MARKET AND REGULATION
1. Please give a brief overview of the public M&A market in your jurisdiction. (Has it been active? What were the big deals over the past year?)
Overview
For the Belgian M&A market, 2004 could be considered to be the best year since 1998:
■ The Bel-20 Index increased by more than 30.7%, more than double its all time low on 12 March 2003.
■ The Belgian All Shares-index (BAS) (which features a wider range of companies) increased by 34.8%.
■ The BAS-return index (which takes into account net dividends gained by investors) increased by 38.2%.
Big deals
Examples of big deals that took place in Belgium in 2004 include the following:
■ KBC acquired Almanij at EUR15 billion (about US$19.6 billion).
■ Interbrew took part in:
❑ an acquisition of Hops Cooperatieve UA;
❑ a merger with the Brazilian Companhia de Bebidas das Americas (AmBev) to form InBev; and
❑ an acquisition of the remaining 30% of Labatt USA from its former Mexican partner Femsa.
■ Compagnie Maritme Belge, the shipping group, split into Euronav and CMB.
■ UCB acquired Celltech Group plc (UK).
■ Dexia SA and Sagard Private Equity Partners acquired Le Moniteur (Groupe Moniteur).
■ Candover (UK) acquired Bureau Van Dijk Electronic Publishing and UCB Films.
■ General Electric Aircraft Engines (USA) acquired Agfa-Gevaert (non-destructive testing unit).
General trends
Buy-outs (the purchase of the entire holding or interests of an owner or investor) are increasing. There were 15 important venture capital transactions in 2004 with a total value of EUR1.22 billion (about US$1.6 billion).
An example is the acquisition, by the UK investment company Doughty Hanson, of the textile company Balta, for EUR600 million (about US$782.2 million).
2. What are the main means of obtaining control of a public company? (For example, public offer, legal merger, scheme of arrangement and so on.)
Control of a public company is generally obtained by one or a combination of the following:
■ Public takeover offer for cash.
■ Public takeover offer for shares.
■ Statutory merger.
■ Negotiated acquisition of a controlling shareholding (possibly through a controlled auction).
■ Systematic purchase of stock on a financial market.
3. Are hostile bids permitted? If so, are they common?
Hostile bids are permitted, but have not occurred very often for two reasons:
■ Belgian companies (even listed companies) are generally family-owned or at least owned by a single controlling shareholder. A hostile bidder is more likely to encounter a strong opponent than numerous powerless individuals.
■ Preventing unjust hostile takeovers is central to the takeover bid regulations, drafted immediately after the hostile bid by Carlo de Benedetti for Société Générale de Belgique in
November 1988. These regulations contain strict transparency requirements (see Question 8) and oblige a bidder to treat all shareholders equally.
4. How are public takeovers and mergers regulated and by whom?
Regulation
The core takeover provisions are set out in legislation, in particular:
■ The Law of 2 March 1989 relating to the disclosure of important participations in listed companies and regulating public takeovers (1989 Law).
■ The Royal Decree of 8 November 1989 relating to public takeover bids and change of control (1989 Royal Decree).
■ The Law of 22 April 2003 relating to the public offering of securities (2003 Law).
The Company Code of 7 May 1999 (Company Code) contains general provisions on company law, including takeovers.
The Banking, Finance and Insurance Commission (BFIC) (see box, The regulatory authorities) produces relevant guidance which:
■ Ensures the practical implementation and interpretation of the statutory provisions by regularly issuing circulars on particular topics (see Question 8).
■ Supervises the fairness of public bids and provides advice on their compliance with the legal regulations, which is summarized and commented on in annual reports.
The regulator
The BFIC is an independent public institution with its own legal personality. In relation to public takeovers it supervises compliance with the rules aimed at protecting the interests of savers and investors in transactions of financial instruments, ensuring the smooth operation, integrity and transparency of the financial instrument markets. It also verifies information provided in relation to transactions in listed instruments (such as prospectuses).
PRE-BID
5. What due diligence enquiries will a bidder generally make before making a public bid? (What information will be in the public domain?)
Due diligence
Before initiating a bid, a prospective bidder usually conducts a due diligence investigation in co-operation with the target's board in order to assess the value of the business and to identify the risks involved. The decision whether or not to proceed is based mainly on the results of that investigation.
Due diligence for a public takeover bid strongly resembles that in a negotiated acquisition and, depending on the nature of the target's business, will focus on:
■ Corporate matters, for example, the structure of the business and the articles of association.
■ Real estate portfolios.
■ Equipment.
■ Shareholdings.
■ Financing arrangements.
■ Insurance.
■ Employment matters.
■ Tax matters.
■ Litigation and claims.
■ Licences.
■ Environmental risks.
■ Intellectual property.
■ Commercial matters, for example its main customers and commercial terms.
The organisation of a data room and management presentations usually require the co-operation of the target's board of directors and are, therefore, normally possible only on friendly takeovers.
Public sources
The following information on a target is publicly available:
■ The memorandum and articles of association, and related documents containing critical information, for example:
❑ the share capital structure;
❑ voting rights; and
❑ restrictions on the transfer of shares.
■ Details of directors (including independent directors who do not have an executive role and mainly assume a supervisory function), daily management and the management committee.
■ Details of the issued share capital.
■ Annual accounts and the related directors' and auditors' reports.
■ Employment details, including:
❑ the number of employees;
❑ the turnover of employees; and
❑ training.
■ Any listing particulars or prospectuses.
■ Research published by investment banking analysts.
■ Details of major new developments, including:
❑ significant acquisitions and disposals; and
❑ material trading developments (occasional information), which must be notified to the BFIC by listed companies.
Listed companies must also publish half-yearly financial information and other routine information (such as the results of meetings and dividend details). This information is published through the market authority of the financial market concerned, as well as on the company's own website.
6. Are there any rules as to maintaining secrecy until the bid is made?
Any entity planning to launch a public bid must notify its intention to the BFIC (Article 4, 1989 Royal Decree). On receipt, the BFIC sends a notice of the notification to the relevant financial market, the bidder and the target (see Questions 12 and 15). Prior to this notice, parties are prohibited from announcing the launch of a bid.
In addition, the parties on a friendly takeover usually enter into a secrecy or confidentiality agreement, or include such clauses in other contractual documents (see Question 7).
7. Is it common to obtain a memorandum of understanding or undertaking from key shareholders to sell their shares? If so, are there any disclosure requirements or other restrictions on the nature or terms of the agreement?
A memorandum of understanding is often the first step in a friendly takeover. It usually includes:
■ Confidentiality obligations.
■ Details of the implementation of the transaction.
■ A fixed and (in principle) binding time frame.
■ Certain basic understandings, for example:
❑ the scope of the transaction; and
❑ the obligation to negotiate the final documentation in good faith.
If the memorandum is between the bidder and key shareholders, it may include a conditional undertaking from the shareholders to sell their shares. Whether such undertakings are binding is uncertain; the 1989 Royal Decree provides that acceptance of a bid before publication of the prospectus is not binding on the shareholders.
Undertakings are often disclosed in the prospectus. If they are not, the remaining shareholders learn of their existence in the board of directors' report (see Question 12), in which the board members explain whether or not they, in their capacity as shareholders, or the shareholders whom they represent, will accept the offer. The report must be disclosed, and, in friendly takeovers, is generally inserted in the prospectus. Since most key shareholders are represented on the board, the remaining shareholders are informed of their intentions in relation to the offer in the directors' report.
8. If the bidder decides to build a stake in the target before announcing the bid, what disclosure requirements, restrictions or timetables apply? Are there any circumstances in which shareholdings of associates could be aggregated for these purposes?
Disclosure requirements
There are strict disclosure requirements. Disclosure is required when both:
■ A natural person or legal entity acquires or disposes of a holding in a company incorporated under Belgian law, the shares of which are officially listed on a stock exchange or an exchange located or operating within one or more EU member states.
■ Following that acquisition or disposal, the proportion of voting rights held by that party reaches, exceeds or falls below one of the thresholds of 5%, 10%, 15%, 20% (and in the same increments up to 100%).
The party must notify the company concerned and the BFIC within two working days following the acquisition or disposal. The practical details and the forms relating to the disclosure requirements are set out in BFIC Circular 06/003.
The articles of association of a company can impose stricter obligations on parties that acquire or dispose of a holding; however, the threshold may not be lower than 3%. The articles of association may also impose a notification obligation on companies incorporated under Belgian law that are not officially listed on a stock exchange located or operating in an EU member state, or on any stock exchange.
These requirements are considered to be important, as shown by the recent strengthening of the penalties for non-compliance (Law of 2 August 2002 on Corporate Governance).
Aggregated shareholdings
For the above notification requirements, the shareholding of the acquiring party is aggregated with any shares acquired or transferred by either:
■ A third party acting on the acquirer's behalf.
■ A natural person or legal entity affiliated with the acquirer (Article 11, Company Code).
■ A third party who acts on behalf of an affiliated party of the acquirer (Article 11, Company Code).
In addition, shareholdings owned or transferred by persons acting in concert for the acquisition or transfer of shares, to which at least 5% of the voting rights in the company are attached, are included.
A specific regime applies to groups of companies that must draft consolidated annual accounts. If such a group undertakes an acquisition or transfer requiring notification, the companies within the group are exempted from the notification obligation, provided notification is made by the company that drafts the consolidated annual accounts. Also, where the relevant shares are owned or transferred by parties which, acting in concert, hold a 5% stake (but do not individually hold a 5% stake), a common notification is sufficient.
Additional obligations
There are specific notification obligations when a party wishes to acquire control, other than through a public bid, over a target that is a public company by means of a single or several transactions (Article 38, 1989 Royal Decree). In addition, such an acquisition can result in an obligation to offer to the public shareholders the opportunity to sell their shares to an acquirer in accordance with the same pricing terms (see Question 16).
BFIC Practical Guidelines
In April 2004, the BFIC issued a document providing practical guidance in relation to the above obligations (see Question 4).
9. If the board of the target company recommends a bid, is it common to have a merger agreement between the bidder and target? If so, what are the main issues that are likely to be covered in the agreement?
The initial notification and the prospectus are normally the only documents recording the terms of the agreement between the parties. Merger agreements are uncommon. In certain cases, the parties' understanding over matters, such as the future conduct of the target's business, may be recorded in comfort letters.
10. Is it common on a recommended bid for the target company to agree a break fee if the bid is not successful? If so, please explain the circumstances in which the fee is likely to be payable and any restrictions on the size of the payment.
Break fees are not frequently used or discussed.
A break fee would probably be allowed if it merely provided compensation to the disappointed bidder for the paid out-of-pocket expenses it incurred in connection with the transaction. However, it may be illegal if it greatly exceeds such costs (constituting a barrier to rival counter-bids or higher bids and adding to market inefficiency).
11. Is committed funding required before announcing an offer?
Before launching a bid, the bidder has to provide adequate comfort that the necessary funds will be available if the bid is accepted and the transaction completed.
In the case of cash consideration, all funds necessary for the realisation of the bid need to be available, either in an account with a credit institution established in Belgium or in the form of an irrevocable and unconditional credit facility made available to the bidder by a credit institution established in Belgium. These funds must be deposited in a blocked bank account, in order to guarantee the payment for all the shares included in the bid.
In the case of a share exchange, the bidder must have at its disposal either:
■ The shares offered as consideration.
■ The authority to issue or to acquire those shares in sufficient number and within the established payment term. If the bidder is not entitled to issue the shares itself, it must have at its disposal (legally or factually) the necessary means to ensure the transfer of the shares.
ANNOUNCING AND MAKING THE OFFER
12. How must the bid be made? Are there any official requirements (for example, notice to the target's board, press announcement, notification to the regulator, filing the offer document with the regulator and so on)?
Pre-bid formalities and undertakings
Before launching a bid, a potential bidder must inform the BFIC of its intention to make a bid and have obtained BFIC approval for the draft prospectus (see Question 15). The bidder must commit itself to treat all shareholders equally and bring the bid to a conclusion. A credit institution or stock exchange company established in Belgium must be appointed to ensure the receipt of bid acceptances and payment.
The BFIC must communicate its approval decision to the bidder within 15 business days (Article 20, 2003 Law). If it fails to do so, the bidder can request the BFIC to make a decision. If the BFIC does not make a decision by 15 working days after that request, the request for approval is deemed to have been rejected.
Within five days of receipt of the draft prospectus, the target's board of directors must provide the BFIC with its opinion on the bid (as well as comments on the draft prospectus). It must balance the interests of the different stakeholders involved, such as the security holders, creditors and employees of the company.
The opinion will also:
■ Set out the company's intentions in relation to pre-emptive clauses and approval clauses.
■ Confirm whether or not the directors in their own capacity and the shareholders they represent will accept the offer.
The opinion will be published as part of the prospectus, or as a separate document.
The BFIC must inform the concerned party(s), where it considers that the conditions in which the offer is (or may be) made may mislead the public as to the financial situation, the financial prospects of the bidder or the target, and the rights attached to the securities concerned (Article 22, 2003 Law). If the notifying parties do not take this communication into account, the BFIC may suspend the offer (Article 22, 2003 Law).
On receipt of the notification, the BFIC makes it public at the expense of the bidder, in principle on the day after receipt. The publication is notified on the same day to:
■ The management committee or market authority of the stock exchange, if the shares of the target company are listed on a Belgian regulated market.
■ The target.
■ The bidder.
The offer period
During the offer period, all dealings in the target's issued securities must be disclosed to the BVIC within two days of the dealings, if carried out by:
■ The bidder.
■ The bidder's directors.
■ Any other natural person or legal entity acting in concert with the above.
In the case of a share exchange, the same disclosure obligation applies to dealings in the bidder's issued securities. This obligation applies to the bidder as soon as it has sent the bid notification to the BFIC and to the target as soon as it has received the public announcement.
Persons not subject to the above obligations, but holding, whether directly or indirectly, at least 1% of the securities of the bidding or the target company, are subject to the same disclosure obligation from the date of the public announcement.
Also, any broker dealing in target securities must, if requested by the BFIC, disclose the identity of the person for whom they are acting to the BFIC. The same obligation applies to any subsequent broker. Brokers who act for others must inform their principal in advance that they can only trade after that requirement is fulfilled and that the principal has to accept the disclosure
of its identity to the BFIC.
Completing the offer
In the case of an unconditional offer, the bidder acquires the shares from the shareholders who have accepted the offer. Where the offer was conditional on a minimal acceptance threshold and the amount of shares that are offered for sale is less than the threshold, the bidder may still acquire those shares, if it had so stipulated in the initial notification.
Within five days of the closing of the bid, the bidder must inform the public of its decision in relation to the acquisition of the presented shares. It also must inform the public and the BFIC how many shares it is acquiring and how many it will hold after the completion of the bid.
13. Please set out brief details of the offer timetable. (Consider both recommended and hostile bids.) Is the timetable altered if there is a competing bid?
Pre-bid
■ Public offers of securities must be notified in advance to the BFIC, from which point the BFIC has 15 business days to approve the prospectus (see Question 12).
■ The day after the initial notification to the BFIC, the intention to launch a bid must be published and the BFIC expressly informs:
❑ the market authority of the relevant financial market;
❑ the bidder; and
❑ the target (as well as providing the target with the draft prospectus).
Within five days of receipt of the draft prospectus, the board of directors of the target must provide the BFIC with its opinion on the bid and its comments on the draft prospectus.
Offer period
■ The offer should be open for a minimum of ten days and a maximum of 20 days.
■ However, the offer period is modified if a general shareholders' meeting of the target has been convened in order to:
❑ take decisions or enter into transactions that may substantially modify the target's assets and liabilities;
❑ increase the target company's capital by a contribution in cash or in kind while restricting or suspending the shareholders' preferential subscription rights; or
❑ issue voting securities (whether or not representing capital) or subscription rights with respect to voting securities (unless such securities or rights are first offered to existing shareholders in proportion to the capital their shares represent) (see Question 8).
In such cases, the offer period is extended until 15 days after the shareholders' meeting.
Post-bid
■ The bidder publishes the results of the bid within five days of the closing of the bid.
■ In the case of a share exchange, the bidder needs to ensure, if the bid is successful, that an application is made for a listing of the shares that are given in exchange within one month of the closing of the bid.
■ If the bidder, after closing the bid, holds 90% of the securities or more, it needs to reopen the bid for an additional 15 days in order to provide the remaining security holders with the opportunity to accept the bid. (If the bid is not reopened and the bidder applies for a de-listing within three months of closing the bid, it needs to reopen the bid at that time for the additional 15 days.)
■ In the case of a counter-bid or a higher bid, the same rules will, in principle, apply. However, any new bid should be notified to the BFIC by, at the latest, two days before the closing of the last bid.
14. What conditions are usually attached to a takeover offer (in particular, is there a regulatory requirement that a certain percentage of target shares must be tendered)? Can an offer be made subject to the satisfaction of pre-conditions (and, if so, are there any restrictions on the content of these preconditions)?
The types of conditions that are attached depend on the offer. Any type of condition can be included, with the exception of conditions that depend solely on the action of the bidder and conditions that render the offer (virtually) impossible to succeed.
The offer is typically made conditional on obtaining clearance from the competition authorities or consent from the regulatory authorities. The offer can also be made conditional on obtaining a certain level of acceptances.
15. What documents will the target's shareholders receive on a recommended and hostile bid? (Briefly describe the purpose, main terms and responsibility for each document.)
The main documents are the initial notification of the offer to the BFIC and the prospectus (see Question 12).
Initial notification of the offer
The notification to the BFIC must contain:
■ The bid price.
■ The conditions and main terms of the bid.
■ Evidence that the following conditions are met (Article 3, 1989 Royal Decree):
❑ the bid must relate to all shares issued by the target company that are not yet in the possession of the bidder;
❑ all funds required for the realisation of the bid need to be available, either in an account with a credit institution or in the form of an irrevocable and unconditional credit facility made available to the bidder by a credit institution;
❑ in the case of a share exchange, the bidder must have at its disposal the securities that are to be offered as consideration, or have the authority to issue or acquire such securities in sufficient number and within the payment term;
❑ the terms and conditions must comply with the provisions of the 1989 Royal Decree;
❑ the bidder must commit itself to bring the bid to an end; and
❑ a credit institution or stock exchange company (incorporated in Belgium or with a branch office in Belgium) must ensure the receipt of acceptances of the bid and the payment of the price.
On receipt of the notification, the BFIC makes it public and notifies it to various parties (see Question 12).
Prospectus
The prospectus requires the prior approval of the BFIC. This requirement is important since any public offer of securities is, in principle, subject to publication of a prospectus.
The prospectus must contain all the information that the public needs in order to make an informed assessment of the nature of the transaction and the rights attached to the securities. It must also mention that the publication has been made following approval by the BFIC, but that this approval does not entail an appraisal of the transaction, or of the position of the bidder.
New significant facts which may have an influence on the assessment of the offer by the public must be published in an update of the prospectus. Failure to do so will entitle the BFIC to suspend the transaction until the new information has been made public.
16. Is there a requirement to make a mandatory offer? If so, when does it arise?
The Belgian regulatory framework does not generally provide for mandatory offers. In practice, this means that a potential acquirer can legally acquire shares and build up a position of control without making a public bid, provided it complies with the transparency and disclosure obligations (see Question 8).
There are two exceptions:
■ Where a control premium is paid, for example by offering shareholders more than the market value of their shares, in building up a controlling stake. The remaining shareholders should be given the opportunity to transfer their shares to the acquirer (Article 41, 1989 Royal Decree).
■ The bidder must reopen the bid for 15 days if it has obtained 90% acceptances after the initial offer period (see Question 13).
17. Please state key shareholding thresholds. At what point is effective control deemed to occur?
Control is defined as the factual or legal power to exercise a determining influence on the composition of the board of directors or the company's strategy (Article 5, Company Code).
Under the Company Code, a party is irrefutably deemed to legally control a company, when one of the following applies:
■ It derives control from the majority of the voting rights attached to all the shares of the company concerned.
■ It has the right to appoint or dismiss the majority of the directors.
■ It exercises control by means of the articles of association of the company concerned or a contract concluded with the company concerned.
■ Under an agreement with other shareholders of the company concerned, it is entitled to exercise the majority of the voting rights attached to all the shares.
■ A limited number of parties have decided that decisions with respect to the strategy of the company require their common consent (joint control).
A party can be refutably deemed to factually control a company, depending on the circumstances. A shareholder who has exercised the majority of the voting rights during the last and the penultimate shareholders' meeting of a company is deemed to hold factual control (Article 5, Company Code).
CONSIDERATION
18. What form of consideration is commonly offered on a public takeover?
A bid can either take the form of (1989 Royal Decree):
■ A share purchase, where the consideration is in cash.
■ A share exchange, where the consideration is in securities in the bidding company or another company.
19. Are there any regulations that provide for a minimum level of consideration?
The regulatory framework does not specifically provide a minimum level of consideration. However, the consideration has to be equal for all the security holders.
The fairness of the consideration is one of the main concerns of the BFIC when analysing the draft prospectus, and it does not merely look at or limit itself to the (current) market price of the security.
20. Are there any restrictions on the form of consideration that a foreign bidder can offer to shareholders in your jurisdiction? Please state any restrictions/filing requirements.
There are no specific restrictions on the form of consideration that a foreign bidder can offer to shareholders. However, if the offer price is not expressed in Euros in the bid prospectus (see Question 15), the BFIC may request the bidder to do so (out of investor protection concerns).
POST-BID
21. Can a bidder compulsorily purchase the shares of outstanding minority shareholders?
There are two types of squeeze-out procedures under Belgian Law: general squeeze-out proceedings and squeeze-out proceedings following a takeover bid.
General squeeze-out proceedings
A natural person or legal entity may acquire all the voting securities of a Belgian public limited liability company if it holds, directly or indirectly, alone or in concert with another person, 95% of the voting securities of that company and if the following conditions are satisfied:
■ The bidder makes a public offer for:
❑ all voting securities, which may or may not represent capital, not yet owned by the bidder, affiliated persons or persons acting in concert with it; and
❑ all securities that give a right to subscribe, acquire or convert those securities.
■ All funds necessary for the realisation of the bid are available, either in an account with a credit institution established in Belgium or in the form of an irrevocable and unconditional credit
facility made available to the bidder by a credit institution established in Belgium (similar to takeover bid proceedings).
■ All funds necessary for the realisation of the bid are deposited in a blocked bank account (similar to takeover bid proceedings).
■ The terms of the offer complies with the applicable regulations and must safeguard the minority shareholders' interests (in particular with relation to the price).
■ A credit institution or a stock exchange company established in Belgium is appointed to ensure the payment of the price.
Squeeze-out proceedings following a (successful) takeover bid
A simplified squeeze-out procedure can be initiated by a bidder who (Chapter IV, 1989 Royal Decree):
■ Controlled the company (directly or indirectly, alone or with others) before the initial public takeover bid.
■ Following the bid, owns 95% or more of the securities of the company.
Provided the above test is satisfied, the bidder can reopen the bid, under the same conditions, for 15 days after the announcement of the results of the public bid. Those securities that are not offered after the closing of the reopened bid are considered to have been transferred to the bidder by operation of law.
22. Are there any rules protecting the target from a further bid by the same bidder if the initial bid fails?
There are no rules that prevent a further bid by the same bidder if the initial bid fails.
23. What action is required to de-list a company?
The de-listing of securities can be applied for by means of a written request to the market authority of the relevant financial market, after which the market authority informs the BFIC of the application. The market authority will, in principle, not refuse an application to de-list. However, it may make a decision to de-list subject to certain conditions, if necessary to preserve the smooth running of the market or to protect the interest of investors.
Under the formal requirements, and within a period of two months, the market authority notifies its decision to the applicant and to the issuer.
The applicant can appeal the decision of the market authority before an appeal commission within 15 days of the date of receipt of the decision notice (Royal Decree of 11 April 1996 on the Commission of Appeal).
When a company's securities are publicly held, within the meaning of Article 438 of the Company Code, it appears on a specific list of public companies, established by the BFIC and published yearly in the Belgian Official Journal. A company is no longer deemed to be publicly held (and will be left off the list) either after a successful public squeeze-out (Article 513, Company Code), or when evidence is provided that the bonds and/or securities of a company are no longer publicly held. An application to the BFIC to be removed from the list therefore constitutes the final step in the de-listing process.
TARGET RESPONSE
24. What actions can a target's board take to defend a hostile bid (pre- and post-bid)?
Defensive measures
Defensive measures exist in the pre-bid and post bid stages.
■ The usual pre-bid defensive measures are:
❑ pre-emptive shares (rights of existing shareholders to have first refusal on the sale of shares);
❑ approval (by the board of directors) clauses;
❑ limitation of the voting rights of shareholders; and
❑ the use of a trustee company to hold shares and issue depository receipts representing the beneficial interest in the shares, while the trustee retains the voting rights.
■ The usual post-bid defensive measures are:
❑ the use of authorised capital (that is, the amount that the board of directors may use to increase the stated capital without holding a general shareholders' meeting);
❑ issuing non-voting shares;
❑ the sale of valued assets of the company (crown jewels);
❑ the search for a more favourably viewed bidder (white knight); and
❑ the issuing of rights to the company's shareholders to acquire additional securities in the company at a below market price, thereby diluting the bidder's voting power (poison pills).
Regulation of defensive measures
In an attempt to balance the interests of minority shareholders and protective measures, the Royal Decree prohibits boards of directors from carrying out certain defensive measures after the notification of a bid to the BFIC.
Between receipt of notification of the bid and the end of the bid, the target's board of directors may not (Article 607, Company Code):
■ Increase the target company's capital by a contribution in cash or in kind while restricting or suspending the shareholders' preferential subscription rights (by which a shareholder has a priority, in the case of capital increase, to subscribe to new shares in proportion to the number of shares he currently holds).
■ Take decisions or enter into transactions that may significantly modify the target's assets and liabilities.
■ Issue voting securities (whether or not representing capital) or subscription rights in relation to voting securities (unless such securities or rights are first offered to existing shareholders in proportion to the capital their shares represent).
However, the board of directors may still:
■ Conclude transactions, provided they were at a sufficiently advanced stage before receipt of the bid notification.
■ Satisfy obligations validly undertaken (with respect to the issue of voting securities or subscription rights) before receipt of the bid notification.
■ Increase the company's capital if it was duly and explicitly authorised to do so before the bid notification by the shareholders' meeting (with a 50% quorum and a 75% majority) for a period not exceeding three years before the notification, provided that:
❑ the shares issued at the capital increase are fully paid up when issued;
❑ the issue price for the newly issued shares is not lower than the offer price; and
❑ the number of newly issued shares does not represent more than 10% of the total number of existing shares representing the issued capital before the capital increase.
■ Acquire shares and profit shares issued by the company on behalf of the company (Article 620, Company Code).
The board of directors must inform the bidder and the BFIC if it takes any of the above decisions and must make such decisions public.
TAX
25. Are any transfer duties payable on the sale of shares in a company that is incorporated and/or listed in your jurisdiction? Is there any way in which payment of transfer duties can be avoided?
No transfer duties are payable in Belgium on the sale of shares where the company is incorporated or listed in Belgium.
OTHER REGULATORY RESTRICTIONS
26. Please give a brief overview of anti-trust regulation relating to the acquisition of a company in your jurisdiction. In particular:
■ What are the thresholds for investigation?
■ Is notification mandatory or voluntary?
■ What is the substantive test?
■ What is the time limit for a decision and is there an obligation to suspend?
■ Thresholds for investigation. The Law of 5 August 1991 on the protection of economic competition (Competition Law) regulates merger control in Belgium in those cases not governed by European Community (EC) law under Council Regulation (EC) No. 139/2004 on the Control of concentrations between undertakings. The Competition Law provides that concentrations must be notified to the Competition Council (see box, The regulatory authorities) when the following quantitative thresholds are both met:
❑ the combined Belgian turnover of the undertakings concerned (including their affiliates) exceeds EUR40 million (about US$52.1 million); and
❑ at least two of the undertakings concerned (including their affiliates) each have a Belgian turnover exceeding EUR15 million (about US$19.6 million).
■ Notification. Notification is mandatory whenever a transaction meets the above thresholds and this transaction amounts to a "concentration". A concentration is caused by (Article 9, Competition Law):
❑ the merger of two or more previously independent undertakings;
❑ the acquisition of direct or indirect control by one or more persons, already in control of one or more undertakings, over the whole or parts of one or more other undertakings, whether by purchase of securities or assets, by contract or by any other means; or
❑ the creation of a joint venture which performs on a lasting basis all the functions of an independent economic entity.
■ Substantive test. The substantive test is whether the concentration creates or strengthens a "dominant position" that significantly hinders effective competition within the relevant market (Article 10, Competition Law). In general, a company may be said to have a dominant position on a certain relevant market if it can act independently on that market without having to take account of the actions of its competitors (if any) or customers.
■ Time limits and obligation to suspend. The notification must be filed within one month from (Article 12(1), Competition Law):
❑ the conclusion of the agreement;
❑ the announcement of the public bid; or
❑ the acquisition of a controlling interest.
The parties to the transaction must refrain from taking any action which could hinder the reversibility of the transaction until the Competition Council has made its decision on the proposed merger. This provision does not prohibit a merger from being completed before a final ruling of the Competition Council. However, parties bear the risk and possible costs of completing a transaction that may subsequently be dissolved.
Following notification, the Competition Council is obliged to adopt a decision (which may include a decision to take its inquiry to a "second stage" investigation) within 45 days after notification of a concentration (Article 33(2), 2, Competition Law). If it fails to do so, the proposed concentration is deemed to be cleared (Article 33(2), 3, Competition Law). Where the Competition Council has decided to initiate a second stage investigation, it must reach a decision within 60 days from the initiation of this second stage proceeding (Article 34(1), Competition Law). Failure to do so will result in the proposed merger being tacitly approved (Article 34, Competition Law). Following a second stage proceeding, the Competition Council may prohibit the merger because it creates or strengthens a dominant position which significantly hinders effective competition within the relevant market.
27. Are there restrictions on foreign ownership of shares (generally and/or in specific sectors)? If yes, what approvals are required for foreign ownership and from whom are they obtained?
Foreign investors have the same rights as Belgian investors to acquire or sell interests in business enterprises. Also, any discrimination between Belgian investors and EC investors would seriously infringe EC principles.
There are, however, two issues to bear in mind:
■ The government, as a majority shareholder, controls investments in some public sector firms. The European Court of Justice has condemned the Belgian government for not doing away with the "golden share" principle in the public utility gas company Distrigas (which makes it possible to prevent a foreign takeover by controlling one share that decides on majority ownership) (Commission v Belgium (Case C-503/99) [2002] ECR I-4731).
■ The Law of 30 December 1970 on economic expansion provides that Federal and Regional Ministers of Economic Affairs and the Ministry of Finance must be notified in advance of a transfer of one-third or more of the equity of a company conducting its business in Belgium, if that company's net assets are EUR2.5 million (about US$3.26 million) or more. A failure to notify will not give rise to any penalty and it seems that this provision is rarely complied with in practice.
28. Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?
There is no exchange control regime in Belgium.
REFORM
29. Are there any proposals for the reform of takeover regulation in your jurisdiction?
The Parliament and Council Directive (EC) No. 25/2004 on Takeover bids (Official Journal L 142, 12 - 23), must be transposed into national law by 20 May 2006.
The Directive sets out to establish minimum guidelines for the conduct of public takeover bids. It also seeks to provide an adequate level of protection for holders of securities throughout the EU, by establishing a framework of common principles and general requirements which member states are to implement through more detailed rules in accordance with their national systems.
The member states must ensure the following principles are complied with:
■ All security holders of the target company must be given equal treatment. If control of the company is obtained, the other security holders must be protected.
■ The bid's addressees must have sufficient time and information to be able to reach a properly informed decision on the bid. Where they advise the security holders, the target's board must give its view on the effect of implementation of the bid on:
❑ employment;
❑ the conditions of employment; and
❑ the locations of the company's places of business.
■ The target's board must act in the interests of the company as a whole and not deny the security holders the opportunity to decide on the merits of the bid.
■ False markets must not be created in the securities of the target company, the bidder company or any other company concerned by the bid. A false market is created when the rise or fall in the prices of the securities becomes artificial and the normal functioning of the market is distorted.
■ A bidder must announce a bid only after ensuring it can provide in full any cash consideration offered, and after taking all reasonable measures to secure the implementation of any other type of consideration.
■ A target company must not be hindered in the conduct of its affairs, for longer than is reasonable, by a bid for its securities.
Member states can lay down additional conditions and provisions more stringent than those of the Directive.
The Directive also provides for:
■ The protection of minority shareholders and employees' rights (when implemented, it will require the revision of Belgian law on those issues).
■ Minimum information that the offer document must contain.
■ Provisions on mandatory bids.
■ Provisions on equitable prices to be offered to security holders.
■ Provisions on the time allowed for acceptance of a bid.
■ Rights of squeeze-out and sell-out.
■ Optionally, breakthrough (the requirement to freeze members' extraordinary rights during the bid, such as multiple voting rights, appointment rights and restrictions on the transfer of securities).
The Directive only applies to cross-border takeover bids on companies with securities listed on a stock exchange and will not directly affect internal takeovers or bids on other companies. However, the Belgian authorities may take the implementation of the Directive as an opportunity to bring the Belgian regulations on internal takeover bids in line with the European regulations.
