Maltese Listed Companies – Changes in Material Interest

The Regulatory Landscape

Whilst the Maltese Companies Act (Chapter 386, Laws of Malta) (the “Act”) provides the general legal framework for the creation and operation of public companies, listed companies are also subject to the Listing Rules (the “Listing Rules”) issued by the Listing Authority in virtue of powers granted by Articles 11 and 13 of the Financial Markets Act (Cap.345 of the Laws of Malta).

Launching an Acquisition Bid - Substantial Shareholding

A ‘Substantial Shareholding’ is defined in the Listing Rules as the entitlement to exercise or control the exercise of ten percent (10%) or more of the votes able to be cast at general meetings or the entitlement to appoint a majority of Directors on the board of Directors of a listed company and the Listing Rules establish specific procedures to be observed in the course of an impending share negotiation or transaction involving a Substantial Shareholding.

Parties to an offer for an acquisition or disposal of a Substantial Shareholding in a listed company, as well as the company itself, must endeavour to prevent the creation of a false market in the securities of the company and must take care that statements are not made which may mislead shareholders or the market.

In terms of the Listing Rules, a listed company is required, through its Board, to promptly make a Company Announcement, inter alia, when:

• its board of Directors is advised or otherwise becomes aware that a purchaser is being sought to acquire a Substantial Shareholding;
• the Company is the subject of rumour and speculation
• its board of Directors is advised or otherwise becomes aware of a firm intention to acquire or dispose of a Substantial Shareholding;
• its board of Directors is advised or otherwise becomes aware that an offer has been made to acquire or dispose of a Substantial Shareholding

On the other hand, any Shareholder who acquires or disposes shares to which voting rights are attached is required to notify the Listing Authority of the proportion of voting rights held by such Shareholder as a result of the acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5%, 10%, 15% 20%, 25%, 30%, 50%, 75% and 90%.

Mandatory Takeover Bid

In keeping with the EU Directive on takeover bids, with which Maltese law is fully conformant, where a person acquires a Controlling Interest in a listed company (broadly 50% + 1 of the voting rights) as a result of his own acquisition or the acquisition by persons acting together, such a person is required to make a formal bid to acquire all of the shares in the Company as a means of protecting the minority Shareholders of that company. The said mandatory bid must be addressed at the earliest opportunity to all the holders of those securities for all their holdings at the equitable price as determined in accordance with the Listing Rules.

The ‘equitable price’ to be paid for securities in the context of the aforementioned mandatory bid is the highest price determined by the following criteria:

• the price offered for the security should not be below the weighted average price of the security or the security transactions made on a regulated market during the previous six (6) months;
• the price offered for the security should not be below the highest price paid for the security by the Offeror or persons acting in concert with the Offeror during the previous six (6) months;
• the price offered for the security should not be below the weighted average price paid for the security by the Offeror or persons acting in concert with the Offeror during the previous six (6) months;
• the price of the security should not be lower than ten percent (10%) below the weighted average price of the security within the previous ten trading days.

Where the acquisition of control takes place as a result of acquisition of holdings by persons acting in concert[1], the obligation to make a Mandatory Bid as aforesaid lies with the person having the highest percentage of voting rights.

Within 21 calendar days from announcing a decision to launch a Mandatory Bid, the Offeror must draw up and make public an ‘offer document’ containing the information necessary to enable the holders of the Offeree Company’s Securities to reach a properly informed decision on the said Bid, including, inter alia, the following information:

1. the terms of the Bid;
2. the identity and status of the Offeror;
3. the Securities or, where appropriate, the Class or Classes of Securities for which the Bid is made;
4. the consideration offered for each security or Class of Securities;
5. the maximum and minimum percentages or quantities of Securities which the Offeror undertakes to acquire;
6. details of any existing holdings of the Offeror, and of persons Acting In Concert with him, in the Offeree Company;
7. all the conditions to which the Bid is subject;
8. the Offeror’s intentions with regard to the future business of the Offeree Company;
9. the time allowed for acceptance of the Bid;
10. information concerning the financing for the Bid.

Moreover, a report on the consideration offered, drawn up by one or more experts who are independent of the Offeror or Offeree Company, must be appended to the offer document.

Where the Offeror holds Securities representing not less than 90% of the capital carrying voting rights and 90% of the voting rights in the Offeree Company, or where, following acceptance of the Bid, the Offeror has acquired or has firmly contracted to acquire Securities representing not less than 90% of the Offeree Company’s capital carrying voting rights and 90% of the voting rights comprised in the Bid, the Offeror has the right to require all the holders of the remaining Securities to sell him those Securities at a fair price and shall take the same form as the consideration offered in the Bid or, alternatively, in cash.

Shares in Public Hands

A listed company must inform the Listing Authority without delay if it becomes aware that the proportion of any Class of Equity Shares authorised as Admissible to Listing in the hands of the public has fallen below twenty-five percent (25%) of the total issued Share capital of that Class or, where applicable, such lower percentage as the Listing Authority may have agreed.

The acquisition of a controlling interest in any company will invariably comprise a plethora of legal and commercial issues. When the target company’s securities are admitted to listing on a regulated market, the relative legal and regulatory requirements are clearly compounded as a direct result of the heightened complexity of the regulatory regime to which such listed companies are subject.

[1] The cooperation by any person with the Offeror or the Offeree Company on the basis of an agreement (whether express, tacit, oral or written) aimed either at acquiring Control of the Offeree Company or at frustrating the successful outcome of a Bid. Subsidiary undertakings of any person cooperating with the Offeror or the Offeree Company shall be deemed to be persons Acting In Concert with that other person and with each other.

This article by Dr Andrew J. Zammit featured in FinanceMalta's newsletter dated March 2014.