutions in other entities. A credit institution must not acquire, directly or indirectly, more than 10% in any undertaking or business without written approval of the Financial Regulator, and the credit institution must notify the Financial Regulator of any divestment of the whole or part of such holdings. A party proposing to acquire holdings exceeding 10%, 20%, 33% or 50% of the shares in a credit institution, must notify and receive the approval of the Financial Regulator.

The EC (Non-Life Insurance) Framework Regulations 1994 and the EC (Life Assurance) Framework Regulations 1994 govern the operation and supervision of insurance undertakings in Ireland and provide that any party proposing to acquire either directly or indirectly, a qualifying holding of 10% or more of the voting rights in an insurance undertaking must notify the Financial Regulator and on a proposed increase in the holding to 20%, 33% or 50% or more. The Financial Regulator must consult the competent authorities in other member states when the insurance undertaking would become a subsidiary of a credit institution, investment firm or another insurance undertaking in the member state concerned. The Financial Regulator will have three months to oppose the acquisition. The Financial Regulator must also be informed of Disposals. The insurance undertaking itself must notify the Financial Regulator on becoming aware of any of the above acquisitions or disposals and must notify the Financial Regulator annually of the names of qualifying shareholders and the size of the shareholdings.

The Ucits Regulations/Unit Trusts Act, 1990/Part XIII of the Companies Act 1990/Investment Limited Partnerships Act, 1994 regulate firms that provide services to collective investment schemes (management/administration companies of unit trust schemes and investment companies and the general partner of an investment limited partnership). Approval from the Financial Regulator is required in respect of any proposed change in ownership or in "significant shareholdings" (10% of more) of those firms. The Ucits Regulations bring the qualifying shareholder requirements for management companies into line with the standards for insurance undertakings noted above.

What impact have recent legislative changes had on the nature and amount of M&A activity?

The new Takeover Rules 2007 came into effect on December 19 2007 and are now a single set of rules that apply to all companies and transactions falling within the jurisdiction of the Panel, including those transactions which fall within the shared jurisdiction of the Panel through the operation of the Takeover Regulations. Not all of the Rules apply equally however.

The Transparency Regulations and Rules were also implemented recently, on June 13 2007.

There has been no discernable impact as a result of these statutory instruments and guidance on M&A activity.

What have been the most significant M&A transactions in Ireland over the past year?

In 2007 the value of deals involving Irish companies rose to €23 billion ($35 billion), up from €16 billion in 2006. There were 287 deals agreed during the year (up from 184 last year – a 56% increase). Despite the negative outlook brought on by the sub-prime mortgage induced credit crunch and poor global financial markets, Ireland bucked the trend and produced robust transaction volumes and prices. When broken down, the figures reveal that 228 of these acquisitions were made by Irish companies and that the value of deals by Irish firms rose by 30% from the previous year to €14.2 billion.

Construction companies were the most active, with building materials giant CRH making a total of 78 acquisitions worth €2.2 billion. Higher levels of activity were also recorded in the hotel and leisure, waste, IT and telecoms, energy and natural resources sectors.

The largest five deals in 2007 were:

• The merger of Hypo Real Estate (Germany) and Depfa Bank (Ireland) for a total of €5.681billion.
• EMPG's (formerly HM Riverdeep) acquisition of the Harcourt divisions of Reed Elsevier (US) for €2.905 billion.
• Industrial Equity Investments Limited's acquisition of Arysta LifeScience Corporation (Japan) for €1.527 billion.
• Quinlan Private's purchase of the Jurys Inns hotel chain (Ireland) for €1.165billion.
• EON's purchase of the US and Canadian divisions of Airtricity (windfarms) (Ireland) for €990million.

How and to what extent is foreign involvement in M&A transactions in Ireland regulated/restricted?

In repealing the Mergers, Takeovers and Monopolies (Control) Act, 1978 (as amended) and the Competition Act 1991, the Competition Act 2002 eliminated the "common good'" criteria from the substantive test adopted by the Competition Authority, replacing it with a "substantial lessening of competition" test. This has ensured that M&A are now assessed purely on competition grounds rather than political or other considerations.

The Broadcasting Commission licenses and monitors broadcasting in Ireland. The Commission's Ownership and Control Policy Document requires applicants to maintain a local ethos but does not regard local ownership as an essential element in achieving this. The Commission does however consider reciprocal arrangements for investment and licensing when reviewing applications from non-EU applicants.

Due diligence

What are the principal disclosure requirements in a typical M&A transaction?

In Ireland the principle of caveat emptor largely applies to a bidder in an M&A transaction.

The bidder will generally carry out due diligence enquiries and in an acquisition of a private company seek warranties and indemnities. The extent of the due diligence exercise that can be carried out will largely depend on the time available, the financial and technical resources available to the bidder and the willingness of the vendor and target to disclose confidential information. If a bid is recommended the vendor and target may voluntarily make information available to the bidder. However if hostile, due diligence will be restricted to information in the public domain, such as information required to be disclosed under the Companies Acts, the Takeover Rules and the Irish Listing Rules.

To what extent do current disclosure requirements achieve market transparency?

A certain amount of information is required to be disclosed by holders and issuers under a combination of the Companies Acts, the Transparency Regulations and Interim Transparency Rules, the Takeover Rules (if the offeree is the subject of a bid) and, if quoted, the Irish Listing Rules. Both public and private companies are required to file particular documents and information at the Companies Registration Office and Office of the Revenue Commissioners. These disclosure requirements, which achieve a transparent market for securities in Ireland, are comparable to those in the rest of the EU.

How significant an issue is prospectus liability in a typical M&A transaction?

In Ireland the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (CA 2005) imposes criminal sanctions for including untrue statements in a prospectus or omitting information required by EU prospectus law. Highlighting the importance of verification of the prospectus document, the sanctions imposed are:

• On summary conviction a fine of up to €5,000 or a term of imprisonment not exceeding 12 months, or both; and
• On indictment a fine of up to €1million or a term of imprisonment not exceeding five years, or both.

CA 2005 also provides for statutory compensation to persons suffering loss or damage as a result of the untrue statement or omission. There are also civil sanctions for the publication of untrue statements in a prospectus under common law, tort and in equity.

How have recent M&A transactions and/or current legislation dealt with the issue of material adverse change clauses?

As a result of the 2001 decision of the UK Takeover Panel regarding the offer by WPP Group for Tempus Group there are questions about the enforceability of material adverse change clauses in Ireland.

An Irish bidder seeking to avoid completion would probably have to show the Takeover Panel that the exceptional circumstances could not have been reasonably foreseen at the time of the making of the offer and the effect of the new circumstances is sufficiently adverse to affect the longer term prospects of the offeree company.

The use of material adverse change clauses is still common in Ireland. For example, in the 2002 acquisition of Unicare Pharmacy Group Limited by Gehe, the German pharmacy group, Gehe sought to avoid completion when the Irish government deregulated the pharmacy sector in Ireland.

What are the key unresolved issues in your jurisdiction?

The Companies Consolidation and Reform Bill, which will consolidate 13 Companies Acts and numerous statutory instruments has been presented for public comment but is not likely to pass into law until mid-2009.

Takeovers

Are there any specific regulations and/or regulatory bodies governing takeovers in your jurisdiction?

The Irish Stock Exchange regulates listing and trading of securities on the Exchange.

The Irish Takeover Panel is the body responsible for monitoring and supervising takeovers and other relevant transactions in relation to securities in relevant companies in Ireland.

The Competition Authority is a statutory body, which administers and enforces the primary anti-trust legislation relating to the acquisition of Irish undertakings.

In the case of media M&A, the Minister for Enterprise, Trade and Employment can require the Competition Authority to investigate the merger or acquisition and override a determination of the Competition Authority.

The powers and functions of the Financial Regulator are mentioned above.

What are the various methods by which a takeover can be achieved?

A takeover of a company in Ireland can be achieved by any of the following methods:

Takeover offer

A bid made for all of the equity shares of the target must be conditional on the bidder acquiring shares carrying more than 50% of the voting rights of the target. But it is usual for the acceptance condition to be set at 80% as Section 204 of CA 1963 allows a bidder to compulsorily acquire minority shareholdings on achieving this level of acceptances in value within four months of the publication of an offer. If the bidder already holds 20% or more of the shares in the target at the date of the offer, it must receive acceptances from holders of not less than 80% in value of the remaining shares which must constitute not less than 75% in number of the holders of those shares.

If the bidder can meet the required level of acceptances, it may at any time within six months of publication of the offer, give notice to dissenting shareholders to acquire the remaining shares. A dissenting shareholder has one calendar month from the date of the notice to apply to court to prevent the acquisition. There is no time limit within which the court decision must be given.

Private placement

A bidder may offer to acquire shares privately from the target's existing controllers without making a general offer to the target's shareholders, in certain permissible circumstances including when:

• The acquisition is from a single holder of securities and the only acquisition within a period of seven days.
• The acquisition immediately precedes or follows the announcement by the bidder of a firm intention to make an offer for the target.
• The acquisition is by way of acceptance of an offer made in accordance with the Takeover Rules.

Mandatory offer

The Takeover Rules oblige a bidder to make a cash offer for the remaining securities in the target if:

• The bidder (including any persons acting in concert with the bidder) acquire a holding of 30% or more of the voting rights of the target.
• The bidder's holding, (combined with any persons acting in concert) of less than 30% of the voting rights increases to 30% or more.
• The bidder's holding (combined with any persons acting in concert) of 30% or more, but less than 50%, of the voting rights increases by more than 0.05% of the aggregate percentage of the voting rights in the target in any 12 months.

Scheme of arrangement

A bidder may acquire control of the target by means of an arrangement under Section 201 of CA 1963 by having all of the shares in the target cancelled and shares in the bidder (or cash) transferred to the existing shareholders as compensation for their loss. The scheme will require the cooperation of the board of the target and the approval of 75% in value of its members voting at a general meeting. Court approval is also necessary to sanction the scheme of arrangement. A copy of the court order must be delivered to the Registrar of Companies.

The Takeover Rules and SARs apply to schemes of arrangement, with some important amendments:

• The offer will generally be deemed to have been made to the members in the company at the time when the seller summons the scheme meeting;
• The seller must make a number of different announcements to the Irish Stock Exchange and the Takeover Panel including notification as to whether the High Court has approved the scheme in question and the details of any conditions it has imposed.

Reverse takeover

A bidder can acquire control of a target by arranging for the target to make an offer for the bidder in return for the issue of shares in the target. If the target is listed, the Irish Listing Rules require the transaction to be approved by more than 50% of the shareholders of the target.

Under Section 204 CA 1963 acceptances must be received from 80% of the shareholders of the original bidder, meaning that if the original bidder's shareholders are more receptive to the transaction than the target's shareholders, this method is desirable.

How differently do the legislation/regulatory treat hostile and voluntary takeover bids?

Where a bid is recommended by the board of the target, the offer document will generally be a joint document that includes the target board's views on the offer. If hostile, the views of the target board will be contained in a separate document issued within 14 days of the offer document. In a hostile bid the target cannot announce trading results, profit or dividend forecast, an asset valuation, proposal for a dividend payment or other information after the thirty ninth day following the date on which the offer document is posted without the consent of the Takeover Panel.

What penalties are imposed for parties that violate takeover regulations (or equivalent)?

Irish Takeover Panel

The Takeover Panel may conduct hearings to determine if a person has acted in accordance with the Takeover Rules. It is an offence to fail to attend the Panel when summonsed, attend without just cause, refuse to testify under oath, perjure oneself or obstruct the Panel in the conduct of its hearings. The Takeover Panel may impose a maximum fine on summary conviction of €1,900 or 12 months imprisonment or both.

If the Panel considers that a party is not complying with its rulings or directions it may apply to the High Court seeking an order to require any party to the transaction to do, refrain from doing any act, or annul any transaction that has been carried out in defiance of its rulings or directions. The Court may order consequential or restitutionary relief.

Irish Stock Exchange

The Irish Stock Exchange (IZE) may privately censure an issuer (and/or its directors) for contravening the Irish Listing Rules, or it may refer the matter to its Listing Committee, which may censure, suspend or cancel the listing of the issuer's securities, or any class of securities.

Office of the Director of Corporate Enforcement and Director of Public Prosecutions (DPP)

The Director may prosecute:

• Criminal offences under the Companies Acts by way of summary proceedings (offences punishable by a fine not exceeding €1,904.61 or by imprisonment for a term not exceeding 12 months or both).
• Civil offences on indictment or summarily by either seeking an injunction to require a company or an officer to make good a default, freezing assets, or requiring the restoration of money or property.

The DPP is the only person who can prosecute indictable criminal offences. The maximum penalty for a criminal offence under the Companies Acts when prosecuted on indictment is €12,697.38 and a maximum term of imprisonment of five years; these can be higher in relation to specified offences such as fraudulent trading, or three specific offences relating to insider dealing in shares and furnishing false information.

Under the Companies Act 1990 (CA 1990), the Director, the DPP, members/officers/employees and creditors of companies and the Registrar of Companies also have standing to seek an order to disqualify a director. Private persons, when members or creditors of a company can also take action to force compliance with the Companies Acts.

What are the thresholds for disclosing bids and offers?

CA 1990 provides that persons acquiring an interest in voting shares in a public company must notify the company within a specified period if the acquisition results in their having an interest in 5% or more of any class of those shares. Once the 5% threshold has been reached each increase or decrease needs to be notified, including a decrease that brings the interest below the 5% threshold. The term "interest" is broadly defined. It includes rights to call for the delivery of shares and rights or obligations to acquire or take an interest in shares, whether such rights or obligations are conditional or absolute. Failure to notify the company will result in a loss of the ability to enforce rights in relation to the shares.

Where a company is listed on the Irish Stock Exchange, the CA 1990 (implementing EU Council Directive 88/627/EEC) also provides for the disclosure to the exchange of voting interests at thresholds of 10%, 25%, 50% and 75%.

Competition and antitrust

What have been the major recent developments in competition policy and legislation as they relate to M&A in Ireland?

The Competition Act, 2002 raised the thresholds for mergers or acquisitions of which the Competition Authority must be notified, to those for which:

• The worldwide turnover of two or more of the undertakings involved is not less than €40 million.
• Each of two or more of the undertakings involved carry on business in any part of the island of Ireland.
• The turnover in the state of any one of the undertakings involved is not less than €40 million.
• Fall within a class specified in a Ministerial Order made under the Act.

In 2007 the Competition Authority received 72 notifications in total, down from the 98 received in 2006. The diminution was in part due to a re-evaluation by the Authority of the "carries on business" notification threshold requirement. On December 12 2006 the Authority published its revised understanding of that term – instead of including any undertaking making sales on to the island of Ireland, the undertaking must, where it does not have a physical presence on the island, have made sales of at least €2 million as shown in the last financial statements.

Of the 72 notified transactions, 58 were cleared during the phase 1 stage of the investigation, two further notifications were withdrawn and nine were outstanding at the end of the year. Two transactions were cleared in phase 1, which required specific measures to address competition concerns of the Authority. The Authority initiated three phase 2 investigations all of which were cleared (one after a divestiture of the business and assets which were to be part of the acquired target).

How are the competition/antitrust regulations enforced in Ireland?

The Competition Act 2002 is enforced by the Competition Authority under powers provided to the Authority in that Act and the DPP.

M&A

The Authority can impose a fine for a failure to notify a notifiable transaction:

• On summary conviction not exceeding €3,000.
• On indictment not exceeding €250,000.

For continuing offences, a daily fine of €300 on summary conviction and €25,000 on indictment may be levied. The fines may be levied against persons in control of an undertaking, including officers of companies, partners of partnerships and other individuals who authorise or permit the contravention.

Any merger or acquisition put into effect in contravention of the Act (including voluntary notified mergers or acquisitions) is void.

A notification will not be valid when any information provided or statement made is false and misleading in any material respect. Any decision made on the basis of such a notification will be void.

Persons who contravene a commitment, determination or order of the Authority are guilty of a criminal offence and are liable:

• On summary conviction to a fine not exceeding €3,000 and/or imprisonment not exceeding six months.
• On conviction on indictment to a fine not exceeding €10,000 and/or imprisonment not exceeding six years.

For continuing offences a daily fine of €300 on summary conviction or €1,000 on indictment may be imposed.

Restrictive agreements and practices

An undertaking guilty of a cartel type offence (direct or indirect fixing of prices; limiting output or sales or the sharing of markets or consumers), has committed a criminal offence and will be liable:

• On summary conviction, to a fine up to €3,000 and in the case of an individual to a fine and/or imprisonment not exceeding six months.
• On conviction on indictment to a fine of the greater of €4 million or 10% of the turnover of the undertaking in the financial year ending 12 months before the conviction (and in the case of an individual, to a fine and/or imprisonment not exceeding five years).

For continuing offences a daily fine of €300 on summary conviction or €4,000 on indictment may be imposed.

Abuse of dominant position

An undertaking guilty of abusing its dominant position in trade for goods or services in the state has committed a criminal offence and will be liable:

• On summary conviction to a fine not exceeding €3,000.
• On conviction on indictment to a fine not exceeding the greater of €4 million or 10% of the turnover of the undertaking in the financial year ending 12 months before the conviction.

A director, manager or other officer can be liable for an offence of an undertaking when they have authorised or consented to the doing of the acts constituting the offence.

Once again, fines of €300 on summary conviction or €4,000 on indictment may be imposed for each day of the continuing offence.

How do the legislation and regulations approach the issue of abuse of dominant position?

Section 5.1 of the Competition Act 2002 (based on Article 82 of the EC Treaty) provides that any abuse by one or more undertakings of a dominant position in trade for any goods or services in the state is prohibited.

The test as to whether an undertaking holds a dominant position is that it can act independently of its competitors, its trading partners (suppliers and customers) and ultimately the consumer. Dominance is assessed by reference to a number of factors, including market share.

Section 5.2 of the Act states that such abuse may consist in:

• Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions.
• Limiting production, markets or technical development to the prejudice of consumers.
• Applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.
• Making the conclusion of contracts subject to the acceptance by other parties of supplementary obligations that by their nature or according to commercial usage have no connection with the subject of such contracts.

To what extent are parties in an M&A transaction subject to prior notification requirements?

Details of notifiable mergers or acquisitions must be submitted to the Competition Authority within one month of the conclusion of the agreement or the making of the public bid, and cannot be put into effect until determined by the Authority.

Before the agreement or bid, parties to a merger or acquisition (whether notifiable or not) may discuss jurisdictional and legal issues and the form of any notification with the Authority when they can satisfy the Authority that they have a bona fide intention of proceeding with the transaction. As evidence of such an intention, the Authority will accept a signed form of heads of agreement, memorandum of understanding or letter of intent.

Author biography

Abigail St John Kennedy Dillon Eustace Abigail St John Kennedy is a partner in the corporate department of Dillon Eustace where she heads the M&A Group. Abigail has significant Irish and international experience in corporate finance and M&A transactions, focusing on corporate, regulatory and competition aspects. In 2007 her team was involved in running a successful auction process for the sale of Moyglare Holdings, the Irish port warehousing group, to the Doyle Group.