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More security for minority shareholders of companies after the decision of the CJEU

National supervisory authorities may increase a mandatory takeover bid on suspicion that the pricing was based not on the situation in the company or the market, but rather on collusive agreements.

This is the position assumed by the Court of Justice of the European Union (CJEU), which has established that the national supervisors are entitled to increase a mandatory takeover bid if there is some information on collusive share pricing agreements having been concluded.

To accomplish this, there is no need to even specify any particular actions proving the existence of a collusive agreement at the beginning of the procedure: it is sufficient to show that for the setting of price of the shares secret agreements are concluded between the major shareholders or other interested parties.

“The decision of CJEU makes it possible to better protect the interest of minority shareholders that often suffer from unfair actions made by large shareholders of the company” – Linas Sabaliauskas, lawyer and partner of the Law Firm “Triniti LT”, said.

Head of “Triniti LT” Corporate Law Group pointed out that in order to justify the increase of a takeover bid it is sufficient to enshrine, in the national legislation, an abstract legal concept, for example, in this case, the concept of a “collusive agreement”.

The CJEU also stated that the abstract legal concept cannot be overly vague, for the Member State to be possible to provide explanations of the contents and the meaning of such a concept.

It is well known, that according to the Law on Securities the price of a mandatory official bid must be fair, it is also provided in the law that the fair price is calculated on the basis of the assessment of the weighted average market price of the shares in the course of the last 6 months (or 12 months in some cases).

Meanwhile, the persons submitting mandatory official bids are interested in reducing the purchase price of the shares.

In practice, it is often very difficult for national supervisors to challenge the purchase price indicated in the mandatory official offer, in particular if it is formally compliant with the concept of fair price set forth in the law. This decision of the CJEU will facilitate the situation for a supervisory authority, since for the unilateral change in the share price it would be formally sufficient to prove that collusive agreements have been concluded.

“We hope that the latest case law of the CJEU will encourage the Lithuanian supervisory authority to protect the rights of minority shareholders more daringly, and it will be possible to challenge a mandatory official price bid on a slightest suspicion of possible collusive agreements. The Lithuanian capital market is not yet sufficiently developed; therefore, any measures that are likely to increase reliability and promote the development of Lithuanian capital markets are more than welcome” – Linas Sabaliauskas said.

He pointed out that among the limited liability companies well-known in Lithuania there still are issuers that often succumb to scandals and are suspected of disregarding the rights of minority shareholders, thereby undermining the confidence in the equity market as a whole.

The CJEU presented its conclusions of on the protection of the interests of minority shareholders having investigated a relevant case in Italy, where the Italian national supervisory authority increased the sale price of shares on a suspicion of a collusion. Although the shareholder has contested such an agreement of the national supervisory authority, the CJEU found that such a situation was in conformity with the law.