General overview

What legislation governs M&A activity in your jurisdiction?

Mergers and acquisitions in Ireland are governed by the Irish Takeover Panel Act 1997 and the:

• Takeover Rules 2001 and the Takeover (Amendment) Rules 2002 and 2005.
• Substantial Acquisitions Rules 2001 and Substantial Acquisition (Amendment) Rules 2005.
• Relevant Company Regulations 2001.

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 or the London Stock Exchange, New York Stock Exchange, Nasdaq or Easdaq.

Generally the Takeover Act and the Takeover Rules do not apply to a private company unless:

• The acquisition is a reverse takeover of a listed company, that is, the vendor private company acquires a stake of 30% or more of the shares in a publicly listed purchaser, triggering a Rule 9 bid under the Takeover Rules (and the whitewash procedure is not obtained from the Takeover Panel).
• Its securities have at any time within the previous five years been authorized for trading on any of the above exchanges.

The EC Merger Control Regulation applies when the merger or acquisition has a Community dimension. If not, the merger or acquisition could be subject to the Competition Act 2002.

The Companies Acts 1963 to 2006 legislate for various aspects of public and private mergers and acquisitions 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 in 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 Investment Intermediaries Act 1995 states that when a party proposes to acquire directly or indirectly shareholdings exceeding 10%, 20%, 33% or 50% of an authorized investment business firm, that party and the disposing party must notify the Financial Regulator of the proposal 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. 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 authorized investment business firm, other than for the purpose of trading book activities.

The Central Bank Act 1989, Building Societies Act 1989 and 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 who proposes 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 with 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. Disposals must also be notified to the Financial Regulator. 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, and the 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 Investment Funds, Companies and Miscellaneous Provisions Act 2006 (the CA 2006) has made some improvements in relation to the audit exemption for small companies.

The exemption, which removes the need for a company to engage an independent external auditor, has been allowed under EU law since 1978, but wasn't introduced into Ireland until 1999, when it was available for companies with a turnover of less than £250,000 ($482,000). The turnover threshold increased to €1.5 million ($2 million) in 2003 but Ireland still lagged behind its competitors, most notably the UK, which at about that time increased its threshold to the maximum permitted under EU law.

The CA 2006 increases the threshold amounts to the maximum amounts available under EU law: €7.3 million of turnover and a balance sheet total of €3.65 million.

Also, when a guarantor gives a guarantee in relation to an offer of non-equity securities, such as a bond issue, the guarantor will no longer have liability for the contents of the entire prospectus and will only be liable for statements included in, or information omitted from, the prospectus that relates to the guarantor or the guarantee.

This will address concerns of the securitization industry, as some monoline insurers were refusing to wrap structured finance transactions for PLCs listed in, or securities issued out of, Ireland.

These changes should increase Ireland's competitiveness as a jurisdiction to both incorporate and issue non-equity securities.

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

In 2006 the value of deals involving Irish companies rose 22% to €15 billion, and the number of large deals rose from 115 in 2005 to 184 last year (a 60% increase). The market was driven by the ready availability of funding, both from low interest rates and private equity.

The largest single deal in 2006 was the €3.98 billion merger of Riverdeep (educational publishing and e-learning products) and Houghton Mifflin, closely followed by Australian venture capital group Babcock & Brown's takeover of Eircom Group (telecom) for €1.96 billion, the sale of London City Airport by Dermot Desmond for €1.1 billion, CRH's acquisition of Atlanta asphalt group Ashland Paving and Construction for €1 billion and Tullow Oil's €900 million purchase of Hardman Resources in Australia.

Ryanair pulled out of its €1.4 billion takeover offer for Aer Lingus in December after the European Commission said the deal raised serious competition concerns. Ryanair has indicated that it might make another offer for the airline if the EC's Phase 2 investigation clears the deal to proceed.

Other notable deals included:

• The €350 million management buyout of J&E Davy Holdings Limited (Davy Stockbrokers).
• The €390 million management buyout of BWG (convenience stores) from Cognetas European Fund.
• The acquisition by London private equity firm Doughty Hanson of TV3 for €265 million.
• The sale of Pinewood Healthcare (pharmaceuticals) to Indian company Wockhardt for €113 million.
• The sale of Stockbyte to Getty Images (US) for €110 million.

In the property sector, the Irish spent €8.1 billion abroad (according to CB Richard Ellis Gunne), more than twice as much at home. For the large property groups this was commonly in the UK, Germany, the US and (Treasury Holdings) China.

How, and to what extent, is foreign involvement in M&A transactions in your jurisdiction 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 mergers and acquisitions 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 a merger and acquisition 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 might 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 disclosure requirements achieve market transparency?

A certain amount of information is required to be disclosed by public companies under the Companies Acts, the Takeover Rules 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 broadly comparable to those in the UK.

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

In Ireland the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (the CA 2005) imposes criminal sanctions for including untrue statements in a prospectus or omissions of 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.
• On indictment, a fine of up to €1 million or a term of imprisonment not exceeding five years, or both.

The 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 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 is a question as to 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 the offer was made and that the effect of the new circumstances is adverse enough 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 by Gehe, the German pharmacy group, Gehe sought to avoid completion when the Irish government deregulated the pharmacy sector in Ireland.

What are the main unresolved issues in your jurisdiction?

The state of the Irish health insurance market is uncertain.

The Irish government passed emergency legislation in February to cause Bupa acquirer Quinn Group to have to make risk equalization payments (where those with younger subscribers compensate those with older) to state insurer VHI immediately, closing a legal loophole that would have allowed it, as a new entrant to the market, to avail of a three-year exemption on the payments.

Quinn Group has confirmed that it will continue with the takeover. Bupa is challenging the legality of the risk equalization scheme before the Supreme Court of Ireland, which has ordered a stay of the payments due in 2006.

VHI is expected to face three important developments:

• Recommendations from the Competition Authority are expected to suggest sweeping changes, such as the break-up of VHI and perhaps its privatization.
• Secondly, it will be affected by the findings of the new health insurance review group, which should be known by the end of March.
• Thirdly, the impact of the Bill setting up VHI on a more commercial basis, which is expected before May.

The publication of these last two items will be all the more relevant because of the EU Commission's initiation of legal proceeding against the government over exemptions to solvency requirements provided to VHI.

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 the monitoring and supervision of takeovers and other relevant transactions in relation to securities in relevant companies in Ireland.

The Competition Authority is a statutory body that administers and enforces the primary antitrust legislation relating to the acquisition of Irish undertakings.

In the case of media mergers or acquisitions, the Minister for Enterprise, Trade and Employment can require the Competition Authority to investigate a 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 at least 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 the 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 either:

• The bidder (including any persons acting in concert with the bidder) acquires 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 target's board 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 and copy of the court order must be delivered to the Registrar of Companies.

The Takeover (Amendment) Rules 2005 and Substantial Acquisition (Amendment) Rules 2005 apply the Takeover Rules and SARs 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 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.

The recent legislation reflects a desire to regulate schemes of arrangement, which are becoming increasingly common in Ireland.

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 of the 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 does legislation/regulation treat hostile and voluntary takeover bids?

Where a bid is recommended by the target's board, 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 without the consent of the Takeover Panel announce trading results, profit or dividend forecast, an asset valuation, proposal for a dividend payment or other information after the 39th day after the offer document is posted.

What penalties are imposed for parties who 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, or 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 restitution relief.

Irish Stock Exchange

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

Office of the Director of Corporate Enforcement (the Director) and Director of Public Prosecutions (the 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 the maximum term of imprisonment is five years (but these can be higher in relation to specified offences such as fraudulent trading, three specific offences relating to insider dealing in shares and furnishing false information).

Under the Companies Act 1990 (the 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?

The CA 1990 provides that any person who acquires an interest in voting shares in a public company must notify the company within a specified period if the acquisition results in them 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 and 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/Antitrust

What have been the main recent developments in competition policy and legislation as they relate to M&A in your jurisdiction?

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

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

In 2006 the Competition Authority initiated four full (Phase 2) investigations of proposed mergers, of which one was blocked (Kingspan/Xtratherm) and three were cleared. The Authority received 98 notifications in total, slightly up on the 84 received in 2005.

The Authority has provided a voluntary notification procedure to improve legal certainty for notifying parties. The Authority can use its functions and powers under the Act to investigate any mergers or acquisitions on the basis that they prevent, restrict or distort competition in trade of goods or services in the state or are in breach of Article 81(1) of the EC Treaty, regardless of whether they fall below the thresholds.

The Authority has provided a new standard form of notification, which has simplified the notification procedure.

How are competition/antitrust regulations enforced in your jurisdiction?

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

Mergers and acquisitions

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 authorize or permit the contravention.

Any merger or acquisition that is 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 two 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 the 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 the 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 authorized or consented to 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 does legislation/regulation 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 could 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, placing them at a competitive disadvantage.
• Making the conclusion of contracts subject to the acceptance by other parties of supplementary obligations, which by their nature or according to commercial usage have no connection with the subject of the 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 after the agreement is concluded or the public bid is made 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. She has significant Irish and international experience in corporate finance and merger and acquisitions transactions, focusing on corporate, regulatory and competition aspects. In 2006 her team was involved in advising two private equity vehicles in relation to the merger of Riverdeep Holdings (Ireland) and the Houghton Mifflin group, the former which was acquired (in a share-for-share exchange) for $1.2 billion and the latter which was acquired for $1.75 billion in cash plus the assumption of $1.61 billion in net debt, from affiliates of the Thomas H Lee Partners, Bain Capital Partners and The Blackstone Group.