ITALY: CONSOB guidance on application of Italy takeovers mandatory bid rules

Monday October 1 2012

CONSOB has in a press release confirmed the exclusion of the obligation to make an Italy take-over bid pursuant to Arts. 106 et seq. of the Consolidated Law on Finance to strengthen the equity and financial structure of a company to be obtained through a share capital increase with options offered to the shareholders and the simultaneous renegotiation of some agreements in place.

In particular, with reference to the operation concerned, it is envisaged that the share capital increase shall be governed by a framework agreement, which, it is specified, will not contain any provision that may affect the company`s governance, nor will it have a shareholder`s nature in accordance with Art. 122 of the Consolidated Law on Finance and which would lose effect upon completion of the subscription commitments and the share capital increase.

In this context, some of the direct and indirect shareholders of the issue expressed their willingness to provide the company with sufficient financial resources to proceed with the share capital increase. Additionally, two of the shareholders would stipulate a new loan agreement to participate in the share capital increase. This loan agreement has no repayment plan according to the classic scheme of regular disbursement of amounts inclusive of capital shares and interest shares: instead, it has complex methods, terms and conditions in relation to the repayment by one of the two shareholders of its payment obligations with regards to the other, with alternative methods depending on the circumstances arising.

With reference to both agreements, the Commission considered there to be no basis for the application of the mandatory bid with those adhering, insofar as the essential terms of the agreements are aimed: with regards to the first, exclusively at regulating the capital increase aimed at strengthening the company`s equity and financial structure through the contribution of new means not, therefore, entailing a change to the control structure of the listed company; with regards to the second, at assuring the at least partial recovery of receivables.

Moreover, the Commission considered the loan agreement stipulated by the two shareholders for the purpose of assuming a long position pursuant to Art. 44-ter of the Issuers` Regulations (mandatory bid deriving from holding derivatives) and, consequently, the disclosure obligations of major shareholdings pursuant to Art. 119 of the Issuers` Regulations. This insofar as although the loan contract has derivative components, the cause should be seen as lying essentially in the constitution of forms of guarantee in a lateral sense, accessory with respect to the typical activity of the bank shareholder (i.e. the concession of loans with related remuneration of the capital disbursed) and not in the assumption of a significant position in the issuer`s capital with a view to purchasing. The Commission therefore considered that in these cases, the typical ratio of the regulations governing the mandatory bid which, as we know, aim to protect minority shareholders by ensuring their exit from the company in the face of the transfer or consolidation of control by one of more parties in the listed issuer, lies outside the contract.

A similar conclusion must be drawn with reference to the major shareholding disclosure regime pursuant to Art. 119 of the Issuers` Regulations, as it is appropriate to circumscribe application of transparency rules to only cases that are truly relevant in terms of correct market information.

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