LUXEMBOURG Law and Practice Contributed by: Marcus Peter and Kate Yu Rao, GSK Stockmann SA
9. Defensive Measures 9.1 Hostile Tender Offers
frequently, M&A litigation comes into question in rela - tion to private M&A transactions. 10.2 Stage of Deal In principle, litigation happens after a private M&A deal has been completed, and usually concerns either earn-out provisions or warranty claims. In public M&A, litigation is rare, except in hostile takeovers. 10.3 “Broken-Deal” Disputes While no significant litigation has arisen in Luxembourg from M&A transactions affected by the COVID-19 pan - demic, the experience has influenced market practice. Parties now place greater emphasis on the drafting and negotiation of material adverse change (MAC) and material adverse effect (MAE) clauses, with increased attention to carve-outs for pandemics, public health emergencies and systemic events. The pandemic has also reinforced the importance of clearly defining the allocation of risk between signing and closing. Shareholder rights and governance in Luxembourg are mainly based on the provisions of the company’s articles, the Luxembourg Civil Code, the Corporate Law and, for listed companies, the rules and regula - tions of the Luxembourg Stock Exchange. Moreover, the Luxembourg Law of 24 May 2011 on the exercise of certain rights of shareholders in general meetings of listed companies and as amended by the Law of 1 August 2019 (the “Shareholder Rights Law”) estab - lished specific requirements to encourage sharehold - er engagement. The Shareholder Rights Law offers a comprehensive framework for more transparency, accountability and increased shareholder rights, including the right of approval of important transac - tions with related parties. Following the reform in 2016, the Corporate Law now provides for several rights for minority shareholders, encouraging the management of Luxembourg compa - nies to take greater account of the potential involve - ment of shareholders, including minority shareholders. Lastly, the Merger Control Law (see 2.1 Acquiring a Company ) provides that in the case of cross-border 11. Activism 11.1 Shareholder Activism
The Takeover Law does not restrict hostile bids in Lux - embourg; the rules and the process are governed by the provisions of the Takeover Law, which imposes restrictions mostly on the target company. However, hostile takeovers are not common in Luxembourg, as they are not supported by the management of the target company, which will take defensive measures to stop the bid. 9.2 Directors’ Use of Defensive Measures The Corporate Law provides that the transfer of cor - porate shares or units shall not be valid vis-à-vis the target company or third parties until the transfer has been notified to the management of the target com - pany or accepted by it in accordance with the provi - sions of Article 1690 of the Luxembourg Civil Code. If the management of the target company does not deem the offer to be in the best interests of the com - pany, it may resist such offer by employing defen - sive measures. However, the bidder may still make its offer public, which then becomes a hostile takeover. In this case, the board of directors of the target com - pany may seek another interested party that wants to acquire the target company. The management of the target company may also object to the offer by plead - ing respective economic or other arguments. 9.3 Common Defensive Measures See 9.2 Directors’ Use of Defensive Measures . 9.4 Directors’ Duties See 8.1 Principal Directors’ Duties and 8.3 Business Judgement Rule . 9.5 Directors’ Ability to “Just Say No” See 9.2 Directors’ Use of Defensive Measures .
10. Litigation 10.1 Frequency of Litigation
Litigation in relation to M&A deals is uncommon in Luxembourg, except in hostile public offers, where litigation is a substantive part of the process. Most
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