Italy's market watchdog recently introduced major reforms to rules governing takeover bids. Freshfields' 
Luigi Verga and Francesca Flego report

On 5 April 2011, the Italian market regulator Commissione Nazionale per le Societa e la Borsa (CONSOB) issued a resolution amending the provisions of the regulations that apply to public tender offers in Italy. The new provisions apply to all offers launched on or after 2 May 2011.

This resolution represents the final step in the implementation of the European Takeover Directive (2004/25/EC) in that CONSOB finally completed its duty to issue the rules necessary for certain principles set out in the primary legislation to become effective. In putting its hand to the matter, CONSOB took the chance to introduce a number of much-needed modifications to the existing regime. In particular, some of the amendments will have a substantial impact on how takeover bids will need to be carried out in Italy from now on. This article attempts to summarise the most relevant changes.


Cross-border offers

Prior to CONSOB's intervention, the Italian system did not expressly provide for a procedure that recognised offer documents approved in a foreign jurisdiction.

The regulator had filled this gap in the past – at least in respect of intra-European Union offers – by way of recommendations. The April 2011 resolution now clarifies the requirements and steps necessary for extending offers for a non-Italian target to its Italian shareholders, by providing distinct procedures for offer documents approved by EU supervisory authorities, and for those approved by non-EU authorities with which CONSOB has a co-operation agreement in place.

In both cases, the process requires the submission to CONSOB of the offer document and the relevant approval measure and the subsequent publication of such documents (as supplemented by information aimed at providing specific details of the offer for the benefit of Italian residents).

consob
Opinion of the 
independent directors

A second issue addressed by the resolution responds to the need to provide the market, in case of offers launched by persons qualifying as 'insiders' in the target company (ie, shareholders holding a stake exceeding 30% in the target; parties to a shareholders' agreement; directors of the company), with an opinion on the offer and its terms independent from the one which the board of directors is required to issue.

In this respect, CONSOB has introduced the obligation for those independent directors of the target who are unrelated to the offeror to draw up, prior to the issue of the board's communication, a separate opinion setting out their analysis on the terms and price of the offer.

In doing this, the independent directors may be supported by an independent expert of their choice, at the company's expense. The independent directors' opinion must be disclosed to the market – unless it is fully acknowledged in the opinion of the board.


Reopening offer periods

By introducing the obligation (under certain circumstances) to reopen the offer terms, the Italian regulator has tackled the issue relating to the so-called 'pressure to tender' – ie, the situation that (minority) shareholders may face in the framework of a takeover bid when confronted with either accepting an offer they do not deem advantageous or risking holding substantially devalued stocks after the offer is completed.

Therefore, the acceptance period of an offer launched by 'insiders' (see previous paragraph) shall be reopened for a further five-day period in order to allow those shareholders who have not tendered their shares the opportunity to do so in light of the results of the offer.

This new rule applies where, upon announcing the results of the offer, the offeror either declares that the minimum acceptance condition, if applicable, has been met or waived, or confirms it has reached a stake representing at least 50% of the company's capital – or two-thirds in the case that 50% was already in its possession. The newly-introduced provisions also list a series of cases in which it is not necessary to reopen the offer period, whether because an equivalent protection for minority shareholders exists (eg, sell-out) or the offer has been approved by the majority of the target's shareholders other than the offeror and its associated parties.


Mandatory tender 
offer thresholds

Two new rules are destined to affect the way holdings in a listed company are calculated for the purpose of determining whether a mandatory offer threshold has been exceeded.

In particular, it has been clarified that, to such purpose, treasury shares must always be deducted from the target's share capital, irrespective of the circumstances in which they have been acquired. Exceptions to this rule apply where the acquisition of the shares was approved by a majority vote of the target's shareholders other than the largest shareholders, or where the shares were to be used as consideration in connection with (already approved) extraordinary transactions or compensation plans.

The resolution also puts an end to the debate on whether derivative instruments should be relevant when calculating a person's holding in accordance with the mandatory tender offer rules. CONSOB had been pondering the question for some time, and was unsure as to whether it would be more expedient to regulate the matter through a set of ad hoc provisions, or recur to existing rules to tackle potential abuses (ie, material positions in a company covertly built through derivative instruments).

The Italian legislator had given a blank mandate to CONSOB for settling the question. The regulator eventually opted for the insertion of a specific, very broad, rule which applies to derivative instruments which confer a long position with respect to the target's voting shares. These instruments shall be taken into account for the purpose of calculating a person's holding under the mandatory tender offer rules, only subject to limited exceptions. For example, instruments provided for under shareholder agreements as a way to settle deadlock situations will not fall within the scope of application of the rules at hand.


Price adjustment for 
mandatory tender offers

The cases in which a mandatory tender offer may be, or must be, launched at a price different from the one resulting from the application of the 'best price rule' (ie, the basic principle whereby the price of a mandatory offer must be at least equal to the highest price paid by the offeror for the relevant securities throughout the 12 months prior to the triggering of the offer obligation) were succinctly spelled out by the legislator in the decree implementing the European Takeover Directive.

Their application, however, were put on hold until CONSOB issued the related implementation regulations. CONSOB has now provided more details regarding the cases in which the deviation from the standard rule applies and how to set the offer price in such circumstances. For instance, mandatory tender offers may be made at a price lower than that resulting from the best price rule where an exceptional and unpredictable event has occurred causing a temporary and material increase in market prices, and where such prices were relevant for determining the offer price.

The relevant request must be submitted to CONSOB by the offeror. Conversely, CONSOB (acting ex officio or upon request from interested parties) may require that the offer be made at a higher price than the one resulting from the application of the best price rule where, for instance, evidence exists of the offeror or its related parties having agreed to purchase the relevant securities at a higher price than the one considered for setting the offer price.


Mandatory tender 
offers – exemptions

Finally, the April 2011 resolution has amended some of the exemptions from the obligation to launch a mandatory tender offer, including those applicable to cases where the target company is experiencing financial difficulties.

In this respect, it is worth mentioning that the 'bail-out' exemption may also be relied upon in cases where the crisis may not be evident from external circumstances (eg, restructuring plans disclosed to the market or insolvency procedures) provided that the transaction was approved with the contribution of the majority of the target's shareholders (other than the largest shareholders).

A similar 'clearing' mechanism applies in respect of mergers and de-mergers: the acquisition of a stake over the mandatory tender offer threshold will not result in the obligation to launch an offer provided that the transaction (whether a merger or de-merger) was approved without the opposition of the majority of the target company's shareholders (other than the largest shareholders.)

In summary, CONSOB's intervention has been long awaited and is certain to be welcomed. It has indeed brought clarity with respect to certain issues that were somehow left unresolved after the implementation of the European Takeover Directive. The approach followed in adopting certain solutions represents an evident change of route and consequently means operators are likely to be more cautious in the initial application of the new rules. Accordingly, a complete assessment of the impact of the new rules will need to wait until such rules are actually put into play, and this could take longer than expected.

Luigi Verga is a corporate partner and Francesca Flego a corporate associate based in Freshfields Bruckhaus Deringer's Milan office.