22 September 2021
Kasper van der Sanden and Eva Luna de Boer teamed up with Klaas van der Graaf (Houthoff alumnus and legal counsel at Tesla) to write an article for corporate law journal Ondernemingsrecht on the concept of a “fiduciary out”: where does it come from, and how is it used in the Dutch public transaction practice?After a bidder and a publicly traded company have agreed on a takeover in the merger protocol, the circumstances can change to such an extent that the target company no longer wishes to accept the public takeover bid. A fiduciary out is a contractual provision where (subject to specific predefined conditions) the directors can withdraw their support for the public takeover bid and terminate the target company’s obligations under the merger protocol. Agreeing on and invoking a fiduciary out is part of the directors’ fiduciary responsibilities.
Kasper, Eva Luna and Klaas discuss the legal framework governing these situations in their article. Their analysis of empirical data on the basis of a research of all public takeover bids from 2014 to 2020 demonstrate that, while fiduciary outs are common, the scope of this instrument is generally limited to superior offers. If the merger protocol includes arrangements for pre-wired back-end transactions (as is usually the case), the directors of the target company must guarantee a fair buyout price for shareholders that are forced to sell against their will. That fair price is based on the requirements of the legal regime governing buyouts, which cannot be circumvented through a pre-wired back-end transaction. If the wording of the fiduciary out is limited to superior offers, however, it might not be enough to guarantee a fair buyout price. The solution can be to define the intervening events in broader terms or use wording with a broader scope for the fiduciary out.
Read "De fiduciary out en de market practice in Nederland: een redelijke prijs als minimumvereiste” here.