Stibbe represents AkzoNobel's supervisory board in litigation brought by AkzoNobel's activist shareholder Elliot in relation to unsolicited takeover proposals from PPG Industries. In a landmark case on the matter, the Dutch Enterprise Chamber has given important pointers on board conduct in hostile takeover situations.
Background of the case
Recently AkzoNobel N.V., a Dutch-based producer of paints, coatings and specialty chemicals, received three unsolicited takeover proposals from PPG Industries Inc. The AkzoNobel management and supervisory boards have rejected each of these proposals, following a careful assessment leading to the conclusion that the proposal was not in the interest of AkzoNobel and its stakeholders. Elliot International L.P. is an activist hedge funds and one of AkzoNobel's shareholders. According to Elliot, AkzoNobel's leadership had not complied with corporate governance obligations by refusing to engage with PPG. Elliot brought a lawsuit before the Enterprise Chamber, requesting a corporate enquiry as well as certain interim measures, including the convocation of an extraordinary general meeting where the dismissal of the supervisory board's chairman and the appointment of a special supervisory director would be on the agenda.
The Enterprise Chamber's judgment
In its judgment of 29 May 2017, the Enterprise Chamber denied Elliot's requests for interim measures. A further judgment on Elliot's request for a corporate enquiry is scheduled for September 2017.
Click here for the full judgment (only available in Dutch).
The Enterprise Chamber provides important pointers for the conduct by management and supervisory boards in unsolicited takeover situations.
Company's position towards takeover proposals is a board matter
- A target company's position vis-à-vis takeover proposals is a matter of the company's strategy. As such, determining the target company's response to such takeover proposals falls under the management board's authority, under supervision of the supervisory board.
- In principle it is sufficient that the management and supervisory boards are accountable in retrospect towards the company's shareholders for the position taken vis-à-vis a potential bidder. Shareholders are not entitled to be party to the decision-making.
- In assessing a takeover proposal, the management board, under supervision of the supervisory board, must be guided by the interests of stakeholders with a view to long-term value creation. Long-term value creation is a term frequently used in the new Dutch Corporate Governance Code. Click here for our alert on the new Code. As a result, the board may reasonably reject a takeover bid even against the will of a majority of the shareholders.
Obligation to enter into substantive discussions with a bidder
- In general, a target company does not have a legal obligation to engage into substantive discussions with an unsolicited bidder. To the extent that there would be any obligation to engage in discussions or negotiate with a bidder, this would follow from the fiduciary duties of the management and supervisory board members towards the company. Whether the boards are under such an obligation depends on the specific circumstances of the matter at hand, which may include:
- the proposed purchase price and the other contents of the proposal;
- the bidder's strategic intentions;
- to what extent the company is able to assess the proposal without substantive discussions with the bidder; and
- course and contents of the interactions with the bidder.
- With respect to the internal decision-making process at AkzoNobel, the court deems specifically relevant in this respect that:
- the boards have discussed PPG's proposals intensively and frequently;
- they have been advised by reputable external financial and legal advisors throughout the decision-making process; and
- the topics addressed in AkzoNobel's response to PPG's last proposal indicate that AkzoNobel made a serious and substantive assessment of PPG's proposals.
- With respect to AkzoNobel's interactions with PPG, the court specifically notes that:
- AkzoNobel, in its responses to PPG's proposals, has given sufficient insight in its objections as to enable PPG to amend its proposal and meet such objections; and
- according to AkzoNobel, at a certain point it was no longer realistic to have exploratory discussions with PPG given the circumstances, which include: (i) the unsolicited approach by PPG, (ii) the resolute rejection by AkzoNobel of the first two proposals, (iii) that PPG and some of AkzoNobel's shareholders publicly put pressure on AkzoNobel and (iv) that it has become clear to AkzoNobel that PPG and Elliot had been in touch about the matter. Under these circumstances, AkzoNobel had reason to anticipate a breach of confidentiality, potentially impacting the share price and shareholder base, making it no longer realistic to withdraw from discussions with PPG.
Accountability towards shareholders
- Shareholders are entitled to sufficient information regarding the relevant data and considerations underpinning the company's policies, not only to be able to exercise their legal shareholder rights, but also to determine their own investment decisions.
- A continuing lack of confidence of a substantial part of the shareholders in the strategy of the boards is harmful to the company and all its stakeholders. It is up to the boards to consider how to normalize the relationship with such part of the shareholders.
Following the Enterprise Chamber's judgment, Elliot has initiated preliminary relief proceedings with the Amsterdam District Court to enforce the convocation of a general meeting to vote on the dismissal of the AkzoNobel's supervisory board chairman via an alternative route. PPG withdrew its takeover offer on 1 June 2017. On August 10, the Amsterdam district court rejected the request, saying it was premature given that AkzoNobel has already scheduled an extraordinary shareholders' meeting for Sept. 8. AkzoNobel called the meeting to better explain its reasons for rejecting the PPG bid and to repair relations with disgruntled shareholders. Six days after the court rejected Elliott’s request, AkzoNobel announced it has reached an agreement with Elliott, with the aim of normalizing the relationship with its shareholders.
AkzoNobel and Elliott have also agreed, subject to the terms of a standstill agreement, to seek to suspend all ongoing litigation for at least three months.
Click here for the full judgment (only available in Dutch).
Legislative measures regarding unsolicited takeover proposals
Also in response to the takeover battle around AkzoNobel, the subject of unsolicited takeovers has recently attracted a lot of attention in Dutch politics and media.
The Dutch Minister for Economic Affairs has called for legislative measures to improve opportunities for boards to carefully consider the interests of all stakeholders in the event of a proposed takeover. Among other things, a statutory waiting period (not exceeding one year) is being contemplated. The Minister has indicated that in his view a target company could invoke such a waiting period if and when there is a concrete threat of shareholder activism or a hostile takeover and the target company needs time to make a full assessment of the interests of all stakeholders and to appropriately respond to the threat. Members of the Dutch parliament in the meantime have called for a preventive test by Dutch government in the event of an unsolicited bid on companies which are part of vital infrastructure sectors that are key to national security or the Dutch economy and employment. With cabinet formation still ongoing following the March 2017 general elections in the Netherlands, any such measures will be taken by a future cabinet, if at all.