Italian Company Formations | Acquisitions and Joint Ventures

8 août, 2018

Acquisitions and joint ventures.

Italian Decree Law No 58/98 and the regulations made under this law provide, amongst other things, the legal framework for public offers for the acquisition of shares, whether these are listed on the stock exchange or not. This document discusses matters relating to acquisitions of company shares in Italy, covering: public and mandatory offers; asset deal/share deal in a private company; preliminary negotiations; and asset deal.

Acquisitions

1 Public Offers

Decree Law No 58/98 and the regulations made thereunder provide, amongst other things, the legal framework for public offers for the acquisition of shares, whether these are listed or not on the stock exchange.

Anyone intending to make a public offer for shares must give advance notice of this intention to the ‘Commissione Nazionale Per La Società e La Borsa’ (CONSOB), the regulatory authority for companies and to Borsa Italiana SpA (the corporation managing the Italian Stock Exchange) enclosing the offer document and the acceptance form.

Details of the notice to CONSOB must be disclosed to the market along with the essential details of the offer such as the purpose of the transaction, the proposed guarantees, the financing, any conditions of the offer, and the details of any advisors.

CONSOB may, within 15 days (30 days for private companies) of receipt of the notice of intention, ask the offeror to deliver additional information or to provide guarantee and can define by which means the offer must be announced to the public.

At the end of the term indicated above, the offering prospectus may be published either in the press or by filing it with an authorised intermediary or by using any other means as provided by the CONSOB.

The target company must in turn issue a statement which must contain the following information:

(a) all information necessary to evaluate the offer along with an analytic evaluation of the same by the directors; such evaluation shall take into account the effects that the offer could have on the future activities of the company as well as in respect of the workforce employed by the target and shall expressly indicate the number and (if requested) the names of the directors rejecting the proposed offer;

(b) notice of any call of the shareholders’ meeting to resolve upon the reject of the offer. Any subsequent decision to reject the offer and to challenge it must be disclosed to the market in due course;

(c) updated information on the ownership of the corporate capital, on the directors, on the controlled companies as well as on any shareholders’ agreements relating to the target shares; and

(d) any material information not mentioned in the last published financial statements.

This statement must be submitted to the CONSOB not less than two days before publication and in any case made known to the market by the first day of the acceptance period.

The offer itself is irrevocable, any clause within it to the contrary will be void. It may, however, be subject to variation, which may not be in the nature of a reduction in the quantity of shares subject to the offer. Any variation must be disclosed to the public by no later than three days before the end of the acceptance period. Competing offers must be published in accordance with the same provisions.

The terms of the offer must be the same for all the target’s shareholders. The period to accept the offer is set by the market authority (for public companies) and by the CONSOB (for private companies) and will vary according to whether or not the offer made is mandatory. The acceptance period may not start earlier than five days from the date of publication of the offer (save in cases where the offer document includes a statement from the target company) and in any event not before any authorisation required by law as a pre-condition for the offer has been granted.

All statements issued must be clear, complete and understandable by recipients. Further, the offeror and any other interested party must carry out all its obligations in a timely fashion, refrain from any activity on the markets aimed at influencing the acceptance of the offer. The target company must refrain from any activity which might influence the acceptance/rejection of the offer, unless authorised to do so by a vote in its shareholders’ meeting (which resolves on decisions relating to offers with a majority of at least 30% of the outstanding shares having voting rights).

CONSOB supervises general compliance with the provisions indicated above, but cannot make any assessment on the merits of the offer. Failure of a party to comply with the disclosure obligations could trigger the application of administrative fine.

Acceptance of the offer must usually be communicated to the offeror by sending the acceptance form to the offeror or its intermediary.

2 Mandatory offers

The obligation to make a mandatory public offer to purchase (‘offerta pubblica di acquisto obbligatoria’) arises only in connection with public companies. The mandatory offer is of two types: mandatory offer for the totality of the shares (‘OPA totalitaria’, ‘OPA successiva’) and a mandatory offer for residual shares (‘OPA residuale’).

An offer to purchase the totality of the shares becomes mandatory when the offeror holds more than 30% of the ordinary shares traded in the market. The offer must be made within 20 days from the date the 30% threshold has been exceeded at a price equal to the higher of the average price at which the shares were traded during the preceding 12 months and the highest price eventually paid by the purchaser for the purchase of ordinary shares of the company during the preceding 12 months.

The obligation to make a mandatory offer for the totality of the shares does not arise where there are other shareholders retaining control over the company or where the 30% threshold has been exceeded as a result of:

(a) a merger or de-merger;

(b) a transaction to save a distressed company;

(d) a temporary transaction; or

(e) transfer of the securities among parties linked by significant investment relationships;

(f) purchases free of charge.

Furthermore, under certain other conditions, such a mandatory offer does not need to be made after the purchase of a shareholding which exceeds 30% under a public offer for at least 60% of the target’s ordinary shares.

An offer (upon request) for residual shares is mandatory upon a shareholder obtaining control over more than 90% of the shares. In these circumstances the offer to purchase must be for the totality of remaining shares with voting rights at a price fixed by CONSOB if it is not possible to purchase a sufficient number of shares to secure this within four months.

Anyone who, following a public offer for the totality of the shares, acquires a shareholding of more than 95% of shares must purchase (if requested to do so) the residual shares to those who requires it. The acquisition price of the residual shares will be fixed by CONSOB by means of specific regulations.

The regulations relating to mandatory offers apply also to several parties acting in concert for the purchase of shares.

3 Asset deal/share deal in a private company

Under Italian laws both assets deals and share deals are possible. Generally, those transactions are governed by the Civil Code and the steps of the acquisition can be summarised as follows.

4 Preliminary negotiations

Letters of Intent are very common in Italian transactional practice. Letters of intent cover issues such as the shares/quotas or assets to be sold, the price, the general terms of the agreement, the allocation of the costs of the transaction, the time frame within which the parties intend to complete the transaction, the applicable laws and forum selection.

Whether or not a letter of intent is binding between the parties, depends on the actual wording used by the parties. Without an express provision in this respect, letters of intent providing for vague declarations of the parties’ intentions and not containing detailed provisions relating to the transaction are not binding. Letters of intent containing detailed provisions as to all aspects of the transaction will be binding under the general law of contract and might be qualified as preliminary contracts. The assessment on the binding nature of a letter of intent must be made on a case-by-case basis.

During the course of the negotiations (and also during the execution of the agreement) the parties owe each other a duty of good faith. Breach of the duty of good faith could trigger, through a specific legal action, the award of damages (direct damages and loss of business opportunity) as well as the reimbursement of the expenses incurred by the non-breaching party in the course of the negotiation.

Additionally, lock-out and lock-in agreements and confidentiality agreements are commonly used under Italian practice.

Legal and financial due diligence activity usually follow the execution of the letter of intent. Several types of agreements are used in the business practice depending on the structure/type of the deal and the closing of the transaction usually involves a civil law notary public notarising the share transfer deed.

5 Asset deal

Article 2555 of the Italian Civil Code defines the ‘azienda’ (the going concern) as the assets employed by an entrepreneur in the conduct of a business. The Italian definition of going concern includes, among the others, goods, employees as well as contracts entered into for the operation of the business. Personal contracts do not fall in the definition of going concern.

In an asset deal, it is possible to purchase the going concern as a whole or single units of the same. Any asset not included in an asset deal must be expressly excluded from the going concern to be sold since the assets transfer by operation of law along with the going concern they are part of.

As an exception to the general rule under which the assignment of a contract requires the consent of the assigned party to be effective, in an asset deal on-going contracts belonging to the going concern and for which the personal identity of the parties is not essential, shall transfer automatically with the business without the express consent of the assigned party. This is to say that under article 2558 Civil Code in an asset deal the buyer replaces the seller in on-going contracts. However, the assigned party has the right to terminate the contract within three months from the asset deal if there is a ‘just cause’ and in this scenario the seller could be held liable for the damages due to the termination of the agreement.

Employment contracts transfer along with the going concern for which employees work for. Employees retain all their contractual rights and those deriving from their seniority, and the purchaser is bound by the all the conditions of the transferred employment agreements. Furthermore, in an asset deal the seller and purchaser are jointly and severally liable for all the sums owed to the employees as of the date of asset deal. There are precautions which the seller can take to insulate himself from employment liabilities.

Additionally, if more than 15 employees are employed in the going concern a specific procedure involving the unions applies. The parties to the asset deal must deliver a written notice to the trade unions at least 25 days before the date scheduled to close the asset deal. Such a notice must contain the reasons for the proposed transfer of business, the legal, social and economic consequences of the transfer for employees and any proposals relating to them.

The union representatives in the business, or those for the sector in general, may, within seven days of the receipt of the notice, ask for additional information on the transaction, and if they do so the seller and the buyer shall meet with the unions’ representative do discuss the transaction. The examination period ends in any case within 10 days from the first meeting with the unions’ representatives. Unions do not have in any circumstance the right to freeze the deal.

Failure to notify the unions of the proposed asset deal could constitute anti-trade unions activity under article 28 of Law 300/1970.

Italian law does not provide a precise definition of a merger (‘fusione’), preferring instead to define the methods by which it can take place. This document discusses the procedure regarding corporate mergers in Italy, also looking at the types of such mergers and the requirements of them if subject to competition law. Reference is made to Law No 287/1990.

Mergers

1 General

Italian law does not provide a precise definition of a merger (‘fusione’), preferring instead to define the methods by which it can take place. It is, however, commonly recognised as being a transaction by which the assets and liabilities of two or more companies are united, either in a newly incorporated company (‘fusione propriamente detta’) or by the incorporation of the asset and liabilities of one company into those of the other(s) (‘fusione per incorporazione’).

In the first kind of transaction (‘fusione propriamente detta’), the merging entities interrupt their activity, are liquidated and a newly incorporated company acquires all the assets and liabilities of the merging entities. In order to do so shares/quotas the merged companies are cancelled and new shares/quotas are allotted in accordance with an agreed rate of exchange.

In the second type of transaction (‘fusione per incorporazione’), only one of the merging entities interrupts it activity and is liquidated while the other acquires all its assets and liabilities. The members of the absorbing corporation receive newly allotted shares/quotas based on an agreed rate of exchange.

2 Procedure

There are three stages in a merger transaction, the preliminary phase (‘fase preliminare’), the decision phase (‘deliberazione di fusione’) and the closing phase when the parties execute the merger deed (‘atto di fusione’).

In the preliminary phase the management of the merging entities drafts a merger plan (‘progetto di fusione’) which must contain the following information:

(a) details of the merging companies (eg registered offices, corporate names);

(b) the proposed new deed of incorporation of the to-be-incorporated post-merger company or of the incorporating company;

(d) details of the method to be used for the allotment of the shares/quotas of the post-merger company;

(e) the date from which such shares/quotas will get profit sharing;

(f) the date from which transactions of the companies participating to the merger are registered in the financial statements of the to-be-incorporated post-merger company or of the incorporating company;

(g) treatment reserved to particular shares categories and to the owner of titles different from shares (e.g. convertible notes), and any benefits which the directors may receive under the proposal, special rights for each class of shares (if any).

The merger plan must be filed with the Register of Enterprises and at the registered offices of the merging entities at least 30 (15 days for a limited liability company) days before the date on which the members’ meeting has been called to resolve upon the proposed merger. Alternatively, the merger proposal can be published within the same terms on the merging entities’ websites if the safety of the browsing, the authenticity of the uploaded documents and the certainty of the uploading date can be certified. At least 30 days must elapse between the filing with the Register of Enterprises and the date scheduled for the resolution on the merger. The term to file the merger proposal can be waived by the members. If the company has issued convertible bonds or the proposed merger is cross-border the merger proposal must be published in the Official Journal (‘Gazzetta Ufficiale’).

The directors of each company involved in the merger must provide a report designed to provide information for company members, creditors and third parties. The report must illustrate and justify the merger, both legally and economically, unless it is unanimously waived by the members. Moreover the directors of each company shall inform members and directors of the other company about significant changes within the assets and liabilities of the company occurred from the filing or publication of the merger proposal. Directors of each merging company shall also draft a temporary balance sheet to be filed with the Register of Enterprises or alternatively to be published on the company’s website, unless it is unanimously waived by the members. The temporary balance sheet can be replaced by the annual financial statements if approved by the members within 120 days from the filing or publication of the merger proposal. In addition, an expert’s report over the proposed merger shall be drafted as well to resolve disputes as to value of assets and, in any event, a report estimating the value of the assets transferred should be obtained, unless it is unanimously waived by the members. The directors’ and expert’s reports must be filed at the registered offices of the merging entities at least 30 days (15 days for a limited liability company) prior to members’ meeting resolving on the proposed merger, unless it is unanimously waived by the members.

The approval of the proposed merger (and of the relevant merger plan) by the merging entities is taken in the share/quota-holders’ meeting. If the merger is approved the relevant resolution by the members must be filed within 30 days with the Register of Enterprises. The execution of the merger agreement shall not take place earlier than 60 days (30 days for a limited liability) from the filing of the share/quota-holders’ resolution with the Register of Enterprises.

Thereafter, the merging companies’ representatives will sign before a civil law Notary Public a merger agreement (‘atto di fusione’) which must be filed with the relevant Register of Enterprises of each company participating the merge. The merger agreement shall be effective only upon filing of the same with the Register of Enterprises and after the registration of the same with the Register the merger cannot be challenged.

Competition law

Operations of merger or acquisition may be subject to both domestic (Law No 287/1990) and European competition laws which seeks to regulate business concentrations.

Italian domestic law will apply if the effect of the merger exceeds legally prescribed thresholds. The thresholds are subject to annual review by the Italian competition authority (‘Autorità Garante Della Concorrenza e Del Mercato’) and refer to the turnover of the companies involved. As of March 25, 2019, a merger or acquisition will be subject to the competition law if:

(a) the turnover of all the undertakings involved is equal or greater to €498,000,000; or

(b) the turnover of one of the undertakings involved in the transaction is equal or greater than €30,000,000.

Italian law defines a concentration as arising when:

(a) two or more companies merge;

(b) one or more subjects control at least one undertaking, or acquire such control either directly or indirectly; and

Notice of a proposed concentrations exceeding the thresholds must be delivered in advance to the competition authority. The authority will then carry out an analysis over the transaction the outcome of which could be either a full authorisation, an authorisation subject to conditions or a prohibition.

Merger in specific sectors could be subject to scrutiny by other authorities as ‘Autorità per le Garanzie nelle Comunicazioni’ in the case of mergers in the media sector.

There is no specific Italian law relating to joint ventures. Joint ventures are commonly implemented through the establishment of a joint venture company (‘joint venture societaria’) or through a contractual joint venture (‘joint venture contrattuale’) where two or more companies sign a contract of collaboration. This document discusses the application of Italian company law to joint ventures, including international joint ventures when the management office is in Italy or Italy is the location for the principal activity of the joint venture company.

Joint Ventures

Under the Italian law, the law applicable to international joint ventures is that of the State in which the joint venture company is located, provided that the Italian law will be applicable when the management office is in Italy or Italy is the location for the principal activity of the joint venture company.

The actual contents of the joint venture agreement will depend on the agreement made by the parties and on the nature of the business to be jointly carried out. Clauses on lock-up, dead-lock, reserved matters to the approval of the shareholders, liquidation, distribution of dividends and allocation of losses are commonly used in joint venture agreements.

Contractual joint ventures will be governed by the provisions of the general law of contract. International contractual joint ventures involving companies based in different States will be governed by the laws applicable to the Italian provisions on conflicts of law (eg Rome Convention).

The contract will deal with such matters as the purpose of the venture, the structure to be used to manage the business, the responsibilities and liabilities of the members, the distribution of the profits achieved and the dissolution of the contract.

A discussion of the legislative reforms in Italy on cross-border mergers involving EU and non-EU entities, including the requirements of creditors of the companies involved in the mergers and for the merger agreement.

Reforms

Legislative Decree No 108/2008 provides for specific requirements applying in cross-border mergers involving both EU and non-EU entities. Stricter disclosure obligations apply and, under certain conditions, special rights (eg right to withdraw from the post-merger entity) are granted to the share/quota-holders dissenting with the cross-border merger. Legislative Decree no 123/2012 has amended provisions on this matter providing that the experts’ report cannot be unanimously waived by the members of the companies involved in the crossborder merger.

Creditors of the companies involved in the merger can file a petition against the merger at any time prior to the filing of the resolution approving the merger with the Register of Enterprises. In order to avoid this, the merging companies can obtain a certified report from an auditing company attesting that the assets and the financial position of the merging entities guarantee creditors’ rights.

The merger agreement can be signed not earlier than 60 days (30 days for an Srl) from the filing of the resolution approving the merger. The merger agreement can also be signed before the said term if:

(a) the creditors have given their prior consent;

(b) non-consenting creditors have been paid; or

The merger will be effective with the registration of the merger agreement with the Register of Enterprises.

‘Irregular’ mergers (ie mergers involving two companies where the shares or quotas of one are entirely owned by the other or where one company owns 90% of the shares/quotas in the other) benefit of a simplified merger procedure described in articles 2505 and 2505 bis of the Civil Code.

Further, for the first time, there are specific regulations relating to ‘mergers following the acquisition through indebtedness’ (article 2501 bis ‘fusione a seguito di acquisizione con indebitamento’) or leveraged buy outs, which in particular indicate which documents must be filed in support of the merger proposal.

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