CZECH REPUBLIC Law and Practice Contributed by: Petr Janů, Vladislav Klimeš and Leoš Vavřík, BADOKH
9. Defensive Measures 9.1 Hostile Tender Offers
directors and shareholders are likely to imple - ment some of the defensive measures well in advance of receiving a takeover bid, as imple - mentation in the latter stages would become troublesome. These advance defensive meas - ures typically include: • issuance of different share classes, where one share class has stronger voting rights and such shares remain in the hands of found - ers (making them virtually inaccessible to the bidders); • implementing a higher quorum of voting rights at the general meeting for certain reserved matters (such as change of by-laws, recall of directors, issuance of new shares, and so forth), making the company less attractive for a takeover by creating obstacles for the bidders; and • purchase of own shares by the company. Another common defensive measure may be the so-called white knight’s response, in which the directors actively pursue a competitive takeo - ver bid. The white knight’s response typically becomes relevant only once there is a bid to compete with. Other defensive measures one may usually see in different jurisdictions such as “poison pills” , “suicide pills” or “golden parachutes” are either not permissible or impractical under Czech law. 9.4 Directors’ Duties At all times, the directors are obliged to act with due care in the company’s best interest, which may or may not be aligned with the interests of the directors or shareholders of the company. In public companies, the directors have to follow the duty of neutrality. Despite this, the share - holders may instruct the directors to adopt cer - tain defensive measures in response to a takeo -
Hostile tender offers are not prohibited in the Czech legal system, which implies their permis - sibility. However, they are rare because of the small number of publicly traded companies with high capitalisation. The takeover process usu - ally involves friendly negotiations with the target board of directors to increase the likelihood of a successful takeover bid. 9.2 Directors’ Use of Defensive Measures The directors in a public company have to follow the duty of neutrality once they become aware of the likelihood of receiving a takeover bid. Once the duty of neutrality becomes relevant, the directors may not undertake any defensive measures that could stave off the takeover bid unless the company’s general meeting has sanc - tioned such actions, or the law requires such actions, or such actions fall within the ordinary course of the company’s business. Nonetheless, the directors may freely put in place defensive measures before becoming aware of the likelihood of receiving a takeover bid or actively pursue a competitive takeover bid and even submit their own competitive takeo - ver bid after becoming aware of the likelihood of receiving a takeover bid, without breaching any principal directors’ duties. Directors of a private company may undertake any defensive measures as long as they follow the general due care requirements and act in the company’s best interest. 9.3 Common Defensive Measures Various defensive measures can make the con - ditions of a hostile takeover more difficult. The
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