The latest squeeze
26 March 2007
With UK private equity players being asked questions about accountability, transparency and tax contributions, it may be worth these organisations running the slide rule over some Irish-quoted companies. Obviously the value has to be there, but if it is there are a few not-so-obvious reasons why it can be easier to complete a takeover in Ireland.
The squeeze-out threshold
The acceptance threshold for compulsory squeeze-outs (the level at which a successful offeror can force the non-accepting minority to accept the offer) in Ireland is still 80 per cent, as opposed to 90 per cent in the UK. Only companies subject to the EU Takeover Directive have an increased threshold of 90 per cent. This means that, save for Irish companies whose capital is admitted to the Official List of the Irish Stock Exchange, the squeeze-out level is still 80 per cent.
Many newly quoted companies in Ireland have a dual AIM and Irish Enterprise Exchange (IEX) quote. In the last canlendar year nine companies joined the IEX, raising a total e941m (£643.08m) and bringing the number of companies to 23 at the year-end. The market capitalisation of the IEX grew by 190 per cent in 2006, rising from e847m (£578.84m) at the start of the year to e2.46bn (£1.68bn) at the year-end. Turnover on the IEX increased by 116 per cent in 2006 from e584m (£399.11m) to e1.26bn (£860m).
The nine new companies that listed on the IEX in 2006 are: AGI Therapeutics, Amarin Corporation, Blackrock International Land (a spin-off from Fyffes), Calyx Group, Finance Ireland, Norkom Group, Petroceltic International, PetroNeft Resources and SiteServ.
Significantly, a number of companies formerly on the Official List have relegated themselves to the IEX or AIM, including fruit importer Fyffes and cold store operator Norish.
Unlike in the UK, shares already held within the bidder group can count towards the 80 per cent threshold. The relevant legislation (Section 204 of the Companies Act 1963, imperfectly transcribed from Section 209 of the UK's Companies Act 1948) states that shares of the bidder or a subsidiary cannot be counted, but shares held by a holding company or fellow subsidiary of the same holding company can be. This is particularly useful where a bidder might wish to build a stake while preparing to make a bid, as well as allowing management buyout (MBO) teams with existing shareholdings to squeeze out the minority at a more achievable percentage.
Even in the case of Irish companies that are subject to the EU Takeover Directive, shares in the target held by the bidder's parent can still count towards the 90 per cent squeeze-out threshold. This means that a bidder can, for example, hold 20 per cent of the share capital of a company and, by utilising a subsidiary to make the bid, effect a squeeze-out if holders of a further 70 per cent of the shares accept the offer.
Schemes of arrangement
Schemes of arrangement are used routinely to effect takeovers, bypassing the percentage requirements of the above law. As in the UK, the percentage requirements are a special resolution (75 per cent) passed with the voters in favour constituting a majority of the shareholders voting.
It is also interesting to note that the UK Takeover Panel is currently in consultation phase with regard to new rules dealing with takeovers by schemes of arrangement, while the Irish Takeover Panel has had such rules for some time, giving additional certainty if this increasingly popular takeover method is chosen.
Local competition law clearance
It is noteworthy that, in any takeover subject to the Irish Competition Act, the Competition Authority has made a point of ensuring that its process does not interfere with the Takeover Panel's time limits (which are the same as in the UK).
Irish takeover rules
Finally, the Irish takeover rules are substantially the same as the UK's takeover rules. There are nuances, such as the rules on schemes of arrangement, but UK market participants and advisers will generally find the rules easy to navigate.
The past 10 years have seen a significant amount of takeover activity in Ireland, with almost half of the quoted companies going off the Irish Official List and many others being subject to approaches, both friendly and otherwise. Three recent bids are representative of that activity:
• Eircom (or more precisely 50 per cent of the shares of Eircom) was the subject of an IPO in 1999, but by 2001, after the dotcom bust, it had been taken private by the Valentia Consortium, headed by Sir Anthony O'Reilly and the Employee Share Ownership Trust (Esot). Refloated in 2004, it was taken private again by a consortium of Babcock & Brown and, again, the Esot.
• Jurys Hotel Group was the leading Irish-quoted hotel group for 20 years. Following an unwelcome approach from a private equity house, the families who started the constituent hotel chains made a bid to bring the company private. Because of the Irish laws previously referred to, they were able to create a newco that made a bid for all the shares, including their own significant shareholding.
• FireOne Group, an internet gambling company owned 76 per cent by Optimal Group of Canada, was taken private by a special purpose company owned by Optimal. Again the bidder was able to include its parent company's 76 per cent to get to the 80 per cent threshold.
Ryanair and Aer Lingus
As will be evident from the struggle for Aer Lingus - initiated by hostile bidder Ryanair some would say embarrassingly quickly after Aer Lingus's IPO - you just cannot overcome outright resistance from entrenched shareholders. The offer has since lapsed and is now subject to review by the EU Commission.
Ryanair was unable to gain sufficient support, at a premium to the IPO price, to overcome the opposition of the Irish government and the trustees of the Aer Lingus employee share option plan, among other shareholders. It failed to gain even a simple majority, let alone an acceptance level sufficient to compulsorily acquire all of the remaining shares in Aer Lingus. However, many observers believe that the saga is not over yet, depending on the result of the EU Commission investigation.
So has all of this resulted in increased interest in takeovers in Ireland? Perhaps just a bit. A significant number of recent takeovers of Irish companies have involved existing shareholders and/or management taking the company private, and Irish law makes it easier. The current bid for Irish Continental Group is a proposed MBO and the approach for Calyx Group is also from management.
What is gratifying is that the flight from the Official List, and the accompanying complexities of the legislation now applicable to that segment of the market, has been offset by the admission of more and more companies to AIM or the IEX. The great wheel of the market turns around again.
•Justin McKenna is a partner at Mason Hayes & Curran in Dublin