loyalty shares

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The Spanish Government has recently published a Securities Market and Investment Services Draft Bill (the “Draft Bill”) regulating, among others, the implications, from the takeover bid regime, of tenured voting rights, namely, the obligation to launch a waterfall bid when acquiring a controlling stake in a listed company through maturity of loyalty shares.

As set out in our publication of April 6, 2021, loyalty shares have recently been introduced in Spain through Act 5/2021, allowing listed companies to include them in their bylaws to confer an additional double vote on each share that has been held by the same shareholder for at least two consecutive years. It should be highlighted that the accrual of double voting is not automatic since it requires (i) a resolution of the shareholders’ meeting and its inclusion in the bylaws by qualified majorities, and (ii) that interested shareholders voluntarily register all or part of their shares in a special registry book and keep them for an uninterrupted period of at least two consecutive years from the date of registration.

Among other implications, double voting rights granted by loyalty shares will be considered when calculating mandatory bid thresholds. This means that the maturity of double voting rights granted by loyalty shares could trigger a mandatory waterfall bid, even if there have been no share acquisitions.

The Draft Bill provides that any shareholder acquiring voting rights above the control threshold (30% or more of the company’s voting rights) as a result of the maturity of loyalty shares must launch a mandatory takeover bid, unless it refrains from exercising voting rights that exceed that percentage. In other words, if that shareholder wishes to exercise tenured voting rights representing 30% or more of the company’s voting rights, it must launch a takeover bid at an “equitable price” within three months of gaining control. This offer needs to be addressed to all shareholders, share subscription rights holders, and convertible or exchangeable bondholders. Alternatively, the shareholder can relinquish control within three months to avoid this mandatory bid by transferring or surrendering the necessary voting rights to bring its holding below 30%. In the meantime, the shareholder cannot exercise voting rights that exceed the control threshold.

Moreover, the shareholder may request the Spanish Securities and Exchange Commission (CNMV) to grant a waiver, under certain conditions, if there is a “counterweight shareholder” (that is, another person or entity directly or indirectly holding a percentage of voting rights equal to or greater than that held by the shareholder).

The public hearing procedure phase (“trámite de audiencia pública”) of the Draft Bill ended on May 25, 2021.

This post is also available in: Español



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