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31 January 2007
On November 2 2006 Decree-Law 219/2006 implemented the EU Takeover Directive (2004/25/EC) and, in part, the EU Transparency Directive (2004/109/EC). Despite the fact that only part of the Transparency Directive was transposed,(1) the legislative amendments required to adopt the harmonization rules laid out therein have had a considerable impact on the market.
The decree-law amends Article 20(1) of the Securities Code. The new version of this provision broadens the concept of attribution of voting rights to shareholders. The attribution of voting rights is taken into account in assessing whether a particular shareholder has a qualifying holding in a company. Thus, the concept of a qualifying holding is extremely important in the context of mandatory takeover bids.
Pursuant to Article 187(1) of the code, a party whose shareholding in a public company exceeds, directly or otherwise in accordance with Article 20(1), either one-third or half of the voting rights attributable to the share capital must launch a takeover bid for all of the shares and any other securities issued by the company that grant rights to their subscription or acquisition (eg, convertible bonds or warrants). This provision is aimed at protecting minority shareholders' rights. Thus, any change in the criteria used to calculate the attribution of voting rights may have a significant influence on a potential mandatory takeover bid.
In accordance with the decree-law's changes to Article 20(1), the attribution of voting rights now includes rights which are held by persons that have entered into an agreement with a shareholder with the aim of:
Why is the adoption of this provision relevant? Previously, shareholders that did not have sufficient voting rights to control a company often entered into agreements that gave them pre-emptive rights to acquire shares in the company or allowed them to control the company's major decisions in conjunction with other shareholders. Such agreements may now fall under Article 20(1), with the result that voting rights will be attributed to the shareholders, triggering obligations to disclose such information to the Securities Commission and mandatory takeover bids if the relevant thresholds are exceeded.
The government had announced that the new framework would not apply to ongoing takeover procedures; Article 6 of the decree-law provides that this is the case for almost every amendment to the framework. However, Article 5, which establishes transitional provisions, specifies that if the thresholds in Article 187 of the code are exceeded because Article 20(1)(h) applies, the shareholder in question must launch a mandatory takeover bid within 180 days (if the shareholding is above the threshold throughout this period).
Thus, the amendment has no impact on the ongoing merger procedures themselves. However, because the changes enacted in respect of the attribution of voting rights apply from the date on which the decree-law came into force, one ongoing procedure has been affected, namely the takeover of Banco Português de Investimento (BPI).
In March 2005 BPI, a private bank, was the target of a takeover bid by Banco Comercial Português, Portugal's biggest private bank.
The enactment of the new framework, particularly the commission's interpretation of the application of Article 20(1)(h), forced BPI's major shareholders to terminate a longstanding agreement that gave them pre-emptive rights in respect of each other's shares. The agreement had been underwritten by shareholders with aggregate shareholdings of 57%.
The commission's understanding was that the agreement prevented a change of control over BPI and would thus fall under the new provision of Article 20(1). Therefore, the underwriters of the agreement would be obliged to launch a mandatory bid under Article 187 of the code, as they would be deemed to have a qualifying holding in BPI under the terms of Article 20.
This interpretation of Article 20(1) has been severely criticized by the parties to the agreement. They have decided to terminate the agreement, but have stated that they disagree with the commission's view and may take action against the regulator in future
As a result of this amendment, shareholders that exercise control over companies listed on Euronext Lisbon by way of agreements of this kind may face similar problems, as the agreements may be deemed to fall under Article 20(1). If so, and if the 50% voting rights threshold under Article 187 is exceeded, they will be required to make mandatory takeover bids for the companies in question.
For further information on this topic please contact João Caldeira or Vasco Rodrigues at Rui Pena, Arnaut & Associados - Sociedade de Advogados by telephone (+351 21 382 8150) or by fax (+351 21 382 8155) or by email (email@example.com or firstname.lastname@example.org).
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