What conditions precedent, including approvals, are typical in a sale and purchase agreements? [Raimondo Premonte]
The most typical conditions precedent in the Italian sale and purchase agreements are represented by the approval by either the Italian Antitrust Authority or the European Commission in case certain conditions are met. Other typical conditions precedent may concern the approval by the Bank of Italy, whenever the target company is a bank, or by the Italian Insurance Authority, ISVAP, when the target operates in the insurance sector. Moreover, specific conditions precedent could be set forth under agreements involving target companies that are granted with authorisations or concessions. In such cases, the acquisition would be usually conditioned to the approval by the competent authority that granted such authorizations/concessions. In the event that target company is a part to key agreements that provide “no change of control” clauses, the relevant acquisition would be conditioned to the approval of the transaction by the contractual counter-party to these significant agreements. Finally, with respect to non-mandatory conditions precedent, the absence of any material adverse change and the performance of the seller’s covenants between signing and closing are the most typical protection mechanism used by purchasers.
Describe the additional approvals or restrictions for deals in any regulated sectors [Raimondo Premonte]
The buyer must obtain approvals in case of acquisitions of certain percentage of stocks in banks or insurance companies from, respectively, the Bank of Italy and the Italian Insurance Authority, ISVAP. Moreover, any party which, as a result of acquisitions, comes into possession of a shareholding in an Italian listed company exceeding the 30% threshold shall launch a mandatory tender offer addressed to all the other shareholders.
What types of transactions or sectors are share or asset sales more prevalent, and what are the different considerations for each sale type? [Raimondo Premonte]
As a general remark, the choice between asset sales as opposed to share sales depends on the specific transactions more than the relevant target sector. Asset sales imply the following advantages for the parties: (i) in general terms, the parties may choose which assets and liabilities will be included in the business to be transferred, provided, however, that the complex of the assets and liabilities to be transferred maintains an autonomous capacity for the carrying out of business activity; (ii) the sale of the assets/business can be accomplished within a very limited time frame, since, generally, the only corporate action to be taken is the resolution of the board of directors of the relevant companies. On the other hand, share sales imply the transfer to the buyer of all the contractual relationships and receivables of the seller, and the law does not grant the counterparties to such contractual relationships with any withdrawal right (except in case of change of control provisions), therefore there is no risk that certain contractual relationships and receivables are not transferred to the buyer. Finally, for tax reasons, sale of stock is the approach generally preferred by the seller (assuming it is a corporate entity), since it allows, if all the requirements for the application of the participation exemption regime are met, an exemption of 95% of the capital gains. In turn, capital gains arising from the sale of assets (business concern) are subject to 27.5% corporate tax (an election can be made to pay the tax in five installments over five tax periods).
Describe the types of deal protections allowed and commonly used in acquisition agreements [Raimondo Premonte]
It is quite common for the target company to agree to pay the potential buyer a break fee on the occurrence of certain specified trigger events that may prevent the potential buyer’s offer from becoming unconditional. Moreover, the potential buyer may seek an undertaking from the target and/or from the target’s directors not to solicit any competing offers: the parties may also agree upon restrictions in relation to the conduct of target’s business, until completion of the acquisition.
Explain the stock exchange and other rules that govern takeovers of listed companies [Andrea Aiello]
The rules governing public tender offers in Italy are provided both in the Italian Financial Act (TUF) and in the Regulation issued by CONSOB (the Italian Authority for Stock Exchange and Listed Companies). Recently such legal framework has been amended as a result of the implementation in Italy of the European Directive 2004/25/EC.
The amendments have regarded both the general provisions on the procedure of the bid and certain provisions regarding mandatory takeover bids. In particular, the regulatory measures were focused on achieving the following goals:
(1) strengthening of the protection of minority shareholders;
(2) efficiency and transparency of the market for corporate control;
(3) equal treatment for Italian and non-Italian investors and harmonisation with other countries’ regulations;
(4) reduction of compliance costs for bidders.
Explain the hostile takeover methods seen in the country [Andrea Aiello]
No hostile tender offers have been launched in Italy over the last years. The lack of hostile offers is mainly due to the shareholding of the greater part of the Italian listed companies (where only few companies have a largely spread shareholding). It is common that the bidders try to reach undertakings with the majority shareholder (and, thus, taking on board, the majority of the directors). However, we can imagine that a hostile bidder may (i) start to purchase shares on the market up to a certain threshold which would trigger the obligation to launch a mandatory tender offer (not higher than 30% of the voting share capital) and (ii) afterwards, launch a voluntary public tender offer over the residual shares, at a price entailing a significant premium for minority shareholders.
Explain the defenses available to a company board facing a hostile takeover offer [Andrea Aiello]
According to the Financial Act and unless otherwise provided by the target’s by-law, during the relevant offer period, target’s directors shall refrain from taking actions that may jeopardize the achievement of the scope of the offer, unless such actions are authorised by a shareholders’ meeting resolution (Passivity Rule).
The Financial Act does not expressly identify what acts fall within the Passivity Rule. The research of an alternative bidder (so-called white knight) must be considered outside the scope of the Passivity Rule.
However, CONSOB pointed out three main categories of defensive actions triggering the application of the Passivity Rule:
(1) actions aimed at increasing the financial burden for the bidder (capital increases, conversion of saving shares and buy-back of treasury shares etc.);
(2) actions aimed at modifying the net worth structure or the plans of the target (merger or other corporate restructuring, asset stripping transactions, change of industrial and business plan, etc.);
(3) actions that generally hinder the success of an offer (such as the launch of an offer on the shares of the bidder).
Describe customary post-closing arrangements, including transitional service agreements, between buyer and seller [Raimondo Premonte]
The main post-closing arrangements concern the payment of consideration, which could be withheld against breaches of representations and warranties as well as deferred and conditioned upon the future performance of the target company or withheld while the closing accounts for any price adjustment mechanisms are being prepared. Post-closing arrangements also concern endorsement of authorization and/or licenses in favor of the buyer, as well as non-compete obligations for the seller as well as non-solicitation obligations concerning seller’s managers or key employees burdened on the buyer. Moreover, the parties typically negotiate and arrange a series of transitional agreements concerning services, such as IT agreements, which would continue to be provided by the seller, in order to ensure the carrying on of the daily activities of the target company.
Corporate governance/bribery
To what degree, and how, does shareholder activism manifest itself in your jurisdiction? [Andrea Aiello]
The Financial Act and the CONSOB Regulation has been recently amended in order to implement the so-called Shareholders’ Rights Directive (no. 2007/36/CE, SHR Regulation). Main purpose of the relevant amendments is to foster the shareholders’ participation to the shareholders’ meetings and, in particular, to facilitate the exercise of the voting rights by minority and foreign shareholders. As a result of the introduction of the SHR Regulation, minority shareholders are now entitled to exercise, among others, the following rights: (i) right to ask for additional items to be placed on agenda, to be exercised up to 10 days after publication of the notice of call; (ii) right to ask questions about items on agenda before the shareholders’ meeting; and (iii) right to convene the meeting granted (where the shareholders represent at least 1/20 of the share capital).
Explain the fundamental concepts underlying the country’s anti-bribery legislation [Emanuela Bertolli]
Under Italian law, bribery consists of the abuse of public duties and resources for the purpose to satisfy personal interests. The Italian anti-bribery legislation lies on the provisions set forth by articles from 318 to 322 of the Italian Criminal Code (ICC), namely (i) active bribery, ie the crime is committed by a person who promises or gives undue money or other benefit to a public official or a person in charge of public service (art. 321 ICC); (ii) passive bribery, ie the crime is committed by the person who receives the undue money or benefit (art. 318 ICC – bribery to obtain an official act; art. 319 ICC - bribery to obtain an act in violation of official duties; art. 319-ter ICC - bribery in judicial proceedings and art. 320 ICC - bribery of persons in charge of public services) and (iii) inducement to accept a bribe, in case of a promise or transfer of money or other benefit in favour of a public official or a person in charge of public services - the promise or the transfer is not accepted by the relevant persons (art. 322 ICC). To the above it has to be added the extortion by a public official, where the crime is committed by a public official, or a person in charge of public services, who abuses his position by forcing or persuading someone to unlawfully give or promise, also in favour of third parties, undue money or other benefit (art. 317 ICC); (collectively, Bribery Crimes).
Which entities are subject to this legislation and to which activities does it apply? [Emanuela Bertolli]
Until 2001 the anti-bribery provisions applied to the individuals who committed the Bribery Crimes only. On July 4 2001, Legislative Decree no. 231 dated June 8 2001 has been enacted, setting forth the direct administrative liability of legal entities, companies and associations with or without legal personality in case of commission – in the interest or to the benefit of the entity - of the crimes provided for by the decree by certain qualified persons of the entity (ie individuals in top position or individuals in subordinate position, agents). In particular, the decree provides for, among others, the Bribery Crimes (article 25 of the Decree) whose commission by the agents of the entity may lead to the administrative liability of the entity and the application of the sanctions provided for by the Decree (pecuniary sanctions, (ii) disqualification sanctions, (iii) confiscation and (iv) publication of the Court’s decision).
The decree provides that the entity can be exempted from liability if it proves that: (i) it has adopted and efficaciously implemented, before the commission of the crime, a model suitable to prevent crimes such as those which have been committed; and (ii) it has appointed an internal body (Organismo di Vigilanza) with independent powers to take action and supervise the operation and the enforcement of the model whilst ensuring its update.
Antitrust/competition
What deal characteristics or thresholds trigger competition review? [Alberto Pera]
A deal is subject to merger review in Italy when (a) it constitutes a concentration and (b) certain turnover thresholds are exceeded, provided that (c) it does not have (EU) Community dimension. A concentration occurs when there is a change of control of an undertaking or when a full-function joint venture is created. The concept of control is broad, it comprises sole and joint control and it entails the possibility to exercise a decisive influence over an undertaking by any means. Currently a concentration must be notified if one of the following alternative thresholds is satisfied:
(a) the combined domestic turnover (in Italy) in the last financial year of all the undertakings concerned exceeds €468 million; or
(b) the aggregate domestic turnover (in Italy) in the last financial year of the undertaking to be acquired exceeds €47 million.
Turnover thresholds are adjusted every year according to the increases in the GDP deflator index. Following a change in the relevant law, from January 1 2013 the thresholds will be applied cumulatively, meaning that notification will be required only where both thresholds are met.
Explain the process for competition merger control [Alberto Pera]
A concentration must be notified before its completion but no waiting period is required. Notification can be made after the parties have reached a binding agreement on the basic features of the transaction. The Italian Competition Authority has 30 days (Phase I) from receipt of the filing to adopt the decision either to clear it or to start a Phase II investigation, which can last up to 45 additional days. Should the notification be declared incomplete, a new 30 days time-limit will start upon receipt of the additional information. Commitments can be submitted both in Phase I and Phase II.
Currently the notifying party is required to pay a filing fee between €3,000 and €60,000. From January 1 2013 no filing fee will apply.
Private equity and hedge funds
Explain the legal framework for fund formation [Paolo Iemma]
The Italian law does not provide for a specific definition of private equity funds and/or hedge funds. According to the common practice, private equity funds are incorporated as “closed-end funds reserved to qualified investors” (fondi mobiliari chiusi riservati ad investitori qualificati), whilst hedge funds are incorporated as “opportunistic closed-end funds reserved to qualified investors” (fondi mobiliari chiusi speculativi riservati ad investitori qualificati).
Under the applicable Italian regulatory framework, the formation (istituzione) of both said private equity and hedge funds requires the relevant (duly licensed) asset management company (società di gestione del risparmio) to approve the respective fund’s management regulation which represents the sole agreement between said manager and each participant to the fund (the management regulation sets forth e.g., the fund’s duration, eligible assets, corporate governance, winding-up events and procedure, etc).
The management regulation, once approved, must be filed with the Bank of Italy (which, together with CONSOB, is the competent Italian supervisory Authority).
Describe the different share classes permitted under local law and the rights that attach to those share types [Silvia Bordi]
Italian law allows companies to create a wide range of classes of shares by freely determining which rights pertain to each class within limits dictated by law, such as the prohibition to provide for classes of shares which give more than one vote per share, exclude entirely the participation to dividends or losses or otherwise deprive shareholders of fundamental rights provided by law.
Some of the most common classes are:
deferred shares: which are affected by losses only after other shares;
preferred shares: which grant shareholders a preferential right to dividends; or
redeemable shares: which can be redeemed upon certain conditions by the company or by shareholders by a consideration determined according to criteria provided by law.
Additionally, as long as shares representing at least 50% of corporate capital have full voting rights, the by-laws can provide for shares granted with limited voting rights or without any voting right.
Listed companies suffer additional limitations (i.e., they cannot issue shares having limited voting rights unless such shares are privileged in the distribution of dividends) but can issue shares specifically designed to be helpful in anti-takeover situations.
Foreign investment
What protectionist policies or barriers are there to foreign investment? [Piero Fattori]
Following formal criticisms from the EU, Italy has recently enacted Law Decree n. 21 of March 15 2012 concerning the so-called golden share, ie the special powers held by the state, as a shareholder, in the strategic industries of defense, telecommunications, energy and transports. While not repealing the substantive provisions on special powers, currently in force (Law Decree n. 332 of May 31 1994 and later amendments), the Decree defines in greater details the conditions for the exercise of special powers, de facto limiting their scope and making their exercise predictable for investors. Basically, the government’s veto is now restricted to buyers outside of the EU and only to specific circumstances, such as the lack of sufficient financial guarantees or the risk that the potential buyer may be linked to organized crime. While the Decree is possibly subject to amendments during the parliamentary ratification process, it is much likely that the current text will not face substantial changes during this process.
Restructuring/ Insolvency
What is the availability and procedure for pre-packaged plans of reorganization and bankruptcy? [Antonio Auricchio]
Under the Italian insolvency regime, the following legal remedies and proceedings are available in order to face crisis and/or distress situations, as well as to prevent the opening of a bankruptcy proceeding.
Restructuring plan (“Piano attestato di risanamento”), which is:
>a completely out-of court and confidential remedy that could be attempted at the onset of financial difficulties, in order to avoid costs and disadvantages arising from alternative in-court proceedings;
>aimed at allowing both the restructuring of the indebtedness of the company, and the rebalance of its financial situation; and
>certified by an independent expert in relation to reasonableness and feasibility of the same.
Debt restructuring agreement (“Accordo di ristrutturazione dei debiti”), which is:
>based on an out-of-court agreement entered into by the company and its creditors (provided that they represent, at least, 60% of total amount of claims, either secured or unsecured);
>outside the traditional judicial proceedings framework, but at the same time requires also a validation and judicial confirmation by the Court, as well as a certification by an independent expert regarding the reasonableness of the same agreement, as well as the capability of the same to ensure full and timely payment of any outsider creditors (who shall be fully and regularly paid on the expiry/maturity date); and
>the preferable option when the debt is concentrated among few creditors and, thus, negotiations with them would be easier.
Composition with creditors proceeding (“Concordato preventivo”), which is:
>a court-directed procedure oriented either to reorganization and restructuring, or liquidation of the company’s assets (as an alternative to bankruptcy);
>based on the continuation of the business activities, in order to preserve the value of the assets, as well as on a plan and a composition with creditors proposal to be voted by creditors, which may provide for, eg: (i) restructuring of debts and satisfaction of creditors’ claims through any technical or legal means, including assumption of debts, mergers or other corporate transactions; (ii) transfer of the assets of the debtor to a contracting party (the so called “assuntore”); (iii) division of creditors into classes.
Describe the ways a company can be forced into involuntary bankruptcy [Antonio Auricchio]
Any creditors may file a bankruptcy petition against a company, provided that the state of insolvency (ie final and irreversible inability to pay debts and fulfill obligations, as opposed to a temporary and reversible distress) is ascertained by the bankruptcy court.
Bankruptcy is a court-directed procedure aimed at liquidating the company’s assets, and paying the creditors on the basis of the pari passu principle, subject to priority rights. Upon bankruptcy declaration the Court shall appoint a bankruptcy trustee, having the responsibility of the procedure and of the management of the bankrupted entity.
In which situations can a debtor continue its business while undergoing a restructure? [Antonio Auricchio]
The debtor can continue to run its business in the framework of any of the restructuring remedies and proceedings available under the Italian insolvency regime. However, under the composition with creditors proceeding the debtor is allowed to manage the business activities with the supervision of a judicial commissioner appointed by the court, as well as with the authorization of the court for certain material activities.
Other
Explain any country-specific corporate considerations that foreign entities or lawyers should be aware of [Raimondo Premonte]
Under Italian law there are ad hoc rules governing the acquisitions of significant holdings in companies operating in the banking and insurance sectors. Moreover, acquisitions of companies operating in strategic industries of defense, telecommunications, energy and transport may be hindered by the so-called golden share mechanism, granting special powers in favor of the Italian government department that holds such golden share.