General overview

What legislation governs M&A activity in your jurisdiction?

Public offers are still primarily regulated by the Dutch Securities Act 1995, a decree made under the Securities Act and the Financial Supervision Act (Wet op het financieel toezicht, the FSA), which came into effect on January 1 2007. Chapter 5 of the FSA on public takeovers has not yet entered into force.

A legislative proposal on takeover bids on the basis of the EU takeover directive (the Proposal) was adopted by the Dutch House of Representatives on October 24 2006 and is being addressed in the Dutch Senate. It is expected that Chapter 5 of the FSA on public takeovers, together with a decree dealing with public offers (besluit openbare biedingen) will enter into force after adoption of the Proposal by the Senate.

In connection with employee matters relating to a public offer, the Works Council Act (the WCA) and a quasi-legislative code called the SER Merger Rules apply.

In addition to the Securities Act, the SER Merger Rules and the WCA for public and private transactions, the parties involved in an M&A transaction are subject to other statutory and regulatory provisions. These include:

• Insider trading rules, which are contained in the FSA.
• The Dutch Civil Code, which includes rules on fair and reasonable behaviour by the various constituencies within the companies, rules on the duties of the management and supervisory board, mismanagement proceedings, approval of substantial transactions by the general meeting of shareholders, statutory mergers and demergers, contractual rights and obligations, annual accounts, rules on the provision of wrongful or misleading information and rules on squeeze-out procedures;
• The Act on the Disclosure of Major Holdings and Capital Interests in Securities-Issuing Institutions (Wet melding zeggenschap en kapitaalbelang in effectenuitgevende instellingen (Wmz 2006)) (as per January 1 2007, the provisions of the Wmz 2006 have been taken up in the FSA and the Wmz 2006 has lapsed).
• The Listing and Issuing rules of Euronext Amsterdam in connection with the use of protective devices.
• The Dutch Corporate Governance Code.
• The Dutch Competition Act.

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

Implementation of the legislative proposal on takeover bids on the basis of the EU directive (the Proposal) might have an impact on the amount of M&A activity. The new rules on takeovers will be included in Chapter 5 of the FSA.

The Proposal gives a company the freedom to elect whether or not to protect itself against hostile takeover bids.

A company that has voluntarily relinquished the protection may, however, choose to revive its protection if a company that is itself protected launches a hostile offer for its shares (the reciprocity rule).

Under the Proposal, protection remains possible (opt out). For example, the protection by way of issuance of preference shares (a protective device in the Netherlands) remains possible. The company may, however, opt in by including in its articles of association a provision that shareholders' approval is required to implement any protective measures after the initial public announcement of a bid.

Under the Proposal, a Dutch company's articles of association may also provide that a bidder who has acquired a 75% shareholding may convene a meeting in which the special rights in the articles of association on the appointment and dismissal of directors by, for example, a holder of priority or golden shares do not apply; instead, each share would carry one vote. Preference shares issued for protective purposes do not carry any voting rights at this meeting.

Another proposed rule is the introduction of a mandatory public bid. As soon as a party, acting alone or in concert with others, acquires 30% or more of the voting rights in a listed company, it must make a public bid for all the remaining shares. The proposal cites a number of situations in which the obligation to bid does not apply, including existing interests, interests held by, for example, a continuity foundation or a voting trust, reorganizations and rescue operations.

A grace period applies, that is, the obligation to make a bid will no longer apply if the interest is brought below the bidding threshold of 30% within 30 days of the bid announcement. The Companies Chamber of the Court of Appeal in Amsterdam can be requested to extend this period to 60 days. The Dutch Authority for the Financial Markets can grant exemptions.

The technical implementation of the rules, addressing issues such as the bid price and the conditions, will be laid down in separate regulations. Mandatory offers are expected to be rare. The rule will probably lead to shareholders either restricting themselves to an interest of less than 30%, or voluntarily making a public offer on their own conditions.

It is not certain whether the Proposal will come into effect in its current form.

On October 1 2006 the Wmz 2006 and the Decree on the Disclosure of Major Holdings and Capital Interests in Securities-Issuing Institutions (Besluit melding zeggenschap en kapitaalbelang in effectenuitgevende instellingen) – which is based on the Wmz 2006 – both came into effect. The aim of the Wmz 2006 is to increase transparency regarding large holdings and capital interests in securities-issuing institutions and to simplify the disclosure process. As of January 1 2007, the provisions of the Wmz 2006 have been taken up in the FSA. Accordingly, the Wmz 2006 has lapsed.

The rules on the structure regime that entered into force on October 1 2004, the other rules of the Dutch Civil Code that have been changed in connection with it, and the introduction of the Dutch corporate governance code have had an impact on the nature and amount of M&A activity.

Although not specifically devised for protection, in practice the structure regime functions as a protection device against takeovers.

Under the new rules of the structure regime shareholders may now dismiss the entire supervisory board by an absolute majority of the votes cast at a shareholders' meeting, representing one-third of the voting capital of the company. The Companies Court then appoints one or more temporary members to the supervisory board.

Alongside the new structure regime, certain other changes have been introduced in the Dutch Civil Code, including rules on increased power of shareholders. For example, certain decisions of the management board now require approval of the shareholders' meeting, such as a contemplated sale of a substantial asset or a contemplated change in the character or identity of a company. Also shareholders holding at least 0.01% of the issued capital of a Dutch public limited company or, if a listed company, representing at least €50 million have the right to request the company to put items on the agenda of the general meeting of shareholders.

Also holders of depositary receipts for shares are, under the new structure regime, entitled to a voting proxy from the voting trust in time of peace. In time of war (for example, during a hostile takeover bid) the voting trust may withdraw or restrict these proxies. The Dutch corporate governance code provides that a proxy must be granted at all times, even in hostile circumstances. So these rules conflict. The initial legislative proposal implementing the EU takeover directive followed the Code on this issue. The Proposal as adopted by the House of Representatives no longer excludes withdrawal or restriction of proxies in time of war.

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

The following public deals have been the most significant M&A transactions in the Netherlands over the past year:

• The steel producer Mittal (listed on Euronext Amsterdam) acquired Arcelor.
• New York Stock Exchange is acquiring Euronext Amsterdam.
• The Dutch publisher VNU was acquired by private equity firms.
• Philips sold its semiconductor division to a number of private equity firms.
• ABN Amro sold its real estate finance and development arm.
• TNT sold its logistics business to a private equity firm.

How, and to what extent, is foreign involvement in M&A transactions in your jurisdiction regulated or restricted?

Dutch law is essentially non-discriminatory towards foreign companies, treating them the same as Dutch companies.

Residency or EU nationality requirements apply for the shipping, aviation and defence industries.

A Dutch company's articles of association might contain quality requirements that a person must comply with before they can become a shareholder in the company, but these are rare. These quality requirements may include being a Dutch resident or having EU nationality.

Due diligence

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

The Securities Act Decree provides that a public announcement must be made in respect of a public offer in the following circumstances:

• Negotiations in connection with an offer that has reached a stage that justifies the expectation that agreement can be reached (this rule will be changed in connection with the proposed legislation to implement the EU directive on takeover bids, according to which the public announcement must be made when a conditional agreement has been reached).
• For hostile offers only, a notice by the bidder of an intended offer to the target company.
• Fluctuations in the share price of the bidder or target or other indications that third parties might be aware of any preparations for a public offer. Any fluctuations or indications might also trigger a public disclosure under the Listing and Issuing Rules of Euronext Amsterdam.
• In the case of a firm offer, final agreement on the offer price or exchange ratio.
• When an earlier public announcement has been made, any decision by the bidder not to make a public offer.
• In relation to a previously announced public offer, the issuance of shares or the granting of any option to acquire shares by the target to the bidder or to any third party.
• Any public announcements by a third party preparing or making a public offer for the same shares.

An initial public announcement is often made while the full terms of the offer are still being negotiated.

Under the draft Decree on Public Offers (Besluit Openbare Biedingen) pursuant to Chapter 5 of the FSA (Chapter 5 has not yet entered into force) these rules will change. Under the new rules, a public announcement in respect of a public offer must be made when the bidder and the company have reached a conditional agreement on the offer.

To what extent do disclosure requirements achieve market transparency?

Article 5:59 of the FSA requires listed companies to publish knowledge of information of a precise nature relating directly or indirectly to an issuer of financial instruments or to trading in those financial instruments, which has not been made public and which, if it were made public, would be likely to have an effect on the prices of the financial instruments or on the prices of related derivative financial instruments. This relates in particular to new facts in the company's sphere of activity that are not public knowledge and that, because of their effects on the company's net assets or financial position or the general course of its business, might lead to movements in the price of its shares.

The Wmz 2006 (which was taken up in the FSA that entered into force this year) imposes a duty to disclose on all parties that acquire or lose shares in a Wmz company and as a result, as they know (or should know) their percentage holding in the capital and/or voting rights reaches, exceeds or falls below a threshold. A change in the issued capital of a securities-issuing institution can also cause a change in the percentage and/or voting rights of a party and as a result can create a duty to disclose. The thresholds are 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%.

Shares held by subsidiaries of the bidder and shares held by a third party with whom a voting agreement exists must be taken into account when calculating the thresholds.

Any purchases in the three years before the publication of the offer document must be disclosed in the offer document. The purchase of any shares in the target after the first announcement of a public bid must also be notified to the AFM.

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

The offering memorandum that must be made available in connection with a public offer may not be misleading. If the memorandum contains misleading information all parties involved with the issuance of the offering memorandum could be liable on the basis of tort.

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

Material adverse change clauses are frequently used as a condition precedent to the acceptance of a public bid as well as a condition to closing in a private transaction.

What are the key unresolved issues in your jurisdiction?

Unresolved issued include the level of disclosure of ownership in Dutch public companies and a lack of requirements to disclose intention when reaching a certain level of ownership.

Takeovers

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

The AFM supervises compliance with the Securities Act and the FSA. The Listing and Issuing Rules of Euronext Amsterdam contain rules on the use of protective devices. A Merger Committee monitors compliance with the SER Merger Rules. The Dutch Competition Authority (DCA) supervises compliance with antitrust matters and the Dutch Central Bank performs the same function in connection with bank mergers.

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

The main way to obtain control of a public company in the Netherlands is by public offer. A statutory merger can be a way of forcing out an unwilling minority with more than 5% of the issued share capital, the threshold for the statutory squeeze-out under Dutch law. However, a statutory merger might lead to litigation by minority shareholders or at least the threat of it. This is one of the reasons this approach to obtain control has rarely been used. Another reason is that only a 10% cash consideration is allowed because, under Dutch law, a statutory merger is mainly meant to be a share-for-share exchange.

How differently are hostile and voluntary takeover bids treated?

The management board and supervisory board of a Dutch company must act in accordance with the interests of the company. These include the interests of all stakeholders, such as shareholders, employees, creditors and business partners. When faced with a public bid, the managing and supervisory directors must consider the interests of all stakeholders. Accordingly they do not owe an overriding fiduciary duty to the shareholders.

Hostile bids are allowed, but it is not possible to make a surprise bid because a bidder is required to notify the management board of the target company before making a public announcement of the bid. The management board of the target company has seven days after this notification by the hostile bidder to consult with the hostile bidder on the bid and to see whether they can reach an agreement. In a hostile bid, the minimum period during which the bid should be open is prolonged from 20 calendar days (in the current draft of the new decree on public offers this term is 25 days) to 30 calendar days.

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

A reprimand either leading to no cooperation from the brokers, or an economic offence.

What are the thresholds for disclosing bids and offers?

Under the legislative proposal in respect of the EU Takeover Directive, a party that, acting alone or in concert with others, acquires 30% or more of the voting rights in a listed company, must make a public bid for all the remaining shares.

Competition/Antitrust

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

There have been no recent changes in competition policy as regards M&A transactions in the Netherlands. The European merger regulation that applies to mergers with a European dimension was heavily amended in 2004.

How are the competition/antitrust regulations enforced in your jurisdiction?

Competition and antitrust regulations are enforced by the Dutch Competition Authority (Nederlandse Mededingingsautoriteit) (DCA) and for matters with a European dimension by the EC. Private enforcement in a competent court is also possible. Recent changes to the European and Dutch competition and antitrust rules have abolished the possibility to obtain an individual exemption from antitrust rules from the DCA or the European Commission (EC). As such companies have to make their own assessment of compliance with relevant regulation. However, competent national courts are allowed to rule that an exemption applies.

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

Under Article 24(1) of the Dutch Competition Act, abuse of a dominant position is prohibited. A dominant position is defined as: a position of one or more undertakings that enables them to prevent effective competition being maintained on the Dutch market or a part of it, by giving them the power to behave to an appreciable extent independently of their competitors, suppliers, customers or end users.

The dominance test of the Dutch Competition Act deviates slightly from the test that the EC applies (that is, does the concentration create or strengthen a dominant position as a result of which effective competition would be impeded in the common market?). An amendment of the Dutch Competition Act is pending with the Dutch Senate. Most likely the amendment will be implemented in the Dutch Competition Act this year.

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

Pre-notification of a concentration to the DCA is mandatory if:

• the worldwide turnover of the companies concerned exceeds €113.45 million ($147 million); and
• two of the undertakings concerned each have a turnover in the Netherlands of at least €30 million.

Other thresholds apply to financial and credit institutions and insurance companies.

The Dutch Competition Act establishes a two-phase procedure.

First phase

If the thresholds are exceeded, there is a mandatory requirement to file a notification. There is no time limit for filing with the DCA (see for public bids below). However, the transaction cannot be completed until a notification has been filed and four weeks have passed since the date of notification.

Within the four weeks after notification, the DCA has to determine whether the proposed transaction requires a licence. A licence may be required if the board of the DCA has reason to assume that the concentration could result in the creation or strengthening of a dominant position that could restrict competition in the Dutch market or a part of it.

The transaction can be completed if either: (i) the board notifies the parties that no licence is required during the four-week suspension period; or (ii) the four-week suspension period expires without the board notifying the parties that a licence is required.

Second phase

If the board decides that a licence is required, the parties must submit a second notification (technically, an application for a licence). The transaction cannot be completed until the licence is obtained. The board must issue its decision on the application within 13 weeks of receiving the application for a licence.

Public bids

Slightly different rules apply to public bids. The four-week suspension period in the first phase will not apply to public takeovers (or exchange bids) aimed at the acquisition of a share in the capital of a company, provided:

• The acquisition or bid is notified to the board immediately.
• The acquiring party does not exercise the voting rights attached to the shares. At the request of a party notifying the concentration, the board may decide that, by way of exception, the voting rights may be exercised to maintain the full value of that party's investment.

If, after notification, the board decides that a licence is required, the concentration will be nullified within 13 weeks if the parties do not submit an application for a licence within four weeks, or if the licence is refused.

The parties must comply with any restrictions or conditions imposed in the licence within 13 weeks of its issue.

Author biographies

Johan Kleyn Allen & Overy Johan Kleyn is a partner with Allen & Overy. He is a graduate in law from the University of Utrecht. He studied at King's College, University of London (YELC) and holds a Master of Law degree from New York University School of Law. He specializes in mergers and acquisitions of public and private companies both in negotiated and contested transactions, including the corporate litigation side. He is active both in equity capital market matters and in private equity transactions. He acted for Equant in connection with the majority participation by France Telecom, for ABN Amro and DKW in connection with the Dordtsche's sale of its stake in Royal Dutch Shell and for Westfield in connection with the sale by Rodamco North America of all its assets. He advised Rodamco Asia on its takeover route resulting in a public bid by ING Real Estate, for Crucell in connection with the acquisition of Berna, and for MSREF in connection with the acquisition of AM Development. He acted for ABN Amro in connection with the listing of Ajax, for ING Bank and Goldman Sachs in connection with the listing of Libertel, for Crucell in connection with its listing at Nasdaq and Euronext Amsterdam, and for Lehman Brothers and ABN Amro in connection with the IPO of SNS Reaal. He represented Westfield in its legal battle against RNA, Uni-Invest in its litigation against VEB and the bondholders of Getronics in connection with their debt-equity swap. He is advising Equity One in connection with the corporate battle for DIM Vastgoed. Jan Louis Burggraaf Allen & Overy Jan Louis Burggraaf has been a partner at Allen & Overy since January 2000 and has headed the corporate department of Allen & Overy Amsterdam since 2002. He was a partner with the Benelux law firm Loeff Claeys Verbeke from 1999. Burggraaf graduated summa cum laude both in Dutch law and international law from Utrecht University (1991). Furthermore, he studied at the London School of Economics, the University of Edinburgh and Harvard Law School. During 1998/1999 he was on secondment with the New York law firm Cravath Swaine & Moore. He specializes in M&A transactions, including management and leveraged buyouts, and in particular public bids. Most of the transactions he has been involved in are cross-border. Recently he has been advising several leading corporations and banks, including KLM, TNT, Nuon, Royal Numico, ABN Amro Bank, ABN Amro Capital, Alpinvest, Draka Holding, Friesland Foods, McGregor Fashion Group, Merrill Lynch, Randstad Holding, Scania, Tele2, Wolters Kluwer and the Ministry of Finance. Burggraaf was selected best M&A lawyer of the Netherlands in both 2004 and 2005. Furthermore, he is highly recommended both by Chambers and by Legal 500 and is considered a "star lawyer (leading)" by Practical Law Company for M&A/private equity and corporate law. He regularly lectures on mergers and acquisitions at the Amsterdam Nyenrode Law School, the Grotius Academy and the Vrije Universiteit of Amsterdam.