How can antitakeover schemes be dismantled?

In times of economic prosperity, an increasing number of companies will enter the market for mergers and takeovers. It is the tale of the hunter and the hunted. This also applies to the American pharmaceutical company Mylan. On 21 April 2015, Teva offered 40 billion euro to incorporate Mylan. However, using new Dutch antitakeover schemes, Mylan is trying to keep out of the hands of the pharmaceutical company Teva. Dutch corporate lawyer Sander Schouten discusses the case.

Protection against hostile takeovers

The Dutch corporate climate offers listed companies the possibility to protect themselves against takeovers. 40% of the listed companies has a takeover defence. These companies can issue preferred share The portion of registered capital of a private or public limited company
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to protect themselves against hostile takeovers. This was recently discussed in article in ‘Het Financieele Dagblad’ (sponsored article).

Preferred shares foundation, issuing depository receipts on shares and option rights

The antitakeover schemes made the news recently in the power struggle between Boskalis and Fugro. Fugro had three such schemes, i.e. (i) a foundation for preferred shares, (ii) issuing depository receipts on shares by a trust office foundation, which means the voting rights are held by a Trust Office Foundation and not by the holders of listed depository receipts on shares, and (iii) Continuity Fugro Foundation, with its registered office in Curacao, that has an option right on corporate components of Fugro and that can therefore (if necessary) draw in components if there is a threat of a hostile takeover.

‘Pandora construction’ as antitakeover scheme

Mylan had recently moved to The Netherlands. Mylan had moved its registered office from Pennsylvania to Amsterdam, not only to use the Dutch tax possibilities, but also specifically to implement antitakeover schemes. All of this to stay out of the hands of Teva. On 3 April 2015 Mylan therefore immediately incorporated a “Foundation Preferred Shares Mylan”. Also, Mylan in its turn tried to take over Perrigo, in order to become too large for Teva to take over. This latter antitakeover scheme is also called the ‘Pandora construction’.

Guarding against takeovers

The object of the foundation is to guard Mylan from takeovers and it does so by cashing in an option allocated by the company that offers the possibility to purchase preferred shares. The foundation can do this (according to the articles of association A document, drawn up when a Dutch company or legal person is set up, and which regulates the operations of the company and defines its purpose.
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Articles of Association
) if a bid is made on the issued shares of the public limited company Mylan NV, that is not supported by the board.

Impact on composition general meeting

Article 2.01 states that the authorized capital of Mylan is 24 million euro. This amount is divided into two different types of shares, consisting of ‘common shares’ and ‘preferred shares’. Both types of shares have a nominal value of 0.01 eurocent. With these preferred shares an impact can be made on the general meeting of shareholders of Mylan and the decision-making process in this meeting can be influenced.

Board has the possibility of call option

The aforementioned is possible because Mylan’s articles of association delegate the authority to issue shares to the board – normally this authority rests with the general meeting of shareholders. The board has the possibility to grant the foundation a call option. This call option means taking preferred shares with a total nominal value equal to the nominal value of all ‘common shares’. This gives the foundation the possibility to interfere with the general meeting of shareholders and force through its opinion (or that of the board).

Can all of this be done just like that?

The issue is whether all of this can be done just like that and if these antitakeover schemes can be dismantled. Boskalis tried to do this by placing the antitakeover scheme on the agenda of the shareholders’ meeting of Fugro, to enable a vote on this. The manner in which antitakeover schemes are used can of course also be assessed by the court.

Having the Enterprise Division assess the policy

The court concerned shall assess whether the interests of company have been carefully weighed and if the conduct of the company has been sufficiently explained. Another possibility is to have the Enterprise Division assess the policy. We have addressed this several times.

Is the issue of shares contrary to reasonableness and fairness?

If the call option is invoked as yet, and if the Foundation Preferred Shares Mylan gets the shares, it is possible, for example in preliminary relief proceedings, to assess whether the decision can be annulled, based on article 2:15 paragraph 1 sub b, in conjunction with article 2:8 of the Civil Code of The Netherlands, because the decision to issue shares may be contrary to reasonableness and fairness.

Schemes assessed by the court

For now, there seem to be more than enough possibilities to assess the policy of the company Mylan NV, that suddenly has its registered office in Amsterdam. The future will show whether Mylan has sufficiently considered its interests. It is after all to be expected that such schemes will be assessed by the court.