Differences between mandatory takeover bids and voluntary takeover bids
What is a takeover bid (OPA)?
A takeover bid , or public acquisition offer , is a mechanism by which one or more individuals or legal entities offer to buy shares of a listed company , targeting all of the company's shareholders . In exchange, a price is offered, which can be:
- Cash (most common),
- In shares from another society,
- Or a mixed payment (part in cash and part in shares).
This procedure has a high impact on the market, as it may involve a change in the control of the affected company.
When is a company considered listed?
A company is considered publicly traded if:
- Its actions are admitted in whole or in part to negotiation in a official Spanish secondary market,
- Has his registered office in Spain.
* Se considerará que una sociedad cotiza cuando sus acciones estén, total o parcialmente, admitidas a negociación en un mercado secundario oficial español y tenga su domicilio social en España (art. 1 RD 1066/2007, de 27 de julio, sobre régimen aplicable a las ofertas públicas de adquisición de valores). Types of takeover bids: What are they and how do they differ?
Public acquisition offers (OPAs) can be classified into several types, according to their purpose, obligation and context.
Understanding these differences is key to understanding the legal and strategic implications of each transaction.
1. Mandatory and voluntary takeover bids
According to Article 3 of Royal Decree 1066/2007 , a takeover bid is mandatory when a shareholder acquires effective control of a listed company.
This occurs, for example, when:
- They are acquired directly or indirectly shares with voting rights ≥ 30%,
- They are celebrated shareholder agreements that grant that joint control,
- There is a indirect or subsequent acquisition of the control (art. 4 RD 1066/2007).
Important: The mandatory takeover bid is not a prerequisite for taking control, but rather a legal consequence of achieving it.
In contrast, a voluntary takeover bid is one that is presented without having reached that control threshold, usually for strategic or investment purposes.
2. Takeover bid
Its purpose is to allow the shareholders of the target company to sell their shares at a fair price , once the offering company has already acquired control of said company.
3. Competing takeover bid
This refers to an offer made on the same securities that are already the subject of a previous takeover bid , the acceptance period for which is still open.
4. Exclusion takeover bid
Its objective is to remove the company from the stock market , allowing shareholders to sell their shares before the company ceases to be listed on the stock exchange.
- In this type of takeover bid, the consideration must always be in money.
5. Friendly takeover and hostile takeover
- A takeover bid is considered friendly when there is a prior agreement between the offering company and the majority shareholders or Board of directors of the target company.
- Instead, it is called hostile when there is no agreement, and the offer is launched directly onto the market without the support of the governing body.
Differences between mandatory and voluntary takeover bids
Understanding the difference between a voluntary takeover bid and a mandatory takeover bid is essential to assessing the scope, strategy, and legal implications of each type of public acquisition offer.
What is a voluntary takeover bid?
A voluntary takeover bid is an offer launched on the bidder's own initiative, without having achieved control of the listed company (less than 30% of the voting rights).
This type of transaction is regulated more flexibly than mandatory takeover bids.
Advantages of the voluntary takeover bid
Voluntary takeover bids offer several strategic advantages to the bidder:
- Freely fixed price: It is not mandatory to offer a fair price, which provides room for negotiation.
- Less hostility: These operations are usually more consensual or discreet.
- Flexibility in the number of values: The offeror may acquire less than 100% of the shares, as long as it does not involve taking control (less than 30%).
- Custom conditions: They may include clauses such as:
- Approval of the offer by the general meeting of shareholders of the target company,
- That the offer be accepted by a minimum number of shares.
Disadvantages of the voluntary takeover bid
Despite its advantages, it also presents certain risks :
- Greater competition: If the bidder has not acquired a significant stake, other bidders may submit competing bids in equal conditions.
What is a mandatory takeover bid and how is its price regulated?
A mandatory takeover bid is one that the bidder must launch when acquiring effective control of a listed company . In this case, regulations require stricter guarantees to protect shareholders' interests, especially regarding the offered price.
At what price should a mandatory takeover bid be launched?
According to Article 9 of Royal Decree 1066/2007 , the mandatory takeover bid must be made at a fair price , which may not be lower than the highest price that the bidder (or persons acting in concert with him) has paid or agreed during the 12 months prior to the announcement of the offer.
How is fair price determined?
To determine the fair price of the mandatory takeover bid, all payments and instruments associated with the acquisition will be taken into account, including:
- Call and put option premiums.
- Premiums on derivative financial instruments.
- If there were several operations, the highest price will be taken as reference.
- In acquisitions through exchange or conversion, the calculation will be made weighted average of market prices.
- If there are additional compensations or deferred payments, These amounts will also be included in the calculation of the price.
Can the price of a mandatory takeover bid be changed?
Yes. The National Securities Market Commission (CNMV) has the power to modify the offer price in exceptional circumstances.
What guarantees must be presented?
The bidder wishing to make a mandatory takeover bid must provide a financial guarantee that covers 100% of the cash payment obligations arising from the offer.
This guarantee must be submitted to the CNMV within 7 working days from the application for authorization of the offer (art. 15 of RD 1066/2007).
Irrevocable and unconditional offer
According to the conditions, Spanish law requires that the offer be irrevocable and unconditional.
But there is an exception to this principle, such as when the offer involves an economic concentration operation in Europe or Spain.
The offeror may condition its mandatory or voluntary offer to obtaining the corresponding authorization or to the absence of opposition from the competition authorities.
Regarding cash terms, the form of consideration is usually a business decision.
Offers may be in cash, securities, or a combination of both, except for delisting offers, which must be in cash.
However, the offer must include an effective alternative when the offeror has acquired 5% or more of the company's voting rights in the last 12 months.
It is also necessary when the offer is mandatory; or the consideration of the offer are securities that are not listed on an EU stock exchange.
Mandatory takeover vs. voluntary takeover
The choice between voluntary and mandatory offer depends on the particular circumstances of the acquisition and the target company.
However, we can determine a series of circumstances that can help us decide.
We could better answer this question if we knew the financial status of the company and its strategy to achieve its business objectives.
Let's assume that the shares to be acquired exceed 30%.
If the company manages to acquire the shares, it must present a mandatory takeover bid.
An offer that, according to article 3.2. of 1066/2007, must be addressed to all holders of shares of the listed company, including those of non-voting shares who, at the time of requesting authorization of the offer, have the right to vote in accordance with the provisions of current legislation.
Although there are exceptions to the above as indicated in the following sections of said article.
However, if a voluntary takeover bid is submitted for the entire capital and the acceptances exceed the threshold from which the bidder should launch a mandatory takeover bid, the bidder will be exempt from doing so.
However, for this to happen, the offeror must have made the offer at a fair or adequate price, it being understood that this is the case when the takeover bid has been accepted by at least 50% of the voting rights to which it was addressed , excluding the voting rights of shareholders who have reached an agreement with the offeror.
However, if we choose this alternative , to mitigate the possibility of a third party submitting a competitive offer that would knock us out of the game, we must acquire firm and irrevocable bid commitments with other major shareholders of the target company.
Otherwise, we may not achieve our goal.
The second option is to acquire a controlling stake in advance from one or more shareholders and submit a mandatory offer to discourage competitive bids.
However, we have already seen that the process is more complex than the voluntary one.
RRYP Global is a law firm specializing in commercial law.
