The implementation of Spain’s takeover code is likely to be welcomed by buyout firms in the market as it helps align the interests of buyers, shareholders and target companies. It has clarified the law relating to rival bids and it will bring the country in line with the rest of Europe.
Fernando Torrente, from Spanish law firm Cuatrecasas, says: “The law is good because it has been passed through with the minimum of political interference taking into account technical considerations.”
The law will now make it necessary for parties with a share holding of over 30 percent to make an obligatory bid for a target company.
Had the changes been brought in earlier, CVC Capital Partners might have benefitted. Its accepted bid for Spanish retailer Corte Fiel had a break fee inserted as a clause into the contract of the bid. However, Spanish regulator CNMV intervened to disallow the agreement, aiding Permira and PAI Partners in their rival bid. The three buyout firms eventually took the company private together, CVC licking its legal wounds to join the consortium.
Permira also suffered from previous legislation that forced bidders to table bids which complied with the minimum shareholder acceptance demanded by other bidders. This meant Permira had to take Spanish pizza company Telepizza private with only a 50 percent stake in the company.
By contrast, the new law will allow shareholders to consider the highest valued bid first regardless of structure, allowing private equity firms to demand the 75 percent acceptance rates they often seek. If this bid is rejected for technical reasons shareholders will then be allowed to consider a rival lower bid with a preferable structure.
Buyout firms have also welcomed a squeeze-out clause which allows firms which own 90 percent of a company’s equity to force out other shareholders.
But it is not all good news. The new takeover code gives and takes away. CVC is also likely to be hindered in its attempts to buy tobacco company Altadis, as the legislation will assist trade buyer Imperial Tobacco in its accepted €16.2 billion ($22 billion) bid for the company. The legislation will allow Imperial to have the option of trumping any last minute bid by CVC, if this were 2 percent higher than its bid.
Torrente says the legislation is overwhelmingly positive. However, he says given the law is meant to implement an European Union directive he is highly disapproving of the original legislation which allows governments to retain powers to intervene in foreign bids for domestic companies. While he concedes this should be the case for certain industries such as defence, Torrente is indignant about the EU’s failure to standardise where such an action is appropriate.
For buyout firms eyeing up the Spanish market such concerns are likely to be lessened as the clear proposals should hasten less state interference in deference to a clearer takeover code.