Mandatory takeover bid

What it means

A mandatory takeover bid is the duty of anyone who acquires a controlling share of voting rights in a company whose shares trade on a regulated market to offer to buy out the other shareholders at a fair price. The law sets the control threshold, and once it is crossed the acquirer must act within a set period.

The aim is to protect minority shareholders. A change of control can change the strategy, dividend policy and value of their shares, and they have no say in it. The mandatory bid gives them a way out at a price that reflects what was paid for control.

The rules derive from the European directive on takeover bids and apply only to companies whose shares are admitted to trading on a regulated market, such as a stock exchange. They do not affect private s. r. o. companies or unlisted joint-stock companies.

How it works in practice

The price may not be lower than the highest price the acquirer paid for the shares in a statutory period before the bid, nor lower than the average market price. The fairness of the price is assessed by the supervisor, in Slovakia the National Bank of Slovakia, which approves the bid.

The bid must be published and include information on the acquirer, price, acceptance period and intentions for the company. The target's board issues an opinion on the bid and, while it runs, may not take steps that could frustrate it without the general meeting's approval.

If the acquirer reaches a very high stake after the bid, it can use the squeeze-out right to force out the remaining shareholders. Conversely, minority shareholders can demand that their shares be bought. Together these tools allow a clean end to public trading.

What to watch out for

An acquirer who gains control and does not make the bid loses the voting rights attached to its shares and faces sanctions. Shares held by persons acting in concert count towards the stake, so routing purchases through related parties does not work.

Shareholders need to assess the bid in time. Accepting means selling at the offered price; not accepting means keeping shares in a company with a new controlling shareholder, often with less liquidity if the company later delists.