Compliance & Regulation

Public harmony

New laws stemming from the EU Takeover Directive will impact private equity firms undertaking public-to-privates.

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As national protectionism threatens to take root in the European M&A arena, at least one important new piece of legislation seeks to counter this trend. The EU Takeover Directive aims to harmonize company takeover laws across the EU, creating one set of rules to be applied throughout the region. On May 20, 2006, certain changes arising from the Directive were brought into force in the UK. Some key measures affect private equity houses seeking to acquire public companies, as follows:

  • ? Previously, target company shareholders were only required to pass a resolution giving approval for a bid if the management, together with the bid vehicle, held over five percent of the target's equity at the time of the offer. The five percent threshold has now been removed, meaning in all cases where management roll over shares into equity in the bidder, the terms must be signed off as fair and reasonable by the target's financial advisor and approved by a shareholder EGM. In such cases, the bid timetable will be lengthened (though it should be noted that this does not apply to schemes of arrangement).
  • ? SARs (rules governing the timing and disclosure of stake-building in public companies) have been abolished, meaning significant stakes can be built up quicker without the previously required ?cooling off time? that enabled targets to put bid defense tactics in place. ?Typically, private equity houses haven't wanted to build large stakes preoffer,? says Ian Hamilton, a partner at law firm Weil Gotshal & Manges in London. ?But there are always exceptions, as the recent acquisition of shares in AB Ports by a private equity consortium shows, and these may become more commonplace in the future.?
  • ? Dealings in derivatives and options relating to a target's shares during an offer period must now be disclosed, ensuring greater transparency for bidders to see who owns underlying shares when assessing whether a bid offer is likely to be accepted. This effectively gives hedge funds less power to wield influence behind the scenes.
  • ? Within the offer document, bidders must make clear its plans for employees of the company and offer workforce bodies the chance to include a statement expressing views on the proposed takeover. ?This reflects a growing trend from Europe to place awareness of the wider stakeholder impact at the heart of company law,? says Hamilton. ?It means industrial relations is now higher up on the list of things to think about pre-offer.?

    • SEC under pressure to clarify climate risk reporting
    In mid-June, a band of US institutional investors submitted a letter to the Securities and Exchange Commission stating that the SEC rules requiring listed companies to report the impact of climate risk on their financial performance were not clear enough. The letter was addressed to SEC chairman Christopher Cox, and among the signatories of the letter was California Public Employees' Retirement System (CalPERS) chairman Rob Feckner. A report by the Financial Times last month quoted Feckner as stating: ?Investors are not receiving the climate risk information from companies that is essential to their investment decision-making?The SEC needs to provide better interpretive guidance for companies clarifying the materiality of climate change in securities filings.?

    Illinois booted from TPG over Sudan law
    The Teachers' Retirement System of the State of Illinois (TRS) announced in May that the state's recently passed Sudan divestment law had resulted in the pension being excluded from TPG Partners V, the giant and popular new private equity fund managed by Texas Pacific Group. The TRSpress release also noted that costs incurred by the pension in complying with the law, which requires state public pension funds to divest from assets in companies that do business in Sudan, has totalled $1.2 million thus far. ?While we still fully support the intent of the law, we're concerned about the unintended cost to the System and to its participants,? Stan Rupnik, chief investment officer of TRS, said in the press statement.

    Germany considering domestic PE tax
    German business daily Handelsblatt has reported that the German finance ministry is considering taxing the earnings of the local private equity firms. The move is part of a planned corporate tax reform, said the report, citing unnamed sources, and would involve taxing domestic private equity funds and funds of funds. A spokesperson for the German finance ministry told Handelsblatt that there are no ?concrete plans to go in this direction.? Thomas Pütter, chief executive of Allianz Capital Partners and chairman of the board of the German Venture Capital Association said that no official declaration has been made regarding taxation of the domestic private equity industry. To date, official discussion has focused on the introduction of real estate investment trusts (REITs) and their possible taxation. Pütter said that any taxation of the German private equity industry would go against the mandate set out by the German government at the beginning of this year to help foster and improve the domestic market. ?Any such decision would see the demise of the German VC market and private equity industry just at the time when work is being done to mobilize the industry and the economy,? Pütter told sister online publication PrivateEquityOnline.

    Wynnchurch hires marketing director
    Chicago-based middle market private equity firm Wynnchurch Capital Partners has appointed Jennifer S. Christensen as director of marketing. Prior to joining Wynnchurch, Christensen was at the Alliance of Merger & Acquisition Advisors, where she served as executive director. At the Alliance, Christensen was responsible for managing the organization's key relationships, as well as building the Alliance's brand. At Wynnchurch, Christensen will play a key role in business development, focusing on the firm's marketing initiatives, including the development of the firm's brand, strengthening investor relations, and providing counsel to portfolio companies on their own marketing activities. Wynnchurch was founded in 1999 and focuses on the middle market space in the US and Canada. The firm has over $500 million of capital under management.