The financial crisis poses many threats to investors. On the other hand, it offers opportunities for those that wish to acquire companies. In the past few years, investors have acquired a taste for such predatory activities to be structured in the form of a Special Purpose Acquisition Company (a Spac), also known as a blank cheque company. A Spac is an entity through which shares and warrants are offered to the public (through an IPO), at a time when it is only an empty shell except for management. The funds received through the IPO are held in escrow until the Spac finds an appropriate target to acquire, usually within a 12-24 month period. The troubled economic times create an ideal climate for Spacs in search of buying opportunities.
The Dutch market seems especially suited to public offerings by Spacs. Several Spacs have already chosen to be issued on a regulated market in the Netherlands. Though it has been noted in legal literature that the implementation in Dutch law of the Takeover Directive has introduced the risk that the shareholders of the target, when granted over 30% of the shares in the Spac in consideration for the takeover, would become subject to the obligation to make a mandatory public bid for the outstanding shares in the Spac. This would supposedly make the Dutch market less attractive than other European jurisdictions for Spac IPOs.
However, Dutch law allows various possibilities for Spacs to make acquisitions without triggering the mandatory bid rule. Some possibilities that immediately spring to mind are:
(i) Payment in cash instead of newly issued shares in the Spac (a Spac will typically have a relatively large amount of cash on hand, as held in escrow subsequent to the IPO of the Spac), to the extent necessary to be supplemented by acquisition financing;
(ii) (Additional) payment in shares, if any, to be limited to less than 30% of the voting rights connected to the shares in the Spac;
(iii) As the Dutch law mandatory bid rule only applies to Dutch law public companies (naamloze vennootschappen), the Spac could be otherwise incorporated (only one out of three Spac's listed in Amsterdam is incorporated under Dutch law);
(iv) The seller that obtains the newly issued shares in the Spac could reduce its holdings to less than 30% within the applicable grace period of 30 days (which can on request be extended with an additional 60 days by the Amsterdam Court of Appeal); and
(v) Instead of shares, warrants could be issued to the seller in consideration for the take over. Warrants or other derivatives that give the seller an option to buy shares in the Spac at a set price would give the seller an economic interest in the Spac (and its target), but no voting rights, so that the mandatory bid rule would not be triggered.
Even from this non-exhaustive list, it is clear that there are many ways for Spacs listed in the Netherlands to take over companies without the shareholders of the target being subject to the Dutch mandatory bid rule.
By Hans Sachse and Philip Reeser Cuperus