Dauntless Dutch defending


Financier Worldwide Magazine

July 2019 Issue

In past years, various unsuccessful attempts by foreign companies to acquire Dutch companies, such as KPN, PostNL, Unilever and AkzoNobel, have triggered a widespread and ongoing public debate in the Netherlands regarding the protection of Dutch listed companies and, by extension, Dutch public interests.

These broad discussions have recently led to two new legislative proposals. One proposal aims to protect the boards of Dutch companies under attack from shareholder activists and hostile bidders. The other proposal aims to protect the telecoms sector, which is considered to be of vital importance to Dutch national security and public order. On a related but different note, the Dutch government surprised friend and foe alike with its stake increase in Air France-KLM.

Air-France KLM

At the end of February, the Dutch government reaffirmed the global trend of economic nationalism and protectionism by silently and quickly building a stake of 12.68 percent in Air France-KLM Group. Within days, the government announced that it had reached a 14 percent stake, almost matching France’s 14.3 percent stake, to “ensure a seat at the table and to defend Dutch national interests”, according to Dutch finance minister Wopke Hoekstra. “There was simply too little influence from the state in KLM to be able to look after the Dutch public interest well”, he added. The engagement received widespread media attention, and the Netherlands was accused in some circles of acting like a corporate raider. Now that the dust has settled, it is possible to put the government’s intervention into perspective.

The Dutch state has long held a stake in both KLM and Amsterdam Airport Schiphol in order to protect Dutch public interests. In light of the merger between Air France and KLM in 2013, the French and Dutch states agreed to reduce their respective shareholdings in the companies proportionally. As a consequence, the French state reduced its stake in Air-France-KLM to 14.3 percent and the Netherlands reduced its stake in KLM to 5.9 percent. In addition, the parties agreed to certain state guarantees, in order to protect the interests of KLM, Schiphol and the Netherlands. These guarantees can be terminated unilaterally by Air France-KLM with a notice period of nine months.

According to Mr Hoekstra, the Dutch government felt forced to acquire a stake in the group on the stock exchange in order to be able to protect Dutch public interests.

This engagement by the Dutch government shows its commitment to defending public interests. As Mr Hoekstra noted, “one should not be naive, but be prepared to defend the silverware”. However, arguably, no policy change can be derived from this specific case. The intervention is rather a confirmation of the current policy plan, in which a flaw – a shareholding at the wrong level – had to be corrected in order to get a seat at the right table.

According to Mr Hoekstra, state shareholdings are still considered to be the exception. The government’s preferred way of protecting Dutch companies and public interests is through legislation. In this respect, we will briefly discuss the bill on undesirable control in the telecommunications sector and the so-called ‘cooling-off period’ for shareholder activists and hostile bidders.

Undesirable control in the telecommunications sector

Now more than ever, telecom facilities, such as telephone services, data centres and the internet, are considered to be of vital importance to national security and public order. On 5 March 2019, a bill aimed at preventing undesirable control in the telecommunications sector was submitted to the lower house of parliament in the Netherlands.

The bill is a direct, although rather delayed, consequence of America Móvil’s hostile attempt to acquire KPN. The hostile takeover attempt failed due to the intervention of the Foundation Preferred Shares B KPN. The Foundation exercised its option and acquired almost 50 percent of the number of issued and voting shares, which successfully blocked the takeover attempt by America Móvil.

The bill authorises the Minister of Economic Affairs to prohibit an acquisition or holding of dominant control, such as at least 30 percent of the voting rights or shares, in a telecommunications company if such control leads to relevant influence in the telecommunications sector that could threaten national security or public interest. Relevant influence will be assumed if a party with dominant control is capable of destabilising vital telecommunications facilities.

The main complaint is that the scope of the bill is too broad, unclear and therefore creates uncertainty, due to its undefined terms, such as relevant influence, national security and public interest, and its broad definition of telecommunication facilities, which includes hosting services, data centres and internet nodes. Against the advice of the Council of State, the constitutionally established advisory body to the government, the government submitted the bill to the lower house of parliament in the Netherlands. Given the many complaints and the advice of the Council of State, it remains to be seen whether the bill will pass.

Cooling-off period fencing of shareholder activists and hostile bidders

The second protective legislative proposal is the introduction of the cooling-off period, which was published in December 2018. This proposal is mainly in response to the unsuccessful attempts by foreign companies to acquire well-known Dutch companies. The draft legislation is aimed at promoting a careful decision-making process in case a shareholder activist or hostile bidder enters the scene.

According to the draft legislation, the board of a Dutch listed company, either on a regulated market or multilateral trading facility operating in the European Economic Area or on any similar stock exchange operating outside the European Economic Area, including Nasdaq and NYSE, may invoke a cooling-off period of up to 250 days. This is allowed if a shareholder proposes an agenda item for the shareholders meeting relating to the dismissal, suspension or appointment of a board member, or an amendment of any provision in the company’s articles dealing with those matters, or a hostile offer for the company is made or announced, for example an offer without the company’s support, provided that in each case such a proposal or offer materially conflicts with the interests of the company and its business, as determined by the board.

During the cooling-off period the board must gather all relevant information necessary for a careful decision-making process and consult with the relevant stakeholders, namely shareholders representing 3 percent or more of the issued share capital, the supervisory board and the Dutch works council, if any. The cooling-off period ends at the earliest of the expiration of 250 days, the hostile offer being declared unconditional or the board having terminated the cooling-off period prior to completion of the 250-day period. At the end of the cooling-off period, the board must publish a report in respect of its policy and conduct of affairs during the cooling-off period and table this for discussion at the next shareholders meeting.  

Several parties have criticised the proposed cooling-off period and consider it to be unnecessary and disproportionate.

Currently, the Dutch Corporate Governance Code expects boards to be given the opportunity to stipulate a reasonable period, not exceeding 180 days, to respond (the ‘response period’) if shareholders intend to request that an item be put on the agenda which may result in a change in the company’s strategy, including the dismissal of one or more directors. It follows from Dutch case law that shareholders should, in principle, observe the response period, if invoked by the board.

This response period creates a perfect synthesis between the sometimes clashing powers of the board who determine the strategy and the shareholders who appoint and dismiss directors. If either one of these powers is used too lightly, either by the board by implementing a full 180-day response period without going into debate with the shareholders, or by a shareholder determined to change the strategy without entering a constructive dialogue with the board, the party is likely to fall short in court.

Given the response period, the added value of the cooling-off period is limited. But even worse, the implementation of a cooling-off period is likely to end the careful development of case law with respect to the response period and the subtle and fair balance of powers, which, in our view, would be a shame. At this stage, it is expected that the proposal will be submitted to parliament later this year.

In times of economic nationalism and protectionism, the Dutch government showed its dauntless commitment to defend public interests and its blue chip companies, some of which, paradoxically, were privatised not so long ago, through conventional methods, such as legislation and, if necessary, by unconventional methods, through ‘unannounced’ shareholder engagement.


Ernst van der Touw is a senior associate at NautaDutilh N.V. He can be contacted on +1 (212) 218 2968 or by email: ernst.vandertouw@nautadutilh.com.

© Financier Worldwide


Ernst van der Touw

NautaDutilh N.V.

©2001-2019 Financier Worldwide Ltd. All rights reserved.