LUXEMBOURG Law and Practice Contributed by: Ana Nicoleta Andreiana, Christophe Boyer, Noémi Gémesi and Tom Hamen, Loyens & Loeff
Offers cannot be conditional on securing financing. The bidder must be able to honour the offer in full at the time of announcement, ensuring deal certainty and protecting shareholder interests. 4.10 Types of Deal Protection Measures The Takeover Law includes, among others, a Board Neutrality Rule and a Breakthrough Rule (each term is defined below). As a general rule when adopting any measures, the board of directors must always act in the corporate interest of the Luxembourg target com- pany. Board Neutrality Rule The Takeover Law allows Luxembourg companies to choose whether they wish to subject their board to neutrality in the context of a takeover bid. In this respect, the general meeting of shareholders of the Luxembourg company may resolve in accordance with the conditions applicable to amendments of the articles of association – even before a takeover – to prevent the board from adopting defensive measures against a takeover bid (the Board Neutrality Rule). In application of the Board Neutrality Rule, the general meeting of the shareholders may decide to require the board to submit for their prior approval during a takeo- ver offer, the adoption of any defensive action which may result in the frustration of the takeover bid. The opt-in to the Board Neutrality Rule is reversible. The decision to opt-in to the Board Neutrality Rule must be notified to the CSSF, as well as to all supervisory authorities of the member states on whose regulated markets the Luxembourg target company’s shares are admitted to trading or to which such a request has been made. Absent such decision by the general meeting to adopt the Board Neutrality Rule, the default position is that the board may adopt such defensive measures as per- mitted by the Luxembourg law of 10 August 1915 on commercial companies, as amended, and as it may deem appropriate. If the general meeting of shareholders has opted-in to the Board Neutrality Rule, the board must obtain the prior approval of the general meeting of the share- holders for any defensive measures which it wishes
to implement, except for actions aimed at triggering a competing bid. Breakthrough Rule The Takeover Law provides for an optional rule accord- ing to which any restrictions on the transfer of securi- ties or restrictions on voting rights provided for in the articles of association or in contractual agreements relating to the Luxembourg target company shall not apply during the time allowed for acceptance of the bid (the Breakthrough Rule). Luxembourg companies are allowed to decide whether to voluntarily opt-in to this rule. The decision to opt-in to the Breakthrough Rule must be taken by the general meeting of the sharehold- ers in accordance with the conditions applicable to amendments of the articles of association. The opt-in to the Breakthrough Rule is reversible. The decision to opt-in to the Breakthrough Rule must be notified to the CSSF, as well as to all supervisory authorities of the member states on whose regulated markets the Luxembourg target company’s shares are admitted to trading or to which such a request has been made. The timeframe for which the Breakthrough Rule is effective corresponds to that for acceptance of the bid. However, this period may be reduced or increased by the CSSF through a specifically reasoned decision. In addition to the aforementioned measures set out in the Takeover Law, pre- and post-bid defensive meas- ures can be undertaken, provided that, where such measures are implemented by the board, they are in the corporate interest of the company. Companies may consider implementing the following legal and strategic mechanisms to deter or neutralise hostile acquisition attempts. • Use the authorised share capital to issue new shares or convertible instruments to a white knight/ one or more shareholders. • Introduce enhanced quorum and majority require- ments for key control decisions, making it more difficult for a hostile party to influence strategic outcomes. • Grant specific board nomination rights to certain shareholders and ensure that the composition of
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