Lorcan Tiernan and Adrian Benson of Dillon Eustace assess the M&A regulatory framework in Ireland
Section 1: GENERAL OUTLOOK
1.1 What have been the key recent M&A trends or developments in your jurisdiction?
Consolidation of Irish company law through the Companies Act 2014, which now permits: mergers by acquisition, whereby one company acquires another by way of merger; mergers by absorption, whereby a wholly-owned subsidiary is merged into its parent; and mergers by formation of a new company, whereby one or more companies transfer their assets and liabilities to a newly formed company.
1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?
2015 was a busy year. 2016 is expected to start slowly but pick up as market turbulence subsides.
Section 2: REGULATORY FRAMEWORK
2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
The primary laws and regulations that govern M&A transactions involving public companies in Ireland include:
the Irish Takeover Panel Act 1997 (the Act) established the Irish Takeover Panel (the Panel) and the creation of the Irish Takeover Rules (the Rules) for this purpose;
the Companies Act 2014 commenced on June 1 and governs various aspects of M&As concerning both public and private companies;
the Substantial Acquisition Rules (SARs) apply to public companies and the means by which substantial acquisitions can be made;
the Competition Acts 2002 to 2014 require that certain M&A transactions be reported to the Competition and Consumer Protection Commission for approval;
the Market Abuse Regulations 2005 impose obligations on companies whose securities are listed on the Irish Stock Exchange (ISE);
the Irish Listing Rules apply if the company is listed on the ISE.
2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
The Panel enforces the Rules. Several industries are subject to additional regulations including: media companies; financial institutions; insurance undertakings; pharmaceutical companies; airlines; and telecommunications operators. Further, regulatory bodies such as the Central Bank of Ireland and the Health Product Regulatory Authority can enforce these regulations in their respective fields via requiring authorisation and imposing fines.
Section 3: STRUCTURAL CONSIDERATIONS
3.1 What are the basic structures for friendly and hostile acquisitions?
There are two principal ways to effect a takeover of an Irish public company:
(i) a contractual takeover offer (offer or takeover offer) by the bidder for the shares of the target; or (ii) a court-led scheme of arrangement (scheme).
3.2 What determines the choice of structure, including in the case of a cross-border deal?
A scheme is usually initiated by the target and, as a result, tends to be the structure used in friendly transactions.
The option of engaging in a scheme is not usually open to bidders in the case of a hostile bid. As such, schemes require the cooperation of the target board of directors. As a result, a hostile bid would usually take the form of an offer.
3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
If a firm intention to make an offer has been announced, the bidder must post the offer document within 28 days of the announcement. The parties then have 60 days to fulfil any acceptance conditions and another 21 days to fulfil any other conditions. The earliest possible closing date is 21 days after the offer document is posted.
A scheme generally takes longer to complete than a general offer due to the necessity for court involvement.
3.4 Are there restrictions on the price offered or its form (cash or shares)?
When the bidder makes a voluntary bid they can offer any price they wish, provided it is not less than the price paid by the bidder for shares in the target in the three month period before the commencement of the offer period (subject to an extension to 12 months by the Panel). Should a bidder acquire shares at a higher price during the offer period, it must increase its offer to reflect this.
If, within the 12 months preceding the offer, the bidder has made a cash offer for shares of at least 10% of the nominal value of the issued shares in that class (or a lower percentage at the Panel's discretion), it is also required to make a cash offer when making its bid.
Where a bidder is required to make a mandatory offer under the SARs, the price of the shares must be set at the highest price that the bidder paid for shares in the target in the previous 12 months.
3.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
In order to qualify to use the relevant statutory procedure, the bidder must have obtained approval from shareholders representing 90% of the issued share capital of the target, provided that the target company is listed on a regulated market in any European Union (EU) or European Economic Area member state. If the target is an Irish public company which is listed on secondary markets, for example, Nasdaq in the US, the threshold is lowered to 80%.
3.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?
The Rules provide that, as a general principle, all shareholders must be treated equally. Any special terms that would benefit certain shareholders would only need to be approved by the Panel and/or the shareholders.
The mandatory offer rule under the Rules and the SARs provide that a bidder must make a mandatory offer for the remainder of the share capital of the target if: (i) it acquires 30% of the voting rights of the target; (ii) its holding increases to above 30%; or (iii) its holding of above 30%, but less than 50%, of the voting rights of the target increases by more than 0.05% in a 12 month period. The SARs also prevent a shareholder from acquiring 10% or more of the voting rights of the company within a seven day period, if the acquisition means the shareholder would hold more than 15%, but less than 30%, of the voting rights of the company.
3.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?
As a general rule the Panel frowns on conditional offers, but certain standard conditions are permitted (such as competition clearance). If the offer comprises a cash element the offer cannot be conditional on financing.
Section 4: TAX CONSIDERATIONS
4.1 What are the basic tax considerations and trade-offs?
Stamp duty at one percent of the market value of the shares can be avoided by utilising a scheme. Corporate inversions have proven popular with complex tax planning/structuring involved.
4.2 Are there special considerations in cross-border deals?
Section 5: ANTI-TAKEOVER DEFENCES
5.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
Anti-takeover defences are not generally available due to the Rule which provides that directors of a target may not 'frustrate' an offer. Shareholders must be given the opportunity to consider the merits of an offer. It is possible to introduce defences with shareholder and Panel approval.
5.2 How do targets use anti-takeover defences?
Following independent advice, if the target board believes that an offer would not be in the best interests of the company, they should explain this to shareholders in their circular, while setting out any arguments for the acceptance and rejection of the offer.
5.3 Is a target required to provide due diligence information to a potential bidder?
Targets are permitted to engage with the bidder in voluntary due diligence. However, a target is not obliged to assist bidders, which can lead to difficulties for a bidder attempting a hostile bid. However, if there is more than one bidder, the target is obliged to provide equal disclosure to both.
5.4 How do bidders overcome anti-takeover defences?
Not generally applicable.
5.5 Are there many examples of successful hostile acquisitions?
Section 6: DEAL PROTECTIONS
6.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
This is generally difficult to achieve but speed of execution and commitments from major shareholders can help to protect the deal. As hostile deals seem difficult to execute in Ireland this does not present a practical issue.
6.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
The inclusion of break fees in a recommended bid must be approved in advance by the Panel. Typically, they will be limited to an upper limit of one percent of the value of the offer.
Section 7: ANTITRUST/REGULATORY REVIEW
7.1 What are the antitrust notification thresholds in your jurisdiction?
Companies must notify the Competition and Consumer Protection Commission (CCCPC) of a proposed transaction where, in the most recent financial year:
the aggregate turnover in the Republic of Ireland of all undertakings involved is not less than €50 million (approximately $55.3 million); and
the turnover in the Republic of Ireland of each of two or more of the undertakings involved is not less than €3 million.
7.2 When will transactions falling below those thresholds be investigated?
The Competition and Consumer Protection Act 2014 (CCP Act) introduces a new media mergers regime in Ireland. A media merger must be notified to the Minister for Communications, Energy and Natural Resources (Minister), as well as to the EU Commission (if the thresholds apply) or to the CCPC. The CCP Act provides that at least one of the merging media businesses must carry on a media business in Ireland, meaning that it must have a physical presence in Ireland and make sales to customers in Ireland; or make sales to customers in Ireland of at least €2 million in the most recent financial year.
7.3 Is an antitrust notification filing mandatory or voluntary?
Under the CCP Act, the CCPC must be notified of a merger by each company involved before a merger is put into effect. Notification is mandatory and failure to do so is an offence.
7.4 What are the deadlines for filing, and what are the penalties for not filing?
There is no specific deadline by which notifications must be filed. Notification must be filed simply before closing or implementation. Notification can also be filed when the companies involved demonstrate a good faith intention to conclude an agreement or, in the case of a public bid, when intention is announced.
The new regime allows for a notification to be made upon the signing of a nonbinding heads of agreement/letter of intent. This means that the approval process can run parallel to the negotiation of a final share/asset purchase agreement. This more closely reflects the position under the EU Merger Regulation.
7.5 How long are the antitrust review periods?
The CCP Act has significantly extended the length of time the CCPC has to consider notified mergers. This is broken into two phases:
phase one has been extended from one month to 30 working days;
phase two investigations now provide for a period of 120 working days for the CCPC to conduct its review.
Both phases can be extended where the CCPC issues an information request or proposes remedies. The CCPC can now also 'stop the clock' in phase two by way of a formal information request. This must be made within 30 working days from the date of the decision to open a phase two investigation.
7.6 At what level does your antitrust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
The CCPC has authority to review all deals over the above thresholds (or all media deals regardless of size).
7.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?
Certain industry-specific obstacles exist such as Central Bank of Ireland approval for the acquisition of a 10% or greater interest in a regulated entity. Other than in the airline industry, there are generally no foreign ownership restrictions.
Section 8: ANTI-CORRUPTION REGIMES
8.1 What is the applicable anti-corruption legislation in your jurisdiction?
Ireland has signed and ratified a number of international anti-corruption conventions including the EU Convention on the Protection of the European Communities Financial Interests (and protocols). This entered into force on October 17 2002.
8.2 What are the potential sanctions and how stringently have they been enforced?
Penalties for breach of corruption and bribery laws that have been implemented in Ireland include up to 10 years' imprisonment and an unlimited fine. This similarly applies to an offence committed by a company if it is proven to have been committed with either the consent or connivance of, or to be attributable to any wilful neglect on the part of a director, manager, secretary or other officer of the company, or a person who was purporting to act in any such capacity. In this scenario, the person involved as well as the company, will be guilty of an offence.
With further developments in the area at a European and at a domestic level, it is likely that enforcement will become more stringent.
Section 9: OTHER MATTERS
9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
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About the author
Lorcan Tiernan became a partner of Dillon Eustace in 2000 and head of its corporate and commercial department in 2004. His main areas of practice are M&A, corporate finance, corporate insolvency and financial services. He has been recommended by a number of leading directories including Chambers, IFLR, Legal 500 and PLC Which Lawyer? He is a member of the International Bar Association and is currently co-chair of the American Bar Association's (ABA) International Financial Products and Services Committee, vice-chair of the ABA's International Mergers and Acquisitions Committee and a member of the Irish Law Society's Business Law Committee. He also acts as the ABA's liaison to the Law Society of Ireland and the Bar Council of Ireland. He is a past-chairman of the Irish Funds Industry Association's Alternative Investment Committee, as well as a past member of the European Fund and Asset Management Association's Hedge Funds Working Group. He is an alternate director of the Irish Takeover Panel.
About the author
Adrian Benson joined Dillon Eustace in January 2005 and was appointed as a partner in 2006. He has extensive experience advising on a wide range of corporate transactions and commercial arrangements across a wide range of industries including M&A, corporate re-organisations, shareholders agreements and disputes, joint ventures, private equity and corporate governance.