546 19 A Listed Company as the Target
must be adverse enough to strike at the heart of the purpose of the transaction in question.
As a result, the Takeover Panel held WPP to its offer.
Some MAC clauses could be invoked during the subprime mortgage crisis. In August
2007, private-equity firms and lending banks successfully invoked MAC clauses to show
that Home Depot had been materially adversely affected by the collapse of the American
subprime mortgage sector.
There is no “certain funds” requirement^174 or, indeed, any restriction on the condition-
ality of the bid in the US under US federal law. However, there are restrictions on when
they may be invoked. IBP Inc. v. Tyson Foods, Inc. is a leading case interpreting material
adverse effect (MAE). The Delaware Court of Chancery surprised many when it ordered
those two companies to complete a merger. The court held that a merger party would be en-
titled to exercise a standard MAE clause only when the other party had suffered a signifi-
cant change in the long-term health of its business.^175
Fairness opinions. The Directive on takeover bids neither mentions nor requires
the use of external fairness opinions. Fairness opinions are nevertheless standard
in takeovers (section 13.4). Some external opinions are required by provisions of
company law in a company that issues shares, participates in a merger, or partici-
pates in a division.^176 The use of external fairness opinions is often based on mar-
ket practice rather than law. It is a legal requirement according to the City Code on
Takeovers and Mergers.^177
Takeover defences. The Directive on takeover bids does not prohibit the use of
takeover defences. However, there is a control mechanism. The target’s board may
take measures which may result in the frustration of the bid only with the prior
consent of shareholders in general meeting (section 17.2).
Break-through rule. In principle, the Directive also provides for a break-
through rule.^178 The purpose of the break-through rule is to ensure a level playing
field, although multiple-vote shares and other structural takeover defences are
popular in some but prohibited in other Member States. In practice, however, this
rule is optional for the Member States and the playing field is not level (section
10.3.2).
Golden shares. The Directive is silent on “golden shares”. The ECJ has prohib-
ited golden-share type arrangements (sections 9.3.2 and 17.4).^179
Squeeze-out right and sell-out right. If the bidder company has obtained 90% or
95% of the target company following a public takeover bid, it has a squeeze-out
right. The squeeze-out right enables it to require all the holders of the remaining
securities to sell those securities to it at a fair price. The result is that the bidder
(^174) See § 13(1) WpÜG and General Principle 5 of the City Code on Takeovers and Mergers.
(^175) IBP Inc. v. Tyson Foods, Inc., 2001 Del. Ch. LEXIS 81 (June 15, 2001).
(^176) See Articles 10, 10a, 10b and 27 of Directive 77/91/EEC (Second Company Law Direc-
tive); Article 10 of Directive 78/855/EEC (Third Company Law Directive).
(^177) For English law, see Rule 3 of the City Code on Takeovers and Mergers. For French
law, see Chapters I and II of Title VI (Book II) of the General Regulation of the Autorité
des marches financiers (AMF) regarding independent appraisers and appraisals.
(^178) Article 11 of Directive 2004/25/EC (Directive on takeover bids).
(^179) Cases C-367/98 Commission v Portugal, C-483/99 Commission v France, and C-503/99
Commission v Belgium.