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Takeover immunity: Can it ever be truly achieved?

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For some company owners, an acquisition is the perfect exit strategy. But for the leaders who want to continue growing, a takeover is likely to be the last thing on their minds. With the BBC recently reporting that Danish pharmaceutical giant, Novo Nordisk is “virtually immune to a takeover bid”, we investigated whether it was possible for firms.

According to the BBC, Novo Nordisk’s immunity is due to most of its shares being owned by a Danish Foundation. With a net worth of $107bn (£83.9bn) in 2022, the Novo Nordisk Foundation is the wealthiest charitable foundation in the world.

Financial backing on this scale should offer some protection against takeover bids, even in the pharmaceutical industry, which has seen some of the largest takeovers in the history of M&A. In Q2 2023 alone, M&A in the global pharmaceutical industry totalled $53.3bn (£41.7bn).

Around 28% of the share capital in Novo Nordisk and roughly 77% of the voting rights are owned by the Novo Nordisk Foundation. Foundation-owned companies typically combine business ownership and philanthropy and are often set up for the purpose of business preservation, suggesting, perhaps, an increasing likelihood that a potential takeover bid will be rejected. However, when asked for comment, a Novo Nordisk spokesperson couldn’t comment on whether foundation ownership makes the business immune to takeover bids.

They said, “The combination of foundation ownership and stock listing enables Novo Nordisk to embark on long-term sustainable strategies while maintaining short-term transparency on performance. Our foundation ownership supports the overarching imperative to be both commercially successful and responsive to the wider needs of society.”

Are public companies ever immune from takeovers?

Looking more broadly at public companies, it does not appear possible to avoid being acquired. Helen Roxburgh, partner and lead of KPMG UK’s public company M&A team, says, “The reality is that being a public company means that your shares are always ‘up for sale’, with most public companies having their shares traded every day.”

“However, the public company arena is very diverse, and those at the smaller end of the market are more likely to see their shares suffer from an overall lack of liquidity, which means a takeover offer may represent the only real possibility of a meaningful stake being acquired,” she adds.

This doesn’t mean public companies do not possess protection against takeover attempts. Roxburgh continues, “Public company boards often have a ‘bid defence manual’ prepared and ready to be used in the event of unsolicited and potentially unwelcome interest from bidders, and primarily includes information which may be useful to the target board in responding quickly to any such interest and putting in place its defence strategy.”

There is the risk of a hostile takeover, where a bidder makes an offer to the shareholders without the recommendation of the company’s board to contend with. However, a CMS study found that just 7% of total firm offers between 2017 and 2022 were hostile takeovers, suggesting the risk of one happening right now is low.

Roxburgh says, “Public company takeovers in the UK typically require a meaningful level of shareholder support to succeed.”

What about private companies?

“Every privately owned limited company with a majority shareholder is technically immune from takeover,” says Andy Denny, director at M&A advisory firm BCMS. “This is because no change of ownership can occur without explicit agreement from the majority shareholder(s).”

However, “majority shareholders may feel their hand is forced by a strong offer from an acquiring organisation, or from internal pressures from the senior team or minority shareholders,” he adds.

In cases where a majority shareholder(s) wants to sell but the minority shareholder doesn’t, Denny says, “These scenarios will be addressed by the detail in the shareholders’ agreement and set of articles of association, and you should check your own company’s arrangements with your legal advisor.”

Luke Thorngate-Davies, managing associate in the corporate team at national law firm TLT, says, “Unless a minority shareholder has negotiated contractual protection against the sale of their shares (which would be rare), then the options available to prevent the forced sale of their shares might be very limited.

“If the target company’s articles of association include ‘drag-along rights’ then the minority shareholder opposing the sale will be at risk of being forced to accept the buyer’s offer and the articles, along with any shareholders’ agreement, are likely to include agency provisions and powers of attorney that enable a director of the target company to accept and sign share transfer documents of behalf of the opposing minority shareholder.”

He adds, “Outside of ‘drag-along rights’, if a buyer has acquired, or contracted to acquire, at least 90% of the share capital of a target company, it could use a statutory process known as a ‘squeeze out right’ to compulsorily acquire the remaining 10% of the shares. However, this is more likely to be seen in the context of public M&A.”

The situation is more complex when there is a 50/50 split of ownership as both shareholders have an equal say. However, in such situations, Denny recommends agreeing and documenting in the shareholders’ agreement how you would manage this situation. He says, “A good lawyer can help you put this in place.”

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