Concluding observations

An important reason for this study is the lack of clarity throughout the acting in concert regulations. This obscurity is experienced as problematic since the sanction imposed on the violation of the obligation to launch a public offer is extremely far-reaching; a mandatory offer on an average Dutch listed company can soon run into billions of euros. Market players are in the dark primarily when it comes to the question as to when co-operation can be said to concur with the definition of acting in concert as specified in Article 1:1 of the Financial Supervision Act (FSA) (Wet op het financieeltoezicht) with the intention of either acquiring a controlling interest or thwarting an announced public offer (Chapters 6-10). This, however, is not the only obscure issue. Some other important examples are:

Sometimes transactions do not take place due to the lurking danger of the obligation to make an offer: a “safer” but – for various reasons – less desirable structure is also a regularly used option (§ 15.6.3.2). Assuming that this will include transactions with wealth-increasing potential, a more general interest is also involved here. However, the lack of clarity around acting in concert is more important in that it may have the consequence that shareholders no longer dare seek each other out in order to hold the board of directors to account, which would result in a significant deterioration of corporate governance; shareholders are expected to join forces in order to fulfil their role across the whole of checks and balances (which will be extensively discussed below; see sub II). What is more, whereas the supervision of the acting in concert regulations themselves can hardly be called a walk in the park, unclear rules place an even greater burden on the supervisory authorities. This remark by the British Takeover Panel in its two most recent annual reports (2014-2015 and 2015-2016) is illustrative: “In particular, the amount of resource focused on investigatingsignificant potential breaches of the Code and the alleged existence of undisclosedconcert parties has increased considerably in recent years. Such investigatorywork is forensic in nature and time-consuming.” It is conceivable that the unclear rules provide a certain measure of protection to shareholders aiming for control without wanting to make a public offer, which would obviously be at the expense of the minority shareholders (§ 7.4.3.4). This applies the more so in the Netherlands, since minority shareholders themselves are to take the role of the supervisory body (see sub III below).

It is significant that the English Takeover Panel, prompted by shareholder activism, has clarified the acting in concert rules not just once but twice (§ 5.3.2.1). The Dutch legislator, on the other hand, may have acknowledged that the rules are indeed obscure, but – despite the urgent requests from players in the field and in the literature – it has not seen it fit for various reasons to provide clarity (§ 16.3.5.2). At the European level, meanwhile, attempts have been made to put an end to the intricacy surrounding acting in concert. On the instigation of the European Commission, ESMA, the European umbrella organisation of supervisory authorities, drafted policy rules (the white list) for national supervisory authorities in 2013 (§ 3.6, § 7.4.2.2 and § 16.3.5.4). These policy rules merely partially solve the problem. This is due to ESMA’s selection of topics for the white list and its departing from presumptions when, in fact, there is, in principle, no acting in concert involved (§ 7.4.2.2 sub I and II). Moreover, in the Netherlands, the white list has not had its intended effect, as the responsibility for the enforcement of the obligation to launch an offer in this country has been placed with the Enterprise Chamber of the Amsterdam Court of Appeals (Enterprise Chamber), which, being an independent judicial authority, is not bound by the policy rules drafted by ESMA (see sub III below).

Part of the observed problem can be solved by replacing the current, very widely interpretable, definition of acting in concert (onderling overleg) in Article 1:1 of the FSA by a more clearly demarcated definition. This, however, would leave a great number of questions unanswered, partly because a definition, even a better specified one, can never take away each and every obscurity, and partly because the intricacy goes much further than the definition itself. Since it is about so many unclear situations of a distinctive nature, it does not seem to be efficient either to clarify every single situation on the basis of suspicions (Chapter 11) or exemptions (Chapter 15). It is proposed here that, instead, the Netherlands Authority for the Financial Markets (NAFM) should be designated as an active, approachable supervisory body that can provide the market with more clarity beforehand – through policy rules – or, on request, prompted by specific questions (see also sub III below). A variant of this solution is to broaden the currently existing, very limited possibility of dispensation (§ 15.6.3); this is also a way of creating more clarity, albeit that the emphasis would then probably be on clarification in individual cases.

Key to the obligation to make a public offer are the interests of the minority shareholders. After all, the regulations are to benefit the protection of the minority shareholders against a disproportionate distribution of the control premium and the danger of abuse of power by a controlling party (Chapter 4 and § 7.4.3.2). The realisation that adequately demarcated regulations are just as important – also for minority shareholders (see below) – has only emerged in recent years. Demarcation of the acting in concert regulations is necessary in order to prevent shareholders from being unable to, or shying away from, co-operation, which may have negative consequences for the corporate governance of listed companies.

Two important assumptions lie hidden behind this statement. The first is that shareholders fear the acting in concert rules and, therefore, will be less inclined to co-operate. There is evidence to support this assumption, taking into account the difficulty of researching this issue (§ 7.4.3.3, sub I.i). The cues are primarily provided by major shareholders themselves. Irrespective of these cues, there is wide consensus that obscure or too strict acting in concert regulations present a real risk to shareholder collaboration. If it is at all possible, it involves high(er) costs, estimated to vary between 3 and 27% of the total costs related to active share ownership. The second main assumption is that shareholder co-operation has positive effects on the corporate governance within listed companies. As said, this assumption is supported by the necessary theoretical and empirical findings (§ 2.4.4). It is also assumed in the most important corporate governance codes worldwide, which increasingly expect shareholders to join forces in order to fulfil their role in the whole of checks and balances (§ 2.4). The threat of a mandatory bid or the obscurity on this issue may frustrate an effective dialogue between (a group of) shareholders and corporate managers or shareholders hesitating to call the board to account, vote out risky takeovers, or take a seat in a shareholders or supervisory board nomination committee. Minority shareholders could obviously suffer ill effects from this too, so that the mandatory offer rule would not even achieve its own goal.

Again, a large part of the observed problem can be solved by replacing the current acting in concert definition by a more clearly demarcated one, in which the notion of control is to be introduced (§ 7.4-7.6). A proper demarcation would avoid an overly strict definition that unjustifiable hampers shareholder co-operation. Control should be defined as the exercise of decisive influence on the decisions pertaining to the identity or nature of the company or the strategy of the associated enterprise. As for the element of “identity or nature”, conjunction should be sought with Article 2:107a of the Dutch Civil Code, which gives the general meeting of a public limited company (naamlozevennootschap) the right of approval as regards important management resolutions. This definition firstly safeguards the protection of the interests of the minority shareholders (§ 7.4.3.2). The elements of “identity or nature” and “strategy” together form the essence of the company and its associated enterprise and, therefore, would tie in excellently with any definition of control. In the second place, the decisions that would come under this definition (§ 7.5.5-7.5.6) would be important enough to justify an obligation to make an offer; the acting in concert regulations would be no stricter than necessary and thus be no impediment for collaboration within the framework of better corporate governance (§ 7.4.3.3, sub I). Finally, this criterion would make it sufficiently clear as to which types of decisions would be involved here (§ 7.4.3.4).

Nonetheless, even if the definition of control as I propose would be adopted as a point of departure, there would be grounds for the NAFM to be designated as the supervisory authority regarding mandatory offers (see sub III below). I do not support an exemption for collaboration that aspires to improve corporate governance (§ 10.3.4 and § 15.4.2-15.4.3) or a legal suspicion that, in that case, acting in concert does not apply (§ 11.4.3.3-11.4.3.4). The main objection is that it is simply not possibly to properly distinguish corporate governance collaboration from “normal” collaboration. There may well be a certain consensus as to the content of corporate governance and in some cases there can be no doubts about a topic being related to it, but there is no fixed, practically usable criterion (§ 7.4.3.3 sub II.iii).

There is no supervision on the compliance with the obligation to launch a public offer in the Netherlands. It is true that the NAFM and the Enterprise Chamber have been designated as “supervisory authorities” in the sense of the Takeover Directive, but solely insofar as it concerns the offer procedure (NAFM; § 16.2.2) and the equitable price rules, which are merely part of the mandatory offer rule (Enterprise Chamber; § 16.2.2 and § 16.2.4). The supervision on the compliance with the obligation itself has deliberately been left to the market. Enforcement of the obligation to make an offer, however, is a job for the Enterprise Chamber (§ 16.3.3.3), but – as aforesaid – it does not supervise.

The criticism of the Dutch supervisory system is not new. An evaluation was carried out in late 2015. The remarkable conclusion was that, according to the minister, the suggested improvements came with downsides, whereas it remained insufficiently clear why the suggested adaptations would be essential in the public interest. The present study puts the adopted – and recently enforced – system up for debate from the perspectives of both the minority and other shareholders.

Minority shareholders are incapable of effective supervision themselves. Apart from a structural information disadvantage, they also struggle with evidentiary problems (§ 16.2.3.3). Individual minority shareholders also lack the economic impetus to turn to the Enterprise Chamber in order to demand the enforcement of the obligation to make an offer (free rider problem).

Given the foregoing, the lack of a supervisory body is undesirable and, moreover, contravenes the Takeover Directive; on the grounds of this directive, the member states must designate a supervisory body and impose sanctions on non-compliance with the mandatory offer rule (§ 16.2.3.3). This is awkward, the more so because all the countries investigated except the Netherlands have designated a supervisory body that is charged with the supervision of the compliance with the obligation (§ 5.9).

Considering all this, I argue for the designation of the NAFM as a supervisory authority. It has the required experience, expertise and authorities, is already authorised as regards the “usual” public offer rules. What is more, it closely cooperates with other supervisory bodies in various international networks – as, indeed, the Takeover Directive prescribes. This applies to the supervision on the compliance with both the obligation itself (§ 16.2.3.4) and the equitable price rules (§ 16.2.3.4).

I also believe that the NAFM should be charged with the enforcement of the obligation to launch a public offer (§ 16.3.4.2). This not only more or less follows from the supervisory role that I propose, but an even more important argument is that the NAFM – better so than the Enterprise Chamber – is capable of providing insight into its enforcement policy and – unlike the Enterprise Chamber – can be approached for questions from the market (see sub ii. below). Finally, it is desirable that the NAFM can apply its whole repertory of administrative law enforcement measures. The arguments for charging the Enterprise Chamber with the enforcement of the obligation to launch a bid (§ 16.3.3.2) are not persuasive. In the detailing of the NAFM’s enforcement duties it would be of great importance that it can pass its own independent judgement as to whether the obligation has been violated or not (§ 16.3.4.3). Last but not least, I believe that the Enterprise Chamber, on the other hand, should be the designated court for settling disputes on the NAFM’s decisions, unless it remains involved in the enforcement of the mandatory offer rule – in which case legal protection along the route of administrative law would be more obvious.

The system adopted in the Netherlands is also questionable from the perspective of the other shareholders. Practice has revealed a need for a possibility to approach a supervisory body with queries concerning the conclusion or alteration of a cooperative partnership or making transactions in its margins. There is also demand for a supervisory authority that provides insight in its enforcement policy beforehand, for instance by publishing relevant guidelines or policy rules. This need emerges from the fact that the acting in concert regulations are surrounded by darkness (see above). The primary example is the uncertainty as to which type of concertation leads to an obligation to launch an offer (Chapters 6-10). This can make shareholders shy away from collaboration that would have contributed to better corporate governance (§ 7.4.3.3). An alteration in an existing collaboration that might, or might not, result in a mandatory bid (§ 15.2.2 and § 15.3.2-15.3.4) is another prompt for questions.

In the investigated countries, it is common to consult the supervisory body for more information on the mandatory bid regulations. This body often also plays an active role in the provision of guidance when it comes to the acting in concert rules. In some countries, this guidance runs through policy rules, whereas others (also) have the possibility of asking the supervisory body to determine beforehand as to whether an obligation to extend an offer will arise in a concrete, future case. In all the countries investigated, the supervisory body is authorised to grant dispensation – not only in cases as specified in the legislation, but also in other instances; it is only in the Netherlands where this possibility is limited to the financial distress of the target company (§ 15.6.2). Moreover, in the investigated countries, this authorisation to grant dispensation plays an important role in practice.

The rub here is that the Netherlands does not have any such possibility to acquire clarity on mandatory bids and the supervisor’s enforcement policy, the more so because the so-called ESMA white list does not work here. ESMA, the umbrella organisation of European bodies supervising the securities markets, published policy rules for national supervisory authorities in late 2013, in which it clarified which cases will not constitute acting in concert (§ 3.6, § 7.4.2.2 and § 16.3.5.4). The white list does not have its intended effect in the Netherlands, as the enforcement of the obligation to launch a bid in this country has been placed with the Enterprise Chamber, which, being independent, is not bound by the policy rules drafted by ESMA (see sub I above). I would like to agree with the legislator that it would be sensible for the Enterprise Chamber to involve these European standards in its considerations about any request for the enforcement of a mandatory bid, but it is unlikely that “the market” would take them as guidelines to go by.

Considering all this, in my view the NAFM should be designated to be the enforcing body instead of the Enterprise Chamber. From the perspective of the other shareholders, the main reason to authorise the NAFM to enforce mandatory offerings is that – unlike the Enterprise Chamber – it is able to provide insight into its enforcement policy and – better so than the Enterprise Chamber – can be approached for questions from the market (§ 16.3.4.2 and § 16.3.5.3).