The mandatory takeover bid has been widely explored by the legal scholarship, which has assessed the rationales of the mandatory bid rule (MBR) as well as its impact on the securities market. Conversely, the question of whether minority shareholders are entitled to claim damages in the event of a breach of the duty to bid remains a puzzle. The Takeover Directive 2004/25/EC expressly mentions the protection of minority shareholders as a key objective of the MBR (see Art 3 and Art 5), but does not specify how to ensure it when the acquiror violates his obligation to launch the offer once the relevant threshold (generally 30% of the voting rights in the target company) is crossed. Likewise, statutory law across Member States is essentially silent on this matter, and at a supranational level the CJEU’s case law does not offer valid precedents.
Our recent paper examines the functional efficiency and systematic coherency of public enforcement-driven vs. private enforcement-driven capital markets. European policymakers mostly rely on public enforcement, sanctioning the breach of the MBR through the freezing of voting rights, the compulsory sale of the threshold exceeding shares and the application of administrative fines. Emblematic for this regulatory approach are the cases of Germany and France. Italy, on the contrary, represents an outlier, allowing today the recourse also to private enforcement remedies.
In fact, recent Italian case law recognizes a civil liability of the acquiror who fails to promote a mandatory bid according to the provisions contained in the Consolidated Financial Service Act of 1998 (Art 106). The turning point came with the ‘disruptive’ Fondiaria-Sai case, a saga whose ‘life cycle’ embraced multiple judgments before every judicial instance over a period of more than a decade, thus representing probably the most important case in the recent history of Italian securities regulation. In the first instance, the Milan Tribunal recognized a contractual right for minority shareholders to receive the mandatory takeover offer. The Tribunal’s decisions represented a first turnabout from the lex perfecta paradigm and granted the minority shareholders a compensation for damages equal to the positive interest (ie the difference between the theoretical mandatory bid price and the share market value). The Tribunal’s rulings were then rejected by the Milan Court of Appeal, which shared a diametrically opposite view. In a first ruling, the appeal judges charged the bidder with a pre-contractual tort liability and, subsequently, adopted an even stricter view by denying any kind of liability for damages of the acquiror.
Finally, the Italian Supreme Court—with a series of rulings starting from 2012—put an end to the dispute. The judges stressed minority shareholders’ interests in the pro quota distribution of the control premium and granted minority shareholders an individual right to receive the offer and, in its absence, damages. The Supreme Court clarified that the liability for breach of the mandatory bid duty stems from a so-called qualified social contact between the acquiror and the minority shareholders.
As mentioned, the German and French legislators adopted a completely different regulatory approach. Both systems rely exclusively on public enforcement mechanisms. This policy decision, especially in Germany, has gained acceptance also in recent case law, with the German Federal Supreme Court stating in the BKN case of 2013 that, because the WpÜG (German Securities Acquisition and Takeover Act) is primarily capital market law-centred, shareholders of the target company have no private law remedies available if the acquiror violates his duty to make a mandatory bid. Similarly, in the French case law only in one occasion (Parfival) and with reference to a compulsory buy-out procedure (offer publique de retrait) did the judges order compensation to the minority because of the delay in submitting an offer ordered by the Conseil des marchés financiers (today the AMF). Both the first instance judges and the Court of Appeal of Paris held the majority shareholder liable for damages to the minority shareholder for the loss of a serious chance of a financial gain.
Exclusive reliance on public enforcement mechanisms may prove to be ineffective in sanctioning violations or abuses. This is especially true in the case of a control acquisition, which remains, for whatever reason, undetected by public enforcement agencies, as it was the case in first instance in the Fondiaria-Sai case. In a similar situation, which is likely to happen in the case of acting in concert, the acquiror will be able to exercise undisturbed all the corporate rights correlated to his/her control position. Furthermore, a lack of protection may arise if the acquiror, after crossing the triggering threshold, in a second moment voluntarily sells the exceeding shares or exits from the target company. In such cases, the question arises whether the minority shareholder is nonetheless entitled to claim for damages because of the missing publication of a mandatory takeover bid and the consequent impossibility of divesting in an informed manner at an equitable price. Thus, it is essential to complement public enforcement with private enforcement remedies in order to better protect minority shareholders’ interests and the good functioning of capital markets. Italy’s hybrid enforcement regime may well represent a model for other policymakers in Europe.
Peter Agstner is Assistant Professor at Free University of Bozen-Bolzano, Italy.
Davide Marchesini Mascheroni is Attorney-at-Law at Lucheschi, Lugano, Switzerland.