Exam 1:
Ghent University - Faculty of Law and Criminology Mock Exam: Mergers and Acquisitions
(Comprehensive Coverage) Time allowed: 3 hours Instructions: Please answer each of the following
questions concisely. Do not include general theory that does not directly answer the question.
I. Public M&A and Market Abuse Regulation (MAR)
Scenario: "GlobalFund", a Private Equity fund, is considering a buyout of "EuroPharma", a public company
listed on Euronext Brussels. GlobalFund privately contacts the founding family, which holds a 35% stake (acting
as the Reference Shareholder), to negotiate a purchase of their shares before launching a full bid.
Questions:
1. If GlobalFund successfully buys the 35% stake directly from the founding family, what type of takeover
bid must they subsequently launch under Belgian law? Can they attach conditions (e.g., reaching a 95%
acceptance threshold) to this bid?
2. During the confidential negotiations between GlobalFund and the founding family (prior to any
agreement), does this situation constitute "Inside Information" under MAR? Briefly explain based on the
"precise nature" criteria and the concept of a protracted process.
3. If the founding family signs a "Soft Irrevocable Commitment" to tender their shares, what legally
happens if a competing bidder launches a counter-bid at a price 6% higher?
I. Public M&A and Market Abuse Regulation
1. Acquisition of the 35% stake and the subsequent takeover bid
By acquiring the founding family’s 35% shareholding, GlobalFund would cross the Belgian mandatory bid
threshold of 30%.
Under Article 5 of the Belgian Law of 1 April 2007 on Takeover Bids and Article 50 of the Royal Decree of
27 April 2007 on Public Takeover Bids, a person who, following an acquisition, holds more than 30% of the
voting securities of a Belgian listed company must launch a mandatory public takeover bid.
GlobalFund must therefore launch a mandatory public takeover bid for all remaining voting securities and all
securities giving access to voting rights that it does not already hold.
The mandatory bid cannot be subject to a minimum acceptance condition. GlobalFund may therefore not
make the bid conditional upon reaching a 95% shareholding or acceptance threshold. A mandatory bid must
be unconditional because the bidder has already acquired a controlling block and the purpose of the
mandatory bid rule is to give the remaining shareholders an equal opportunity to exit.
The 95% threshold is relevant only at a later stage. If GlobalFund reaches 95% of both the voting capital and
the voting securities, it may generally initiate a simplified squeeze-out procedure under Article 42 of the
Takeover Decree and Article 7:82 of the Belgian Code of Companies and Associations. However, reaching
95% cannot be made a condition for completing the mandatory bid.
In addition, under Article 53 of the Takeover Decree, the mandatory bid price must be at least equal to the
higher of:
1. the highest price paid by GlobalFund or a person acting in concert with it during the twelve months
preceding the announcement of the bid; and
2. the weighted average trading price of the shares on the most liquid market during the thirty calendar days
preceding the event that triggered the mandatory bid.
,Consequently, the price paid to the founding family will normally be highly relevant in determining the
minimum price that must be offered to the remaining shareholders.
2. Inside information during the negotiations
The confidential negotiations can constitute inside information even before GlobalFund and the founding
family sign a binding agreement.
Under Article 7(1)(a) MAR, information constitutes inside information where it:
1. is of a precise nature;
2. has not been made public;
3. relates directly or indirectly to an issuer or its financial instruments; and
4. would be likely to have a significant effect on the price of those financial instruments if it were made
public.
Under Article 7(2) MAR, information is sufficiently precise where it concerns circumstances that exist or
may reasonably be expected to come into existence, or an event that has occurred or may reasonably be
expected to occur, and is sufficiently specific to allow a conclusion to be drawn regarding its possible effect
on the share price.
A takeover is normally a protracted process consisting of several stages, such as the initial approach,
negotiations with a reference shareholder, negotiations regarding price and conditions, financing
arrangements and the signing of an agreement. Under Article 7(3) MAR, an intermediate step in such a
protracted process may itself constitute inside information if that step independently satisfies the Article 7
criteria.
Therefore, the absence of a signed agreement does not prevent the negotiations from being inside
information. Once the discussions become sufficiently concrete, for example where the parties are seriously
negotiating the acquisition of the 35% stake, the price or a commitment to support the bid, there is a realistic
prospect of a transaction. Because the acquisition would trigger a mandatory bid, a reasonable investor would
probably regard this information as relevant to an investment decision.
However, a merely vague idea or a purely exploratory internal discussion would not automatically be
sufficiently precise. The classification must be assessed case by case based on the state of the negotiations at
the relevant time.
GlobalFund’s approach to the founding family may also qualify as a market sounding under Article 11(2)
MAR where the information is necessary for the family to assess whether it is willing to sell or tender its
shares and the family’s willingness is reasonably required for GlobalFund’s decision to launch the bid.
3. Effect of a 6% higher counter-bid on the Soft Irrevocable Commitment
Article 37 of the Belgian Takeover Decree provides that a counter-bid or higher bid must exceed the price of
the previous bid by at least 5%.
A counter-bid offering a price that is 6% higher therefore qualifies as a valid higher counter-bid for the
purposes of the Belgian takeover rules.
A Soft Irrevocable Commitment normally contains a price-out or superior-offer exception. Under such a
clause, the shareholder is released from its commitment where a competing bidder makes a qualifying higher
offer.
Accordingly, assuming that the Soft Irrevocable Commitment contains the standard 5% price-out provision,
the founding family’s commitment to tender its shares to GlobalFund will lapse or cease to be binding when
, the 6% higher counter-bid is launched. The family will then be free to tender its shares into the competing
bid, and GlobalFund cannot compel it to tender into GlobalFund’s original bid.
The precise result nevertheless depends on the contractual wording. For example, the commitment may give
GlobalFund a limited period in which to match or exceed the competing offer. If GlobalFund matches the
counter-bid within that period, the commitment may remain effective or revive.
The 5% rule in Article 37 does not, by itself, automatically terminate every irrevocable commitment. Article
37 determines whether the competing offer qualifies as a counter-bid. The release of the founding family
results primarily from the price-out provision contained in the Soft Irrevocable Commitment.
If the family has already formally tendered its shares into GlobalFund’s bid, Article 25(1) of the Takeover
Decree also provides that a shareholder may withdraw its acceptance during the acceptance period.
II. Acquisition Finance & Corporate Structuring
Scenario: A Private Equity fund sets up a Special Purpose Vehicle (BidCo) to acquire 100% of the shares of
"TechTarget", a private company. BidCo obtains a €100 million Senior Loan from Bank A to pay the purchase
price. BidCo also obtains a €30 million Mezzanine Loan from Debt Fund B to fill the financing gap.
Questions:
1. Bank A requests a direct mortgage on TechTarget’s manufacturing plant to secure the €100 million
Senior Loan that BidCo uses to buy the shares. Is this legally permissible? Explain the legal concept
violated and its purpose.
2. How can BidCo secure the Senior Loan for Bank A without violating the rule mentioned in question 1?
3. Explain the difference between "Contractual Subordination" and "Structural Subordination". How can the
PE fund structure the transaction so that Debt Fund B (Mezzanine) is structurally subordinated to Bank A
(Senior)?
II. Acquisition Finance, Financial Assistance and Subordination
1. Can TechTarget grant Bank A a mortgage over its manufacturing plant?
No, this is not legally permissible. This request violates the legal rules against Financial Assistance,.
The concept of financial assistance prohibits a target company from providing a loan, an advance, or collateral
(such as a direct mortgage on its own assets) to support a buyer in purchasing its own shares,,. The core purpose
of this rule is to protect the existing creditors of the target company,. If TechTarget were to mortgage its
manufacturing plant to secure BidCo's acquisition loan, the plant could be seized by Bank A if BidCo defaults,
which would directly strip TechTarget of its assets and severely damage the security and recovery prospects of
its existing lenders
Purpose of the financial assistance rule
The rule prevents an acquirer from effectively buying a company using that company’s own property while
transferring the acquisition risk to the target.
It protects:
TechTarget’s assets and financial stability;
TechTarget’s creditors, whose security pool would otherwise be reduced;
minority shareholders;
the integrity of the company’s capital and distribution rules.
2. How can BidCo secure Bank A without unlawful financial assistance?
Ghent University - Faculty of Law and Criminology Mock Exam: Mergers and Acquisitions
(Comprehensive Coverage) Time allowed: 3 hours Instructions: Please answer each of the following
questions concisely. Do not include general theory that does not directly answer the question.
I. Public M&A and Market Abuse Regulation (MAR)
Scenario: "GlobalFund", a Private Equity fund, is considering a buyout of "EuroPharma", a public company
listed on Euronext Brussels. GlobalFund privately contacts the founding family, which holds a 35% stake (acting
as the Reference Shareholder), to negotiate a purchase of their shares before launching a full bid.
Questions:
1. If GlobalFund successfully buys the 35% stake directly from the founding family, what type of takeover
bid must they subsequently launch under Belgian law? Can they attach conditions (e.g., reaching a 95%
acceptance threshold) to this bid?
2. During the confidential negotiations between GlobalFund and the founding family (prior to any
agreement), does this situation constitute "Inside Information" under MAR? Briefly explain based on the
"precise nature" criteria and the concept of a protracted process.
3. If the founding family signs a "Soft Irrevocable Commitment" to tender their shares, what legally
happens if a competing bidder launches a counter-bid at a price 6% higher?
I. Public M&A and Market Abuse Regulation
1. Acquisition of the 35% stake and the subsequent takeover bid
By acquiring the founding family’s 35% shareholding, GlobalFund would cross the Belgian mandatory bid
threshold of 30%.
Under Article 5 of the Belgian Law of 1 April 2007 on Takeover Bids and Article 50 of the Royal Decree of
27 April 2007 on Public Takeover Bids, a person who, following an acquisition, holds more than 30% of the
voting securities of a Belgian listed company must launch a mandatory public takeover bid.
GlobalFund must therefore launch a mandatory public takeover bid for all remaining voting securities and all
securities giving access to voting rights that it does not already hold.
The mandatory bid cannot be subject to a minimum acceptance condition. GlobalFund may therefore not
make the bid conditional upon reaching a 95% shareholding or acceptance threshold. A mandatory bid must
be unconditional because the bidder has already acquired a controlling block and the purpose of the
mandatory bid rule is to give the remaining shareholders an equal opportunity to exit.
The 95% threshold is relevant only at a later stage. If GlobalFund reaches 95% of both the voting capital and
the voting securities, it may generally initiate a simplified squeeze-out procedure under Article 42 of the
Takeover Decree and Article 7:82 of the Belgian Code of Companies and Associations. However, reaching
95% cannot be made a condition for completing the mandatory bid.
In addition, under Article 53 of the Takeover Decree, the mandatory bid price must be at least equal to the
higher of:
1. the highest price paid by GlobalFund or a person acting in concert with it during the twelve months
preceding the announcement of the bid; and
2. the weighted average trading price of the shares on the most liquid market during the thirty calendar days
preceding the event that triggered the mandatory bid.
,Consequently, the price paid to the founding family will normally be highly relevant in determining the
minimum price that must be offered to the remaining shareholders.
2. Inside information during the negotiations
The confidential negotiations can constitute inside information even before GlobalFund and the founding
family sign a binding agreement.
Under Article 7(1)(a) MAR, information constitutes inside information where it:
1. is of a precise nature;
2. has not been made public;
3. relates directly or indirectly to an issuer or its financial instruments; and
4. would be likely to have a significant effect on the price of those financial instruments if it were made
public.
Under Article 7(2) MAR, information is sufficiently precise where it concerns circumstances that exist or
may reasonably be expected to come into existence, or an event that has occurred or may reasonably be
expected to occur, and is sufficiently specific to allow a conclusion to be drawn regarding its possible effect
on the share price.
A takeover is normally a protracted process consisting of several stages, such as the initial approach,
negotiations with a reference shareholder, negotiations regarding price and conditions, financing
arrangements and the signing of an agreement. Under Article 7(3) MAR, an intermediate step in such a
protracted process may itself constitute inside information if that step independently satisfies the Article 7
criteria.
Therefore, the absence of a signed agreement does not prevent the negotiations from being inside
information. Once the discussions become sufficiently concrete, for example where the parties are seriously
negotiating the acquisition of the 35% stake, the price or a commitment to support the bid, there is a realistic
prospect of a transaction. Because the acquisition would trigger a mandatory bid, a reasonable investor would
probably regard this information as relevant to an investment decision.
However, a merely vague idea or a purely exploratory internal discussion would not automatically be
sufficiently precise. The classification must be assessed case by case based on the state of the negotiations at
the relevant time.
GlobalFund’s approach to the founding family may also qualify as a market sounding under Article 11(2)
MAR where the information is necessary for the family to assess whether it is willing to sell or tender its
shares and the family’s willingness is reasonably required for GlobalFund’s decision to launch the bid.
3. Effect of a 6% higher counter-bid on the Soft Irrevocable Commitment
Article 37 of the Belgian Takeover Decree provides that a counter-bid or higher bid must exceed the price of
the previous bid by at least 5%.
A counter-bid offering a price that is 6% higher therefore qualifies as a valid higher counter-bid for the
purposes of the Belgian takeover rules.
A Soft Irrevocable Commitment normally contains a price-out or superior-offer exception. Under such a
clause, the shareholder is released from its commitment where a competing bidder makes a qualifying higher
offer.
Accordingly, assuming that the Soft Irrevocable Commitment contains the standard 5% price-out provision,
the founding family’s commitment to tender its shares to GlobalFund will lapse or cease to be binding when
, the 6% higher counter-bid is launched. The family will then be free to tender its shares into the competing
bid, and GlobalFund cannot compel it to tender into GlobalFund’s original bid.
The precise result nevertheless depends on the contractual wording. For example, the commitment may give
GlobalFund a limited period in which to match or exceed the competing offer. If GlobalFund matches the
counter-bid within that period, the commitment may remain effective or revive.
The 5% rule in Article 37 does not, by itself, automatically terminate every irrevocable commitment. Article
37 determines whether the competing offer qualifies as a counter-bid. The release of the founding family
results primarily from the price-out provision contained in the Soft Irrevocable Commitment.
If the family has already formally tendered its shares into GlobalFund’s bid, Article 25(1) of the Takeover
Decree also provides that a shareholder may withdraw its acceptance during the acceptance period.
II. Acquisition Finance & Corporate Structuring
Scenario: A Private Equity fund sets up a Special Purpose Vehicle (BidCo) to acquire 100% of the shares of
"TechTarget", a private company. BidCo obtains a €100 million Senior Loan from Bank A to pay the purchase
price. BidCo also obtains a €30 million Mezzanine Loan from Debt Fund B to fill the financing gap.
Questions:
1. Bank A requests a direct mortgage on TechTarget’s manufacturing plant to secure the €100 million
Senior Loan that BidCo uses to buy the shares. Is this legally permissible? Explain the legal concept
violated and its purpose.
2. How can BidCo secure the Senior Loan for Bank A without violating the rule mentioned in question 1?
3. Explain the difference between "Contractual Subordination" and "Structural Subordination". How can the
PE fund structure the transaction so that Debt Fund B (Mezzanine) is structurally subordinated to Bank A
(Senior)?
II. Acquisition Finance, Financial Assistance and Subordination
1. Can TechTarget grant Bank A a mortgage over its manufacturing plant?
No, this is not legally permissible. This request violates the legal rules against Financial Assistance,.
The concept of financial assistance prohibits a target company from providing a loan, an advance, or collateral
(such as a direct mortgage on its own assets) to support a buyer in purchasing its own shares,,. The core purpose
of this rule is to protect the existing creditors of the target company,. If TechTarget were to mortgage its
manufacturing plant to secure BidCo's acquisition loan, the plant could be seized by Bank A if BidCo defaults,
which would directly strip TechTarget of its assets and severely damage the security and recovery prospects of
its existing lenders
Purpose of the financial assistance rule
The rule prevents an acquirer from effectively buying a company using that company’s own property while
transferring the acquisition risk to the target.
It protects:
TechTarget’s assets and financial stability;
TechTarget’s creditors, whose security pool would otherwise be reduced;
minority shareholders;
the integrity of the company’s capital and distribution rules.
2. How can BidCo secure Bank A without unlawful financial assistance?
