Unlike transactions involving private companies, acquisition of shares of public companies is subject to a number of special requirements, particularly concerning the procedure for the transaction, depending on the size of the acquired stake and reporting obligations referred to in the Public Offerings Act (the Act on Public Offerings, Introduction of Financial Instruments into an Organised System of Trading, and Public Companies).
It should also be pointed out that any due diligence prior to the transaction must be conducted in a limited scope, due to the obligation of a public company to protect inside information that could affect the price. Due diligence can cover information that the company releases to the public pursuant to its reporting obligations, i.e. financial data and information material to investors and the market that does not constitute inside information.
Another characteristic of transactions in shares of listed companies is that in the case of a significant stake of shares, a brokerage must be involved in the process.
Acquisition of a significant stake of shares
Investors can freely carry out transactions involving shares of public companies (i.e. listed on the Warsaw Stock Exchange) only when the transaction will not result in increasing the investor’s share in the total number of votes by more than 33% or 66%.
Crossing the threshold of 33% of the total votes in the company may occur only as a result of voluntary announcement of a tender offer for sale or exchange of the shares in a number ensuring achievement of 66% of the total votes, and crossing the threshold of 66% of the total votes in the company may occur only as a result of voluntary announcement of a tender offer for all of the remaining shares of the company.
An investor who has crossed the 33% threshold through indirect acquisition of shares (i.e. as a result of a public offering, by in-kind contribution of the shares to a company, merger or division of a company, as a result of a change in the company’s statute, expiration of share privileges, or occurrence of a legal event other than a transaction or taking up of newly issued shares) is required within 3 months to announce a tender offer for sale or exchange of shares (compulsory tender) in a number resulting in achievement of the threshold of 66%, or to sell the shares so that the holdings fall below the threshold of 33%.
Similarly, crossing the threshold of 66% for the foregoing reasons results in an obligation to announce a tender offer for all the remaining shares of the company within 3 months, unless during that time the total number of votes falls to no more than 66%.
The tender offers referred above are conducted by brokerages after the acquirer provides full financial security for the transaction in the form of cash or a bank or insurance company guarantee.
In assessing whether an investor intending to acquire shares is bound by the obligation to conduct a tender offer, the shares held by its affiliates should also be counted, as well as the number of votes held by entities acting in concert with it or holding a proxy to vote for it at the general meeting.
The obligation to announce a tender offer does not arise if:
- The shares acquired are listed on the NewConnect market
- The transaction occurs between entities in the same capital group
- The shares are acquired under the procedure set forth in the Bankruptcy Law or in an execution proceeding, or
- The shares are acquired pursuant to an agreement on establishment of financial security or the shares are pledged to satisfy the pledgee under the procedure of assuming ownership of the collateral
Price specified in tender offer
An investor who announces a tender offer cannot freely set the price but is bound by the following legal restrictions.
The price offered for the shares may not be lower than:
- The average market price for the 6 months preceding announcement of the tender
- The average market price for a shorter period if the company’s shares have been traded on the main market for less than 6 months
- The highest price paid for the shares during the 12 months preceding the tender by the entity required to announce the tender, or entities controlled by it, controlling it or acting in concert with it
- The highest value of the non-cash consideration which the entity required to announce the tender gave in exchange for the shares during the 12 months preceding announcement of the tender, or
- The average market price for the 3 months of trading in the shares on the regulated market preceding announcement of the tender, in the case of a tender seeking to exceed the threshold of 66% of the total votes in a public company
The acquirer may agree with the seller on a lower price in the tender, but only in relation to a minimum of 5% of all shares in the company that will be acquired in the tender.
A tender offer for sale or exchange of shares also affects the situation of shareholders who do not intend to accept the offer. A shareholder who achieves or exceeds the threshold of 90% of the votes has a right to demand that the remaining shareholders sell all of their shares. Fulfilment of this demand does not depend on the consent of the minority shareholders. This situation is referred to as an “involuntary buyout” or “squeeze-out.” Under the same arrangement, the minority shareholder may demand that its shares be bought out by the shareholder who has achieved or exceeded 90% of the votes.
An investor who:
- Achieves or exceeds the threshold of 5%, 10%, 15%, 20%, 25%, 33%, 33⅓%, 50%, 75% or 90% of the total votes in a public company, or
- Holds at least 5%, 10%, 15%, 20%, 25%, 33%, 33⅓%, 50%, 75% or 90% of the total votes in the company and as a result of a reduction in the shares falls to 5%, 10%, 15%, 20%, 25%, 33%, 33⅓%, 50%, 75%, 90% or less of the total votes
is required within 4 business days from learning of the change in percentage or within 6 trading days from the date of the transaction on the regulated market or alternative trading system to disclose this information to the public, KNF and the company.
A notification obligation also arises in the event of acquisition or sale of a number of shares changing the existing share:
- In the event of a share above 10%, a change of at least 2% of the total votes in the case of a company listed on the main market, or 5% if the shares are admitted to trading on a regulated market other than the official market, or
- In the event of a share above 33%, a change of at least 1% of the total number of votes at the general meeting.
The notification obligation also applies to an entity that has achieved or exceeded a given threshold of votes in connection with the occurrence of a legal event other than a transaction, e.g. gift or inheritance, or a change in the number of votes due to a change in the structure of the shareholding as a result of redemption of a portion of the shares, and in the case of indirect acquisition of the company’s shares.
Consequences of violation of reporting obligation
If these reporting obligations are not performed, the shareholder cannot exercise the voting rights to the shares, and votes cast in violation of this prohibition shall not be counted in calculating the result of the vote on a resolution of the general meeting.
The ban on voting the shares also applies to all shares held by entities controlled by the entity that acquired the shares in violation of these obligations.
Acquisition of shares in financial institutions
The intention to acquire shares in a financial institution (i.e. a bank, insurance company, investment fund company or brokerage) requires notification of KNF, as provided in the Banking Law of 29 August 1997, the Insurance and Reinsurance Act of 11 September 2015, the Act on Investment Funds and Alternative Investment Fund Management of 27 May 2004, and the Trading in Financial Instruments Act of 29 July 2005.
Notification of KNF
A duty to notify KNF arises when the intended acquisition of shares, direct or indirect, will result in obtaining or exceeding 10%, 20%, one-third or 50%, respectively, of the total votes at the shareholders’ meeting of a financial institution, or the equivalent percentage of the share capital. The notification requirement also applies to:
- Situations in which the investor intends to obtain control over a financial institution, directly or indirectly, in some way other than acquiring or taking up shares or rights to shares giving it a majority of the total votes
- A pledgee or usufructuary entitled to vote the shares
- Situations in which an entity obtains voting rights at a given threshold as a result of events other than acquiring or taking up shares or rights to shares, particularly as a result of amendment of the statute or as a result of extinguishment of voting privileges or restrictions
- Situations where two or more entities act in concert to exercise voting rights.
KNF will declare its objection to acquisition or taking up of shares or rights to shares or obtaining control over a financial institution, in the form of a decision, if there are formal defects in the notification, if the deadline to submit additional information or documents is not met, or if justified by the need for prudent and stable management of the given institution, the potential influence by the notifying party over the institution, or the assessment of the financial condition of the notifying party.
If the party intending to acquire the shares files the notification with KNF with all the required documentation and does not receive any response from KNF within 60 business days, KNF is deemed to consent to the acquisition.
A duty to notify KNF also arises if an entity intends to dispose of shares of a financial institution authorising it to exercise over 10% of the total votes at the general meeting, as a result of which it would hold a stake of shares authorised to exercise less than 10%, 20%, one-third, or 50% of the total votes at the general meeting. This obligation also applies to an intention to sell bonds convertible into shares, depository receipts or other securities providing
a right or obligation to acquire shares in a financial institution.
Prohibition of exercise of voting rights to acquired shares
If these obligations are not met, the voting rights under the acquired shares cannot be exercised. But in specifically justified instances, KNF may waive this prohibition if required in the interests of the customers of a Polish bank, insurers, insureds, beneficiaries of insurance policies, participants in investment funds or collective securities portfolios, customers of investment funds, brokerages or their customers.
KNF may also issue a decision prohibiting an entity from exercising voting rights to shares or rights vested in the dominant entity, based on a justified need for prudent and stable management of a financial institution, or evaluation of the financial condition of an entity that has directly or indirectly gained voting rights or become the dominant entity or could influence the given financial institution.
KNF may also issue a decision ordering an entity to divest shares within a designated period.
Notification of financial institution of number of shares held
An entity that has directly or indirectly acquired or taken up shares or rights to shares in a Polish bank which represent or together with shares already held represent a block of shares reaching or exceeding the threshold of 5%, 10%, 20%, 25%, one-third, 50%, 66% or 75% of the total shares at the general meeting, or has obtained control over a Polish bank, is required in each instance to notify the bank promptly, and the bank in turn will forward this information to KNF.
A notification obligation also arises in the case of acquisition, taking up or disposing of shares in a brokerage, insurance company, or investment fund company.