Investors Await CNVM Instruction On Mandatory Takeover Bids

The Capital Market Investors Association (AIPC) is waiting for the National Securities Commission (CNVM) to issue a clear, comprehensive, unequivocal instruction to clarify the obligation to perform a mandatory takeover bid, after the Commission started the public consultation procedure on this matter. The instruction will only clarify the applicable internal norms on the subject, which have been in effect for quite a long time, according to an AIPC press release.

"In our interpretation, the instruction is only meant to remind those who are at fault by evading the applicable legal norms that they must comply with the law and urgently perform the mandatory takeover bid, which they should have started within two months from the moment when they took control, directly or indirectly, over more than 33% in a company," the AIPC press release further indicated.

The regulatory framework for the mandatory takeover bid is Law 297/2004 on the Capital Market, CNVM Regulation no. 1/2006, CNVM Regulation no. 31/2006 and EU Directive 25 EC/2004, which were all implemented in the Romanian legislation by 4 January 2007. Law no. 297/2004 unequivocally stipulates it is mandatory to perform a takeover bid if a shareholder, by themselves or in concert with other shareholders, comes into possession of 33% in a company, or exceeds 50% in a company (for shareholders who had 33% at the time when Law 297/2004 came into effect.

As far as indirect takeovers are concerned, the takeover bids became mandatory as of Romania"s accession to the European Union (the effective date is 4 January 2007) via Article 10 of CNVM Regulations no. 31/2006, which harmonizes the provisions of CNVM Regulations 1/2006 with a number of relevant European directives.

The provision complements CNVM Regulation no. 1/2006 which stipulates (Art. 66.5) that "the calculation of the 33% stipulated by Article 203.1 of Law 297/2004 shall consider both direct and indirect holdings." Thus, all those who acquired more than 33% in a listed company after 4 January 2007 were supposed to perform a mandatory takeover bid within two months after acquiring direct or indirect control over 33% in a listed company (50% for those who already held 33% on the date when Law 297/2004 came into effect). The bid must be performed for a price determined as per Art. 204 of Law 297/2004.

AIPC believes that CNVM must fine all those who have evaded their legal obligations thereby with 0.5-5% of their share capital and compel them to become compliant urgently by performing the bids in line with the pricing criteria applicable at the time when the obligation became effective. The purpose of EC Directive 25/2004 is to allow minority shareholders to exit the company at the same price as that paid for the 33% by another shareholder, whose policy they do not share, or find useless for the company. The takeover bid must be made for the same price and within two months of the acquisition of the 33% in order to preserve as much as possible the internal and external context when the leading shareholder acquired at least 33% in the company.

Without a time limit for the takeover bid, any leading shareholder would wait for the first unfavourable market context and make the bid for a lower price than what they paid for their holding. In fact, by not performing the mandatory takeover bid within the legal deadline, the leading shareholder becomes a debtor to the minority shareholders and is liable for their attempt to create an illegal advantage by waiting for unfavourable market circumstances under which to acquire the minority holdings.

AIPC believes that, by tolerating this situation CNVM is disregarding the spirit of the legal provisions on equitable pricing for takeovers. AIPC is firmly requesting CNVM to make certain that the determination of the public takeover bid price is based on the effective date of the obligation to perform the bid (two months after acquiring control) and not the date when a shareholder at fault may decide it is the right moment of them to initiate the bid and therefore cause loss to the minority shareholders. The weighted trading price should be the price of the last 12 months before the deadline for the mandatory takeover bid.