A CODE WITH CLOUT(2)

Spain's new takeover code was introduced in August this year with the aim of aligning the interests of buyers, shareholders and target companies more effectively. It has clarified the law relating to rival bids and will effectively bring the country into line with common practice in the rest of Europe.

One example of this is that parties with a shareholding of over 30 percent now need to make an obligatory bid for a target company. This should put an end to the so-called “partial takeover”, whereby Spain's big industrial, financial and family groups have in the past been able to gradually build minority control of one another with little regard to minority shareholders.

The law has also strengthened the legal footing on which break fees are based. Had the changes been brought in earlier, CVC Capital Partners might have benefitted. Its recommended bid for Spanish retailer Cortefiel had a break fee inserted as a contractual clause. However, Spanish regulator CNMV intervened to disallow the agreement – ahead of Permira and PAI Partners agreeing a deal. The three buyout firms eventually took the company private together, with CVC joining the consortium after having licked its wounds.

CVC also finds itself in the spotlight in relation to another aspect of the Code. The pan-European buyout firm has reportedly long been considering a bid for Altadis, one of Europe's largest tobacco firms. The Altadis board accepted an £11 billion (€16 billion; $22 billion) offer from trade buyer Imperial Tobacco earlier this year. However, at the time of going to press, CVC was still considering its options according to reports.

If CVC does eventually decide to commit to a bid, it would then hope to not be disadvantaged by a modification to the Code which allows an initial bidder – Imperial Tobacco in this case – to make a revised pitch to shareholders if its offer comes in less than two percent below that of a competitor.

On the whole, though, the changes appear to have been broadly welcomed by the private equity industry. Particularly popular has been the introduction of a squeeze-out clause, by which a buyer can force hesitant shareholders to sell once it controls 90 percent of the equity.