On 27 July, the Spanish Government approved a new regime for public tender offers, enacted by Royal Decree 1066/2007. These new rules – implementing European Directive 2004/25 on tender offers – apply to all tender offers authorised by the Spanish authorities after 13 August this year.

The decree introduces a number of substantive changes and improvements, incorporating into the Spanish system new concepts which were previously staunchly resisted by the legal system.

Decree 1066 regulates the standard voluntary tender offer procedure of the previous regime (i.e. a tender offer to acquire shares without having previously acquired shares in excess of a minimum percentage of share capital). However, in a complete reversal of the old system, it also allows a company to be taken control of without previously launching a tender. Change of control is considered achieved with a shareholding of 30% or more. Thus, anybody reaching this threshold will be obliged to effect a tender offer for the remaining share capital (the new obligatory tender offer). The offer price must meet the equitable price concept (i.e. it cannot be free). This is a radical departure from the previous rules, which required initiating a tender offer prior to any acquisition if, as a result of said acquisition, the shareholder would end up holding 25% or more of the target company.

The decree introduces the obligation to announce any corporate decision to make a tender offer (or the obligation to effect an obligatory tender resulting from taking control) as soon as it occurs. This aims to avoid having a dangerous period between the moment the decision to tender is taken and the date of actual presentation of the tender offer to the regulator. Thus, the decision to effect the tender is made public at the earliest possible moment. Because making the tender offer is mandatory from the moment the announcement is made, it is reasonable to consider that this obligation will make it convenient to delay the formal decision until the potential offeror is satisfied that it is ready and able to effect the offer.

Under the old regime, tender offers could only be conditioned to very few matters, (essentially the removal of poison pills by the target company). Decree 1066 allows voluntary tenders to be conditioned to any proviso legally valid under law (obligatory tenders have a more limited range of conditions).

The decision as to whether a condition is legally admissible or not lies, in first instance, in the hands of the regulator (the Comision Nacional de Mercado de Valores). As a consequence, tender offers requiring competition clearance by the European Commission may be conditioned to such clearance, which was not previously allowed (helping to avoid subsequent forced-divestiture disasters). While the procedural calendars in European competition and Spanish tender offer rules are not exactly the same, the new regime is nevertheless a substantial improvement.

Traditionally, the board of directors of Spanish companies have been mercilessly bound by the so-called passivity rule (i.e. they are not allowed to take any defensive action that might negatively affect the success of the tender offer). Certain practices (such as seeking white knights) were followed occasionally, though admittedly with a varying degree of legal anxiety. Decree 1066, while keeping the passivity rule in place, introduces two new concepts. First, it expressly allows the board of directors to seek white knights (but not white squires), and secondly, it allows taking any other defensive measure provided this measure is approved previously by the shareholders.

Decree 1066 includes a more sophisticated regulation for competing offers. Among other issues, it acknowledges the fact that target companies usually have to provide non-public information to potential bidders and requires the target company to ensure that all competing bidders are given access to the same non-public information, ensuring a more level playing field for all offerors involved.

Concerning the initial bidder, the decree provides certain advantages over the competing offerors: it allows the initial bidder to agree with the board of the target company reimbursement of up to 1% of the tender offer value as compensation for costs should the initial tender offer fail as a result of a competing bid; and it allows the initial bidder to increase the final bid if the final price offered by competing offerors (reached through a closed-envelope procedure) is no higher than 2% of the initial offeror's price.

Spanish corporate law does not allow for squeeze-outs (forceful purchase of shares held by minority shareholders to exclude them from the company). As a result, tender offers in the past very often ended with minority shareholders holding a very small percentages of share capital.

These minority shareholders, who were usually either unaware of their status or savvy operators who wished to negotiate a higher payment for their shares than the tender offer price, remained embedded permanently, causing distraction to management and the main shareholders.

Decree 1066 introduces the right to squeeze out minorities provided that the offeror holds, after the tender offer, more than 90% of the share capital of the target company and 90% of the shares to which the offer was addressed accepted the offer. In practical terms, this means that the right to squeeze out will arise once the offeror holds shares in excess of 90% (if it held no shares on commencement of the tender offer), or up to 93% (if it held up to 30% on commencement of the tender offer).

Antonio Sanchez-Pedreno is a partner at Baker & McKenzie in Madrid.