The Dutch Defense Against Hostile Takeovers

Anti-takeover mechanisms aim to prevent a publicly listed company from being taken over by a hostile bidder or an activist shareholder. For many years, flexible anti-takeover mechanisms have been established under Dutch corporate law, the most common of which is based on the issuance of preference shares to a protective foundation (stichting beschermingsprefs) corporate body of the publicly listed company.

The Issuance of Preference Shares to a Foundation

The most common Dutch defense mechanism against a hostile bidder or shareholder aiming to seize control over a publicly listed company is structured around a call option right, which is granted by the listed company for the issuance of preference shares to a target-friendly protective foundation. The protective foundation can call for the issuance of shares at its discretion and at nominal value, which is substantially lower than the value for which the shares are traded at the stock exchange. The articles of association of the foundation typically stipulate that the purpose of the foundation is to protect the continuity of the listed company and to safeguard its interests. After exercising the call option, the equity interest of all other shareholders dilutes to such extent that the foundation holds up to 50 percent of the voting rights (a blocking stake), whereas the dilution of the economic position of the other shareholders is minimal. Due to its effectiveness and flexibility, this construction is very popular among Dutch public companies listed on the Dutch Stock Exchange. Currently, more than 40 percent of the Dutch companies listed on the Dutch Stock Exchange have this — or a comparable — anti-takeover mechanism in place.

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