10.3 Third Party as a Source of Remuneration 353valuation of shares in the target company can prejudice the interests of the issuing
company’s existing shareholders and infringe provisions of company law that pro-
tect shareholders in general.
In the target company, a share exchange offer can raise questions relating to the
use of takeover defences as well as questions on whether the offeror can be per-
mitted to inspect the target company (due diligence). Furthermore, the exceeding
of a certain threshold can trigger takeover defences under the target’s articles of
association. The articles of association may provide for other shareholders’ sell-
out rights or the acquirer’s duty to make an offer for the remaining shares (section
18.4).
Securities markets law aspects of share exchanges. If one of the participating
companies is a company whose shares have been admitted to trading on a regu-
lated market, parties to the share exchange must comply with provisions of EU se-
curities markets law.
There can be a duty to draw up and publish a prospectus under the Prospectus
Directive (where the offeror’s shares have been admitted to trading on a regulated
market or the offeror will apply for their admission to trading) or an offer docu-
ment under the Directive on takeover bids (where the target’s shares have been
admitted to trading on a regulated market).
According to the Directive on takeover bids, the board of the offeree company
must draw up and make public a document setting out its opinion, and there are
restrictions on the use of takeover defences that can frustrate the bid.
If the target company’s shares have been admitted to trading on a regulated
market, a successful share exchange can trigger a duty to make a mandatory bid
for the remaining shares, a squeeze-out right and sell-out rights. It can also lead to
the delisting of the target’s shares.
Formation of a holding SE. Formation of a holding SE is one of the four ways
of establishing an SE under the SE Regulation.^107 It is also a particular form of
share exchange (see section 10.4.3 below).
Public Takeover Bids by a Third Party
Where a public offer is made for shares that have been admitted to trading on a
regulated market, a detailed takeover regime will apply. The regime consists in
particular of: the regulation of inside information (section 5.9.7); disclosure obli-
gations (Chapter 19); the duty of equivalent treatment of holders of securities who
are in a same position; and restrictions on the use of takeover defences (Chapter
18). In the EU, the most important rules governing these questions are based on:
the Market Abuse Directive; the Directive on Takeover Bids; the Prospectus Di-
rective; and the Transparency Directive.
Major holdings. The Transparency Directive lays down an obligation to dis-
close information about major holdings. A person acquiring or disposing of shares
so that its holding with a publicly traded company reaches, exceeds or falls below
certain thresholds must inform the company, which is in its turn responsible for
(^107) Articles 2(2) and 32 of Regulation 2157/2001 (SE Regulation).