Derogation under the Luxembourg Takeover Law granted by the CSSF
16 March 2022
16 March 2022
On 14 March 2022 in the context of the acquisition of a company incorporated under German law (HomeToGo GmbH) by a Luxembourg incorporated special purpose acquisition company (Lakstar SPAC I SE) (the "SPAC") the CSSF granted a derogation from the obligation to launch a mandatory takeover bid pursuant to article 5 (1) of the Luxembourg law of 19 May 2006 on takeover bids (the "Luxembourg Takeover Law"). Please see the press release published under Derogation Takeover Law: Lakestar SPAC I SE (renamed HomeToGo SE) – ISIN: LU2290523658 – CSSF.
The derogation was granted in accordance with article 4 (5) of the Luxembourg Takeover Law to all the persons acting in concert in the context of the consummation of the business combination between the SPAC and the subscription of newly issued shares by the SPAC by such persons acting in concert who thus temporarily acquired control of the SPAC. The shares issued by the SPAC (ISIN LU2290523658) have been admitted to trading on the regulated market of Frankfurt Stock Exchange and the CSSF is the competent authority with respect to the granting of any derogation under the Luxembourg Takeover Law in the present case pursuant to article 4 (2) e) of the Luxembourg Takeover Law. For more information on SPACs and listings of such companies please also refer to our previous legal update.
The CSSF's decision is based on the argumentation that the shareholders of the SPAC during the process of the business acquisition and combination had the possibility to make an informed decision as to whether or not they should stay in the structure. According to the CSSF this was in particular reflected by the fact that the business combination was submitted for approval in the context of the extraordinary general meeting of shareholders of the SPAC and the possibility of an unlimited exit for shareholders not approving the proposed acquisition of HomeToGo GmbH. Thus the CSSF came to the conclusion that the interests of the minority shareholders had been sufficiently taken into account and protected so that the application of article 5 (1) of the Luxembourg Takeover Law was not necessary.
In the context of the derogation it should be worthwhile focusing on the key points of the Luxembourg takeover regime for listed equity issuers in a high-level manner.
The Luxembourg Takeover Law establishes a framework for both mandatory and voluntary takeover bids. Generally speaking, it is applicable to Luxembourg incorporated issuers of securities carrying voting rights which have been admitted to trading on a regulated market. Consequently, listings on multilateral trading facilities such as the Luxembourg Euro MTF market are not sufficient. Furthermore, it is not applicable to open-ended funds (i.e. issuers which operate on the principle of risk-spreading and the units of which can be repurchased or redeemed at the holders' request).
It is, however, not necessary that the admission to trading has been obtained on a regulated market in Luxembourg. In a situation in which the securities issued by a Luxembourg incorporated target company have been admitted to trading on another EEA regulated market the competent supervisory authority with respect to any takeover bid is not the CSSF but the supervisory authority of the EEA Member State where the regulated market is located. Consequently, the takeover framework applicable in that EEA Member State is the main legal framework under which any bid would have to be launched. This is the situation in the case at hand as the relevant securities have been admitted to trading on the Frankfurt Stock Exchange.
However, in such a cross-border context according to article 4 (2) e) of the Luxembourg Takeover Law matters relating to the information to be provided to the employees of the target company and all matters relating to company law, in particular the percentage of voting rights which confers control and any derogation from the obligation to launch a bid as well as any squeeze-out and sell-out procedures, among others, are governed by the Luxembourg Takeover Law. On the other hand most procedural aspects of the takeover bid are, however, governed by the laws of the EEA Member State where the listing has been obtained. This includes aspects such as the offer price, the contents of the offer document, the disclosure of the bid etc.
Pursuant to article 5 (1) of the Luxembourg Takeover Law a mandatory bid must be made whenever a natural or legal person as a result of his/her acquisition or the acquisition by persons acting in concert with that person obtains securities of a target company which, added to any existing holdings of those securities, directly or indirectly provide a specific percentage of voting rights in the target company giving that person control of the target company.
Control over the target is obtained if the relevant person(s) hold(s) a percentage of 33 1/3% of voting rights in the target company. Generally speaking, the acquisition of such a controlling holding needs to occur during the time of listing. Therefore, usually issuers which are already controlled by a certain shareholder or shareholders acting in concert at the time the relevant securities were first admitted to trading on a regulated market cannot become the target of a mandatory bid. The reason for this is that in such a case control had already been established before the admission to trading took place.
As was the case in the context described above control is often times not acquired alone but by persons acting in concert. Under the Luxembourg Takeover Law persons acting in concert mean natural or legal persons who cooperate with the offeror or the target company on the basis of an agreement, either express or tacit, either oral or written and which is aimed at acquiring control of the target company. Any person acting in concert is also under the general obligation to launch a mandatory bid and therefore any derogation granted from the obligation by the CSSF must be addressed and granted to all persons involved (i.e. main offeror and persons acting in concert). This is also reflected by the structure of the derogation granted in the present context.
The Luxembourg Takeover Law also provides for specific squeeze-out and sell-out procedures which are applicable subsequent to a takeover bid. These rules must be distinguished from the rules set out in the Luxembourg law of 21 July 2012 on the mandatory squeeze-out and sell-out of securities issued by companies currently or previously admitted to trading on a regulated market (the "Luxembourg Squeeze-out and Sell-out Law"). Both contexts do not overlap. In the aftermath of a mandatory or voluntary takeover bid the squeeze-out and sell-out rules of the Luxembourg Takeover Law take precedence over the Luxembourg Squeeze-out and Sell-out Law.
Simply speaking the right of squeeze-out under the Luxembourg Takeover Law entitles an offeror to require all the holders of the remaining securities to sell him/her those remaining securities at a fair price when the offeror as a result of the takeover bid holds securities not less than 95% of the capital carrying voting rights and 95% of the voting rights in the target company. The right of sell-out with respect to any remaining minority securities holders arises if the offeror holds, alone or together with persons in concert, securities carrying more than 90% of voting rights in the target company as a result of a preceding takeover bid. In such a case the minority securities holders are entitled to require the offeror to buy their securities at a price.
In both cases (i.e. squeeze-out and sell-out procedures) it is important to note that the fair price is generally considered to be the one offered in the takeover bid. However, in situations in which the price offered in the bid consisted of securities or a combination of cash and securities a cash alternative must be offered as an alternative.
For more information please contact our Ashurst Capital Markets Team.