508 18 Takeover Defences
The Directive only applies where the target company’s shares have been admitted to trading
on a regulated market in the EU. The obligation to make a mandatory bid does not apply
where control has been acquired following a voluntary bid.^14 Where the obligation to make
a mandatory bid does apply the threshold can be too high,^15 the price will be no more than
the statutory equitable price,^16 and the consideration can consist of “liquid securities” rather
than cash.^17 The sell-out right under the Directive on takeover bids only applies where a
very high threshold has been exceeded “following a bid made to all the holders of the of-
feree company’s securities for all of their securities”,^18 and when it does apply, minority
shareholders as a rule cannot ask for a higher price than the price that the bidder has paid
previously.^19 For example, the articles of association of Nokia Corporation, a Finnish com-
pany, therefore provide for a more general sell-out right in the event of a takeover.^20
On the other hand, where the target’s board refuses to negotiate with potential
bidders and relies on a low threshold, which triggers a duty to make a mandatory
bid, or on shareholders’ sell-out rights, there is risk that those potential bidders
will choose to make a hostile bid in the absence of other alternatives.^21
18.5 Keeping Assets Away from the Acquirer
The Report of the High Level Group of Company Law Experts^22 identifies many
ways to keep assets away from the acquirer. They include, first, “barriers to exer-
tion of control over the assets of the target” such as: the sale of assets (“scorched
earth”); spin-offs; lock-ups of corporate assets (“crown jewels”); and change of
control clauses in non-financial agreements. Second, they can also consist of the
“creation of financial burdens as a consequence of the transfer of control” in the
form of: poison debt; golden and tin parachutes; as well as change of control
clauses in loan agreements.
Change of control clauses. Although change of control clauses can de facto
function as a takeover defence, they are typically required by asset investors (sec-
tions 3.3.1 and 9.2) and substantial financial investors who want to mitigate the
risk of a material adverse change in circumstances surrounding their investment
(section 4.3) and counterparty commercial risk in general (Volume II).
Lock-ups of corporate assets. Corporate assets can be locked up, for example,
through sale and lease-back transactions or by transferring assets to friendly enti-
(^14) Article 5(2) of Directive 2004/25/EC (Directive on takeover bids).
(^15) Article 5(3) of Directive 2004/25/EC (Directive on takeover bids).
(^16) Article 5(4) of Directive 2004/25/EC (Directive on takeover bids).
(^17) Article 5(5) of Directive 2004/25/EC (Directive on takeover bids).
(^18) Article 16(1) of Directive 2004/25/EC (Directive on takeover bids).
(^19) Articles 16(3) and 15(5) of Directive 2004/25/EC (Directive on takeover bids).
(^20) Article 13 of the Articles of Association of Nokia Corporation.
(^21) Fleischer H, Finanzinvestoren im ordnungspolitischen Gesamtgefüge von Aktien-,
Bankaufsichts- und Kapitalmarktrecht, ZGR 2008 p 201.
(^22) Commission of the European Communities, Report of the High Level Group of Com-
pany Law Experts on Issues related to Takeover Bids, 10 January 2002.