December 15, 2008

1. The Implementation of the Takeover Directive in the NetherlandsEuropean Takeover LawThe State of the ArtJoseph A. McCahery __________________________________________________ December 15, 2008

2. This Presentation • Pre-History • Ownership and Governance Context • Implementation of Takeover Directive • Mandatory Bid • Exemptions • Acting in Concert • Infringement of Mandatory Bid • Evidence • Who Should Supervise Takeovers?

3. Pre-history • 1970 - 2001: self regulation (SER Fusiecode) • 2001: offer rules in law; AFM public supervisor • Enterprise Chamber adjudicates disputes about the distribution of powers between the management board, supervisory board and the AGM (ie, raising anti-takeover devices and approval of major board decisions) • Tabaksblat Code (2003): ‘Self regulation through a code is too weak an instrument for takeover battles and therefore not suitable’

4. The Netherlands compared with the average European country (EU – OECD), UK, and US for what concerns: the percentage of closely held shares computed from the Financial Sector Development Indicators (FSDI) (World Bank), the percentage of dual class shares and a measure of corporate governance quality (Corporate Governance Quotient) from the Institutional Shareholders Services (ISS) database.

5. Implementation of Takeover Directive • Dutch implementation of Takeover Directive • Decree on Public Takeover Bids (Besluit Openbare Biedingen) • Implementation Act (Wet Openbare Biedingen) • Jointly the Public Bid Rules came into force on 28 October 2007

6. Implementation of Takeover Directive • Implementation of Takeover Bids Directive • Implementation of mandatory bid rule (30%) • Competing bid provisions • Modernization of offer rules • Possibility for early interference by AFM • Introduction of right of appraisal minority shareholders (pending) • Limitations: no restrictions on frustrating actions, no put up or shut up rule, acting in concert rules are vague and uncertain; no finality by auction

7. Mandatory Bid Any party, acting alone or in concert with others who acquires a controlling interest, directly or indirectly, must make a bid for all other shares (Article 5:70 FSA) • Controlling interest—30% of voting rights at a general meeting • Bid price—must be fair, which is considered to be equal to highest price paid for the shares in the 12 month period before the obligation to make the bid arises (if no purchases made, then a fair bid price is equal to average of quoted share price in that 12 month period • May not be subject to the fulfillment of offer conditions

8. Exemptions • A third party that already has controlling interest at the time of the entry into force of the Act is exempt • Also applies to party that increases his controlling interest later on

9. Other Exemptions • In cases where controlling interest has been obtained through: • Voluntary bid • Independent legal entity that issues depository receipts with the cooperation of the company • Transfer of controlling interest within a group • Company that has suspended payments or is bankrupt • In an open end investment company • Before shares or depository receipts are admitted to trading on a regulated market • Through a protective foundation that acquired controlling interest after announcement of law

10. Mandatory Bids • Given less flexibility in setting the price & mandatory bid may not be made subject to offer conditions, there are few mandatory bids • Shareholders will ensure that their interest in a target company does not exceed 30% (or reduce such interest with 30 day period) or make a voluntary bid in which they have more flexibility

11. What is the Evidence? • Early predictions seem confirmed: • Since the implementation of the TOD, there have been two real mandatory bids: CVC/Schuitema and 3LCapital/Exendis. • In both cases the offerors, CVC, respectively 3LCapital acquired a stake in respectively Schuitema and Exendis after which they issued a mandatory bid. Both mandatory bids were not imposed by the Enterprise Chamber but ‘voluntarily’ issued by both offerors. 

12. RijnDijn/Gouda Vuurvast • A third case, (RijnDijk Groep/Gouda Vuurvast) involved a ' normal'  public takeover bid which during the acceptance period was ' transformed' into a mandatory bid by the offeror by acquiring a large stake in the offeree company, dropping all offer conditions (making the offer unconditional) and extending the acceptance period to 4 weeks after the announcement regarding the above.   • The press release stated that, should the rules regarding mandatory bids be declared applicable, the bid was made according to these rules (reasonable price etc).  

13. Acting in Concert • Under Article 1.1 FSA: natural persons or legal entities are acting in concert when they have an agreement (oral or written), the goal of which is to acquire control over the company • Where an agreement is concluded between shareholder and target company, a concerted action will also exist if the purpose of the agreement is to frustrate the successful outcome of a public bid • Must be explicit or implicit agreement and does not have to be permanent • Whether cooperation is acting in concert depends on the purpose of cooperation

14. Infringing the Mandatory Bid Rule • If a party infringes the mandatory bid rule, the Enterprise Chamber may upon request of target firm order the shareholder with a controlling interest in the target firm to launch a bid

15. Infringement of Mandatory Bid • Enterprise Chamber can order: • Suspension of voting rights of the controlling shareholder for a certain period • Interdiction for the shareholder with a controlling interest to participate in the AGM for a certain period • Temporary transfer of shares by the shareholder with the controlling interest • Suspension or annulment of certain resolutions of the general meeting of shareholders

16. The Dutch Enterprise Chamber Jurisdiction in the following cases: There are doubts whether a company is properly managed The financial statements of a company are challenged Provisional decisions of the management of a company are challenged by the works council Squeeze-out procedures initiated by a shareholder holding at least 95% of the shares Disputes involving the removal of the Supervisory Board of a company to which the so-called structure regime applies Appeal court in dispute cases regarding non-listed companies Specialization - “three judges - two experts”

17. YES - The Enterprise Chamber appoints one or more independent investigators NO - request rejected An official report The Second Stage No Improper Management Improper Management Possible Measures (a) the suspension or nullification of a resolution of the directors, the supervisory board members, the general meeting or of any other constituent or corporate body of a legal person (b) the suspension or dismissal of one or more directors or supervisory board members (c) the temporary appointment of one or more directors or supervisory board members (d) the temporary derogation from such provisions in the articles of association as shall be specified by the Enterprise Chamber (e) the temporary transfer of shares to a nominee (f) the winding up of the legal entity The Dutch Inquiry Proceeding The First Stage Shareholders - alone or together - 10% of the shares or shares with a nominal value of EUR 225,000 Written Request Is there a substantial reason to question the management of the corporation? The Enterprise Chamber may order preliminary remedies upon request

18. Reported Inquiry Proceeding Decisions

19. Request Final Decision Injunctive Relief Granted T=0in months 1 2 3 4 5 6 7 8 9 10 No Further Inquiry

20. Top 7 Preliminary Remedies Judge-conducted or judge-initiated mediation - no direct adjudication %

21. Who Should Regulate? • AFM supervises legally binding offer rules • AFM can decide to appoint advisors or an advisory committee • But improvement is needed in terms of offer rules and supervision • Introduction of “put up or shut up rule” • Guidance on acting in concert • Clear criteria for transactions that should be approved by AGM

22. Should NL adopt Takeover Panel? • Monitoring Committee and SER study (2008) recommend that Dutch Government investigate whether to implement a Takeover Panel • Could be highly problematic: • Unlike UK, parties will likely appeal and that ultimately Court will decide: ‘finality’ would remain an open issue; • Dutch stakeholder model: no clear reference to base decisions upon

23. Conclusion: Improve Performance of Enterprise Chamber • Improving checks and balances Enterprise Chamber • Fast track approach • Increase number of judges (from 1 to 5: conflict between Ministry of Finance/Ministry of Economic Affairs) • Possibility for board to start an inquiry procedure