Italo De Santis and Andrea Sacco Ginevri of Chiomenti assess the M&A regulatory framework in Italy
Section 1: GENERAL OUTLOOK
1.1 What have been the key recent M&A trends or developments in your jurisdiction?
Italy's M&A market grew significantly in 2015, with both domestic and cross-border transactions.
The major transactions demonstrated the Italian market's strong appeal to foreign industrial investors. The EU and the US remain the most attractive markets for domestic companies investing abroad. Interest from Italian companies in developing countries remains limited.
1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?
So far, 2016 has been characterised by a slower growth as compared to previous months. However, the current domestic political stability is expected to facilitate a moderate but steady growth. The main M&A activities over the next 12 months will likely involve: banking mergers; transactions concerning non-performing loans; and privatisations of state-owned companies.
Section 2: REGULATORY FRAMEWORK
2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
The relevant laws and regulations are: the Italian Civil Code; legislative decree no. 58/1998; Commissione Nazionale per le Società e la Borsa (Consob – the Italian Securities and Exchange Commission) regulation no. 11971/1999 and the corporate governance code, applicable on a voluntary basis.
2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
A shareholder holding – alone or together with other shareholders acting in concert – a stake or voting rights higher than 25% in a listed company (or 30% if another shareholder holds a stake or voting rights higher than 25%) must promote a takeover bid on all remaining shares.
The main actors involved – other than the offeror – are: Consob, which approves the offer document; and the target, which makes public a statement containing evaluation of the offer.
Section 3: STRUCTURAL CONSIDERATIONS
3.1 What are the basic structures for friendly and hostile acquisitions?
A friendly acquisition of a listed company may be carried out by: a public tender offer; merger; acquisition outside the market; or subscription of a reserved share capital increase.
A hostile acquisition of a listed company must be carried out by a public tender offer.
3.2 What determines the choice of structure, including in the case of a cross-border deal?
The choice of structure depends on several factors, mainly relating to the timing and costs.
3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
The offeror must file the offer document with Consob within 20 days from the issuance of the offer communication. Consob must approve the offer document within 15 days from the filing. The offer period lasts a minimum of 15 and a maximum of 25 trading days for mandatory takeovers, or 40 trading days for voluntary takeovers.
3.4 Are there restrictions on the price offered or its form (cash or shares)?
While consideration of voluntary takeovers can be freely set, consideration of mandatory takeovers must not be lower than the highest consideration paid by the bidder to acquire the securities subject to the offer during the 12 months before communication of the intention to launch the offer. If no purchase for consideration was made in this period, the offer consideration must not be lower than the average weighted market price over the previous 12 months or the shorter available period.
3.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactory squeeze out or otherwise eliminate minority shareholders?
Any party holding more than 90% of the share capital of a listed company must purchase the remaining securities on the request of any holder thereof, unless a float sufficient to ensure regular trading performance is restored within 90 days.
If, as a result of a global takeover, the offeror holds more than 95% of the share capital of an Italian listed company, the offeror must purchase the remaining securities on the request of any holder thereof and has the right to purchase the remaining securities within three months of the offer period (squeeze-out).
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?
If the bidder purchases securities subject to the offer in the period between the communication of his intention to launch the offer and the six months following the end of the offer period at a higher consideration, the price offered for the voluntary/mandatory takeover shall be increased.
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?
Only voluntary takeovers may be conditional.
Bidders are required to ensure their capacity to fulfil the payment commitments related to the offer, providing Consob with evidence of guarantees issued in their favour for this purpose.
Section 4: TAX CONSIDERATIONS
4.1 What are the basic tax considerations and trade-offs?
There are no special tax regulations in the case of M&A deals. The rules on direct taxation of capital gains are governed by Italian Presidential Decree 917/86. It is worth noting that the tax consequences can vary hugely in relation to the structure of the transaction and generally depend on several factors.
A financial transactions tax (FTT) is levied on transfers of ownership of shares issued by Italian resident companies, regardless of the place of residence of the parties involved or the place where the contract was executed. The taxable basis is the consideration paid. The standard rate is 0.2%, reduced to 0.1% for transactions executed on regulated markets or in multilateral trading facilities established in an EU member state or a European Economic Area country that is included on the whitelist. The FTT is payable by the transferee.
4.2 Are there special considerations in cross-border deals?
Dividends paid to non-Italian resident shareholders are in principle subject to a withholding tax applied at an ordinary rate equal to 26%.
Whether capital gains tax is levied on the non-resident investor depends on several factors, including the percentage of the participation.
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?
Consob identifies three different defensive measures: (i) actions aimed at increasing the total value of the tender consideration; (ii) actions aimed at materially affecting the economic conditions of the target; and (iii) any other action aimed at obstructing the activity of the bidder.
5.2 How do targets use anti-takeover defences?
Issuers whose securities are involved in tender offers must abstain from adopting defensive measures unless approved by the ordinary or extraordinary shareholders' meeting (the passivity rule) during the tender offer. Italian listed companies can waive the passivity rule, in whole or in part, by amending their articles of association (opt-out).
5.3 Is a target required to provide due diligence information to a potential bidder?
A listed company must make available to the public any price sensitive information concerning itself and its subsidiaries in compliance with the equal treatment rule concerning any relationship with its shareholders.
It is market practice that public companies typically provide potential friendly bidders with confidential information only if the bidders execute confidentiality agreements and are evaluating a launch of a tender offer for the benefit of all the shareholders.
5.4 How do bidders overcome anti-takeover defences?
The best way to overcome defensive measures is to make clear the benefits of the tender offer, thus preventing the shareholders' meeting from approving anti-takeover defences envisaged by the board of directors. A bidder should be prepared to respond to defensive measures, on a case-by-case basis. A bidder may challenge defensive measures before the courts or Consob.
5.5 Are there many examples of successful hostile acquisitions?
The composition of the Italian listed company does not encourage hostile acquisitions, since controlling shareholders typically hold a large stake of the share capital. As a consequence, in Italy there are few 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?
Since every decision of the target should be taken in the best interests of its shareholders, as a consequence of the duty of fairness, the regulation does not provide for any protective measures against a hostile interloper. If a hostile interloper were to appear, the board of directors of the target could point out in the issuer statement particular business reasons which make the offer of the original bidder preferable.
6.2 To what extend are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
The target cannot execute any deal protection activity. However, a bidder can execute:
an agreement with the former controlling shareholder to regulate his acceptance of the envisaged tender offer providing a penalty in case the former controlling shareholder accepts a counter-offer;
an agreement with target shareholders to prevent the success of competing offers, subject to publicity requirements.
Section 7: ANTITRUST/REGULATORY REVIEW
7.1 What are the antitrust notification thresholds in your jurisdiction?
Notification to the Italian Competition Authority (ICA) is required if the following cumulative turnover thresholds are met:
the combined aggregate turnover achieved in Italy in the last financial year by the undertakings concerned is higher than €492 million (approximately $539.4 million); and
the aggregate turnover achieved in Italy in the last financial year by the target company is above €49 million.
For banks and financial institutions, the turnover must be equal to the value of one-tenth of their total assets, with the exclusion of memorandum accounts. For insurance companies, the turnover must be equal to the value of premiums collected.
7.2 When will transactions falling below those thresholds be investigated?
7.3 Is an antitrust notification filing mandatory or voluntary?
Notification is mandatory whenever the statutory thresholds are met.
7.4 What are the deadlines for filing, and what are the penalties for not filing?
A concentration must be notified before it is carried out, after the parties have reached an agreement on the main aspects of the transaction.
Notification does not entail any obligation to suspend the transaction. However, if competition concerns arise, the ICA may order divestiture of the whole or part of the business acquired.
Failure to notify may result in fines of up to one percent of the companies' turnover.
7.5 How long are the antitrust review periods?
The first phase of the merger control procedure takes 30 calendar days from notification (15 days in the case of a public bid also filed with Consob). In the case of telecom and insurance companies, the 30-day period is suspended to allow the relevant regulatory authority to issue its opinion. This must be issued within 30 days of receiving the request.
In the case of opening an in-depth investigation, a decision must be taken within 45 calendar days from opening the 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?
In the case of failure to notify concentrations that do not have a significant local competition effect, as a matter of practice, the ICA imposes low fines (for example, €5,000).
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?
The Italian government can exercise the so-called golden powers over undertakings operating in the defence and national security, energy, transport, and communications sectors. These powers range from vetoing acquisitions of holdings and strategic decisions, to imposing specific conditions on the acquisition. The reciprocity principle applies vis-à-vis non-EU states.
Section 8: ANTI-CORRUPTION REGIMES
8.1 What is the applicable anti-corruption legislation in your jurisdiction?
The anti-corruption legislation is regulated by the Italian civil law and Italian criminal law.
8.2 What are the potential sanctions and how stringently have they been enforced?
Directors, general managers, managers responsible for preparing corporate accounting documents, auditors and liquidators who, as a result of the bestowal or promise of money or other benefits, for themselves or for others, perform or omit to perform acts in violation of the obligations inherent to their office or duties of loyalty, causing harm to the company, shall be punished with imprisonment from one to three years or up to one year and six months if the offence is committed by those subject to the direction or supervision of one of the parties indicated above.
Whoever gives or promises money or other benefits to the persons specified above is punishable with the same penalties.
These penalties are doubled in the case of companies listed on regulated Italian markets or other EU states or distributed among the public to a significant extent.
Section 9: OTHER MATTERS
9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
Other material issues that might affect a public M&A transaction depend on the type of companies involved. Briefly: the acquisition of a significant stake in banks, insurance companies, funds or similar companies is subject to the approval of the competent authorities. In companies operating in strategic sectors, it is subject to a no-action letter of the Italian government (regarding golden powers).
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Italo De Santis
About the author
Italo De Santis graduated with a degree in law, from L.U.I.S.S. Guido Carli University, Rome, in 2001. He was admitted to the Rome Bar in 2004 and received his PhD in corporate law in 2008. He also completed an LLM in international business law at Queen Mary University London, in 2010.
He joined Chiomenti Studio Legale in 2008 and works in the corporate M&A department, with a particular focus on public M&A transactions.
Andrea Sacco Ginevri
About the author
Andrea Sacco Ginevri graduated in law at L.U.I.S.S. Guido Carli University, Rome, in 2004 (with laude); he was admitted to the Rome Bar, Italy, in 2007 and received his PhD in law and economics in 2010. He also completed a LLM in banking, corporate and finance law at the Fordham University School of Law, New York, in 2011. In 2011-2012 he worked as a foreign associate with Debevoise & Plimpton in New York, and he was visiting scholar at Columbia University-Law School from September 2011 to May 2012. He was admitted to the New York State Bar in 2012.
He joined Chiomenti Law Firm in 2004 and works in the corporate/M&A department (with a particular focus on public M&A transactions and insurance companies).