Companies in the Netherlands have long relied on a unique form of anti-takeover measure to protect themselves against unwanted advances. But with shareholders pushing back, and the government increasingly involving itself in protecting Dutch companies, the foundation structure may be showing signs of cracking.
STICOs and STAKs
Continuity foundations, commonly called Stichting Continuïteit (STICO), and administrative foundations, or Stichting Administratiekantoor (STAK), have been well-established practices in the Netherlands in the past decades and have served organisations as anti-takeover mechanisms. According to Eumedion, a Dutch non-profit foundation that represents the interests of institutional investors in the field of corporate governance and sustainability, nearly 60% of AEX- and AMX-listed companies are currently utilising a foundation structure, which potentially serves as an anti-takeover device.
The main purpose of a STICO is to protect the continuity and independence of a company by allowing the foundation to acquire as many shares as needed to prevent a takeover, at a preferential price. On the other hand, the main purpose of a STAK is to split the economic rights, or dividends, from the voting rights. Under a STAK, companies issue share certificates or depository receipts, which gives shareholders rights to dividends, but no voting rights. Thus, decision-making and control are entirely left to the board of the STAK.
Foundations in Practice, and Investor Pushback
The last time a foundation intervened to prevent a Dutch company takeover was in 2013, when Carlos Slim, the Mexican business tycoon who controls América Móvil and who intended to acquire KPN, had to step back after a poison pill defence mechanism was set in motion. The foundation acquired nearly a fifty percent stake in KPN, preventing Slim’s takeover. This hostile bid attracted strong reactions at the time, prompting the Dutch government to announce it would prepare legislation providing authority to stop foreign acquisitions in vital sectors, such as the telecom industry.
In more recent years, shareholders have become more vocal and are pushing back against this Dutch practice. A good example of shareholder pushback is the case of Ahold Delhaize, who has a STICO structure and in 2018 sought to extend its call option agreement for a period of fifteen years. This decision was strongly contested by shareholders and forced Ahold Delhaize to compromise and revise the agreement.
Could this have been the beginning of a new trend? In 2018, Unilever sought to abolish its STAK structure at the same time it proposed to simplify its business structure. In that case, the business simplification portion of the proposal stirred controversy, and Unilever had to withdraw its scheme of arrangement and simplification proposals just days before the meeting was due to take place. In May 2019, the Unilever Trust Office Foundation (STAK), which owned shares and issued certificates, received a request from Unilever to disband. Before the abolishment of its depositary receipt structure, the foundation managed more than a third of the company shares in total. This decision was widely welcomed and approved by shareholders.
In recent months, other companies have decided to put an end to their foundation structures. Fugro recently held an extraordinary meeting to seek shareholder approval on a €250 million equity offering to refinance its debts. Also announced for the meeting was the amendment of protective measures, more specifically the abolishment of certification of the company’s shares, thus leading to the disbanding of its STAK. Fugro is going even further by also announcing that its STICO has agreed to terminate its call option agreements on preference shares. The general shareholder meeting took place on November 30, 2020, and its refinancing proposal (which included the abolishment of protective measures) was approved by 99.4% of shareholders.
Along the same vein, in its 2019-2020 fifteen months results Eurocommercial Properties disclosed its intention to modernise its corporate governance. After engaging with major shareholders, Eurocommercial Properties found that its STAK “attracted less enthusiasm” than other matters it discussed with its investors. In response to the concerns raised, the company announced that: “We will […] use the coming months to prepare a proposal for a change of the Company’s governance for the winding up of STAK”. Shareholders will be asked to decide on the matter at the 2021 AGM.
Are we stepping into a new era of protectionism? It is difficult to tell now whether foundation structures are on the way out, and whether more issuers will follow suit, but their removal is certainly being discussed at a range of companies.
The Bigger Picture
The Faculty of Law at Radboud University in Nijmegen in the Netherlands held a webinar at the beginning of December 2020 to discuss the topic of protection of listed companies. Among the contributors to the webinar were Eumedion, Allen & Overy, and the van der Heijden Institute/ Business & Law Research Center. On the agenda was the Economy and National Security Review Act, a law intended to address risks to national security, reflecting a broader move by the Netherlands towards applying additional scrutiny to foreign direct investments.
Fundamentally, it provides for the protection of national security by implementing the EU FDI Screening Regulation. The Economy and National Security Act will apply to any investments in companies established in the Netherlands that are considered of relevance for the stability and resilience of critical processes, or if the company is involved in the area of sensitive technologies. Sensitive technologies may relate to dual-use goods, military goods, and any other technology which is classified as sensitive by the Minister, with leeway for interpretation. Acquirers of the aforementioned companies will be just as impacted, as any activities carried out will have to be reported to the Minister of Economic Affairs and Climate Policy in advance to assess the risks involved.
According to a webinar participant, there is currently no intention of outlawing foundation structures, but these will most likely become obsolete as the government becomes more highly involved in the foreign acquisitions and protection of publicly owned Dutch companies through this new legislation. In this sense, the Dutch government considers that the scope of national security extends to and includes economic security. New Dutch regulations, which could enter into force as early as July 2021, would seek to protect hostile takeovers without the intervention of foundations structures. Another option proposed at the webinar is that Dutch companies may consider is to amend their articles of association to anchor the company’s objectives, and keep out hostile takeovers which are too focused on short-term gains.
Issuers deciding to do away with their foundation structure is certainly a positive step in offering shareholders a voice. However, with the possible implementation of new legislation complicated by the collapse of the Dutch government in January 2021, shareholders will have to wait for elections in March and a new administration to provide further insight on how it intends on handling the protection of the country’s economy.
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