Corporate / M&A

Acting in Concert – ESMA strengthens shareholder activism

In November 2013 ESMA published a statement on shareholder cooperation and acting in concert under the Takeover Bids Directive, including a White List of activities under which shareholders shall not be deemed as concert parties.

Clarification of the concept of “acting in concert” at EU level

In 2012, the Euro­pean Com­mis­sion pub­lished a report on the Takeover Bids Direc­tive 2004/25/EC and rec­om­mend­ed the clar­i­fi­ca­tion of the con­cept of “act­ing in con­cert” at EU lev­el. Such clar­i­fi­ca­tion should lessen uncer­tain­ty for inter­na­tion­al investors who wish to coop­er­ate with each oth­er on cor­po­rate gov­er­nance issues, but who feel inhib­it­ed from doing so for fear that they might risk hav­ing to make a manda­to­ry bid and may there­fore avoid such coop­er­a­tion, which in turn could under­mine the poten­tial for desir­able long-term engaged share own­er­ship under which share­hold­ers effec­tive­ly hold the board account­able for its actions. Nation­al com­pe­tent author­i­ties took an active part in prepar­ing this report and agreed that the nation­al takeover rules should not be applied in such a way as to inhib­it such coop­er­a­tion.

For these rea­sons, the Euro­pean Secu­ri­ties and Mar­ket Author­i­ty (ESMA) pub­lished a state­ment in Novem­ber 2013 iden­ti­fy­ing cer­tain share­hold­er activ­i­ties in rela­tion to which share­hold­ers can coop­er­ate and exer­cise good cor­po­rate gov­er­nance over the com­pa­nies in which they have invest­ed with­out that coop­er­a­tion lead­ing to a con­clu­sion that the share­hold­ers are act­ing in con­cert and thus being at risk of hav­ing to make a manda­to­ry bid. These activ­i­ties were pre­sent­ed in the form of a “White List”.

Accord­ing to this list, the fol­low­ing activ­i­ties will not in and of them­selves lead to a con­clu­sion that the share­hold­ers are act­ing in con­cert:

  • Enter­ing into dis­cus­sions with each oth­er about pos­si­ble mat­ters to be raised with the company’s board;
  • Mak­ing rep­re­sen­ta­tions to the company’s board about com­pa­ny poli­cies, prac­tices, or par­tic­u­lar actions that the com­pa­ny might con­sid­er tak­ing;
  • Oth­er than in rela­tion to the appoint­ment of board mem­bers, exer­cis­ing share­hold­ers’ statu­to­ry rights to (i) add items to the agen­da of a gen­er­al meet­ing, (ii) table draft res­o­lu­tions for items includ­ed or to be includ­ed on the agen­da of a gen­er­al meet­ing, or (iii) call a gen­er­al meet­ing oth­er than the annu­al gen­er­al meet­ing;
  • Oth­er than in rela­tion to a res­o­lu­tion for the appoint­ment of board mem­bers, agree­ing to vote the same way on a par­tic­u­lar res­o­lu­tion put to a gen­er­al meet­ing, in order, for exam­ple
    • to approve or reject (i) a pro­pos­al relat­ing to direc­tors’ remu­ner­a­tion, (ii) an acqui­si­tion or dis­pos­al of assets, (iii) a reduc­tion of cap­i­tal and/or share buy-back, (iv) a cap­i­tal increase, (v) a div­i­dend dis­tri­b­u­tion, (vi) the appoint­ment, removal or remu­ner­a­tion of audi­tors, (vii) the appoint­ment of a spe­cial inves­ti­ga­tor, (viii) the company’s accounts, or (ix) the company’s pol­i­cy in rela­tion to the envi­ron­ment or any oth­er mat­ter relat­ing to social respon­si­bil­i­ty or com­pli­ance with rec­og­nized stan­dards or codes of con­duct;
    • to reject a relat­ed par­ty trans­ac­tion;

Fur­ther, ESMA clear­ly iden­ti­fied that share­hold­ers may wish to coop­er­ate on the appoint­ment of one or more mem­bers to the (super­vi­so­ry) board of a com­pa­ny in which they have invest­ed. How­ev­er, enter­ing into any agree­ment to exer­cise votes in the same way in order to sup­port such appoint­ment or tabling a res­o­lu­tion to remove board mem­bers or to appoint one or more addi­tion­al board mem­bers was not set onto the White List.

Instead, ESMA rec­om­mends that nation­al author­i­ties shall con­sid­er on a case-by-case basis the fol­low­ing facts when eval­u­at­ing cas­es of such coop­er­a­tion: (i) the nature of the rela­tion­ship between the share­hold­ers and the pro­posed board member(s), (ii) the num­ber of pro­posed board mem­bers being vot­ed for pur­suant to a share­hold­ers’ vot­ing agree­ment, (iii) whether the share­hold­ers have coop­er­at­ed in rela­tion to the appoint­ment of board mem­bers on more than one occa­sion, (iv) whether the share­hold­ers are not sim­ply vot­ing togeth­er but are also joint­ly propos­ing a res­o­lu­tion for the appoint­ment of cer­tain board mem­bers, or (v) whether the appoint­ment of the pro­posed board member(s) will lead to a shift in the bal­ance of pow­er on the board when con­sid­er­ing cas­es of such coop­er­a­tion in rela­tion to board appoint­ments.

The newly published White List helps lessen uncertainty with respect to acting-in-concert cases and strengthens shareholder activism. Unfortunately, agreements to exercise voting rights in the same way in order to support the appointment of one or more board members were not included on the White List. It remains to be seen whether further amendments to the White List will include such agreements.