18.6 Securities Lending 509ties that will remain independent of the target company after the completion of the
acquisition.
This can be illustrated by the Arcelor/Mittal case and the TUI case. One of the takeover de-
fences used by Arcelor against Mittal Steel (section 18.11) was the transfer of Dofasco
shares to an independent Dutch foundation named “Strategic Steel Stichting” (S3). Arcelor
retained full control over Dofasco, including all decision-making power and all economic
interest relating to Dofasco, with the exception of any decision to sell Dofasco. S3 board
members had independent control over any decision to sell Dofasco. This takeover defences
caused Arcelor and Mittal Steel problems after the merger, because S3’s board of directors
could block the sale of Dofasco shares to any party.
TUI AG is a company listed in Frankfurt. In 2008, TUI AG had two major divisions. It
was the largest European travel company and number 5 in container shipping worldwide.
Its shipping activities were organised under Hapag-Lloyd AG, one of the most important
companies in Hamburg. Mr John Fredriksen, a Norwegian shipping magnate and the largest
shareholder of TUI AG, tried to force TUI AG to spin off Hapag-Lloyd to TUI AG’s share-
holders. Mr Fredriksen also tried to raise his stake and threatened TUI AG with an injunc-
tion preventing the sale of Hapag-Lloyd. In October 2008, however, the supervisory board
of TUI AG approved the sale of all shares in Hapag-Lloyd AG to a subsidiary of Albert
Ballin KG, a holding company formed by investors based in Hamburg, the acquisition of a
33.33% entrepreneurial stake in the acquisition vehicle, and the payment of a special divi-
dend to the shareholders of TUI AG following the completion of the sale. TUI AG could
sell shares in Hapag-Lloyd AG without seeking shareholder approval.
18.6 Securities Lending
A particular form of keeping assets away from the reach of the acquirer is the use
of securities lending to keep shares in friendly hands. Such methods include the
soft parking strategy and lending to friendly investors.
Soft parking. The soft parking strategy is based on the use of the target com-
pany’s own shares.^23 The target company can lend its own shares to a friendly in-
vestor and hedge its risk by a swap agreement.
The soft parking strategy was used by MOL Group, a Hungarian conglomerate and one of
the largest firms in Central Europe, when it defended itself against a hostile takeover by
OMV, an Austrian oil and gas company.^24 MOL could keep on buying its own shares re-
gardless of the 10% cap,^25 because it lent most of its purchases to two Hungarian banks. As
the borrower of shares becomes a shareholder with full voting rights, the banks were free to
vote with their shares as they pleased. However, they had agreed not to sell them to a third
party.
(^23) For the definition of soft parking, see Hu HTC, Black BS, Equity and Debt Decoupling
and Empty Voting II: Importance and Extensions, U Penn L R 156 (2008) pp 625–739
at p 638.
(^24) The Hungarian defence, The Economist, August 2007.
(^25) Article 19(1)(b) of Directive 77/91/EEC (Second Company Law Directive).