Extract taken from 'The Mergers & Acquisitions Review – edition 13'

Overview of M&A activity

The Netherlands again saw a strong year of M&A activity, with a total increase in transactions of 11.4 per cent as compared to 2017, resulting in the highest amount of transactions in 11 years.

Most M&A transactions in 2018 were conducted within the service industries branch, but the educational, healthcare and trading sectors also significantly contributed to M&A activity. M&A activity was also high in the technology sector, in which Dutch companies continue to attract the interest of international companies. For the most part, larger corporates acquire tech startups and invest in innovative companies to speed up technological development and keep up with market demands.

The popularity of the use of warranty and indemnity insurance continued steadily in 2018. Notable regarding this years' M&A activity is that it was very much a seller's market in the Netherlands, with a large amount of transactions conducted as auctions.

General introduction to the legal framework for M&A

Dutch transactions are generally structured as a transfer of the shares or (specific) assets of a company or by way of a legal merger. The main principles governing the legal framework of these transactions are set out in the Dutch Civil Code.

Parties are free to enter into contracts and to negotiate the terms of contracts. According to case law dating back to 1981, not only the wording of the agreement should be considered for interpretation thereof, but also the intentions of the parties and what they can reasonably expect from each other. This means that contractual clauses are to be interpreted in line with the meaning that the parties under the given circumstances could reasonably attribute to them and that they could reasonably expect from each other.

Over time and because of foreign involvement, contracts have become more extensive and more Anglo-American. An example of this is the use of the entire agreement clause, which is now standard practise in transactions, although case law indicates that the use of an entire agreement clause does not simply preclude the significance of the parties' statements or conduct before the entry into an agreement. Under Dutch law, the actual meaning of the clause still depends on the specific circumstances of a case. Recent case law does indicate that depending on the circumstances, a linguistic interpretation could become increasingly important, for example if it concerns a commercial agreement entered into by professional parties, if the agreement was extensively negotiated, or if the parties were assisted by legal advisers or lawyers.

Under Dutch corporate law, the stakeholder model is predominant. This model entails the board of a company having a duty to act in the best interests of a company and all the stakeholders involved, thereby focusing on creating long-term value. The Enterprise Chamber, a specialised division within the Amsterdam Court of Appeal, is the court of first instance in disputes involving mismanagement and similar corporate issues, and the appellate court in certain corporate litigation disputes. The Enterprise Chamber is often addressed by foreign shareholders to challenge the parameters of the Dutch stakeholder model, for instance in a recent case in which shareholder Elliott wanted to intervene in the strategy of AkzoNobel in order to enter into negotiations with PPG Industries for the acquisition of AkzoNobel.

i Negotiations and pre-contractual good faith

In the pre-contractual phase, parties are obligated to behave in accordance with the requirements of reasonableness and fairness and, in doing so, they must also have their behaviour determined by the legitimate interests of the other parties. Although in theory all parties are free to break off negotiations, it can be unacceptable to do so because one party may be justified in its expectation that an agreement will be concluded, or because of other circumstances. In that event, that party could be entitled to compensation, or could request an injunction requiring the other party to continue negotiations. The justified interests of the party that breaks off negotiations, the manner in and the extent to which that party has contributed to the other party's expectation, and whether any unforeseen circumstances have occurred in the course of the negotiations, among other things, should be taken into account.

ii Anti-takeover structures

In the event that a shareholder requests an agenda item that may lead to a change in a company's strategy (such as a takeover), the management board can invoke, pursuant to the Corporate Governance Code, a response time of a maximum of 180 days for further deliberation and constructive consultation. Furthermore, it is possible to place preference shares at a different entity, such as a foundation that is serving the interests of the company and its stakeholders. By granting this entity a call option that can be exercised during an imminent takeover, the equity interest that a hostile party accrues will dilute. Consequently, this entity is able to ensure that the company will continue to focus on creating long-term value. The issuance of priority shares with specific (voting) rights or depositary receipts instead of shares is also a possibility. In the latter case, the votes on the shares will stay with a foundation that is friendly to the board of the company.

iii Notifications

Before effecting a transaction in the Netherlands, the works councils of the parties involved may have to be notified and consulted under the Works Council Act and a notification may have to be sent to the Social and Economic Council of the Netherlands (SER) Merger Code Committee and the trade unions in question under the SER Merger Code 2015. Obtaining clearance from the Netherlands Authority for Consumers and Markets and the European Commission regarding possible competition concerns may also be required. Furthermore, sector-specific notifications may be necessary, such as to the Dutch Central Bank.