The economic weather report for the Netherlands: sunshine ahead
August 2016 | EXPERT BRIEFING | CAPITAL MARKETS
Friday 10 June was more than a bright summer’s day in Amsterdam; it was also the date of the IPOs of ASR insurance company and the Basic-Fit chain of fitness clubs, increasing the total number of newcomers on the Euronext Amsterdam stock exchange in 2016 to six. While the then still looming Brexit referendum and the anticipated economic instability it would cause certainly accelerated recent IPOs, it is not the main reason why the Dutch economic and financial climate has been on a roll lately.
Protective measures – one of the most important Dutch legal exports
In addition to an attractive tax regime, a stable government and high quality legislation and courts, the Dutch legal system continues to offer companies a vast array of corporate governance features, such as loyalty share structures and anti-takeover constructions. The latter received a significant amount of ‘air-time’ when Mylan, a Fortune 500 pharmaceutical company from Pennsylvania, relocated to Amsterdam and set up an independent preferred shares foundation (or stichting in Dutch) which then thwarted Teva’s unsolicited expression of interest for Mylan. This typically Dutch anti-takeover measure did not escape the attention of global media. For example, while several American TV journalists were trying to pronounce the word stichting – they kept referring to it as the ‘Dutch stitching’ – The Wall Street Journal shortly afterwards ran the headline: ‘Mylan: It’s Stichting Time’.
In fact, it has been ‘stichting time’ for decades. The preferred shares foundation structure was first set up by a listed Dutch company in 1969. Other anti-takeover measures have formed part of Dutch legal practice even longer, some dating back to the 19th century. Presently, about two-thirds of all Dutch companies listed on the premium index of the Euronext Amsterdam stock exchange (AEX) have at least one anti-takeover construction in place, and more and more foreign companies are discovering the advantages of this protection. All in all, there are approximately 10 different anti-takeover constructions that can be set up within the jurisdiction of the Netherlands.
A frequent criticism is that the unassailability of the anti-takeover constructions will cause investors to value Dutch listed companies less. According to the critics, if a company surrounds itself by such protection, the interests of the shareholders become, by definition, subordinate to those of the directors. Although this alleged impact on share price even has its own nickname – the Dutch Discount – that does not mean it really exists. We don’t buy it. Anti-takeover measures are intended to allow directors to adhere to a long-term strategy and to continue to pursue that strategy even when the board is under pressure from activist shareholders or a hostile bidder. Also, being protected does not mean that the board is entrenched. As a matter of Dutch law, the board must consider the interests of all of the company’s stakeholders, including shareholders’ interests but also those of employees, creditors, suppliers, etc. A board needs to look at the bigger picture and being protected allows the board to do exactly that, which is not a needless luxury in an era where short-termism has become perhaps a little too popular with investors. Next to that, successful companies like Google and Facebook also use a structure in which the founders and the executive board have more control than other shareholders, and does anyone call that a Google or Facebook discount? So let’s skip the term ‘Dutch Discount’ from now on as it does not do justice to one of our country’s most important legal exports.
Euronext’s importance increases
This spring, Sif Group, the leading manufacturer of offshore foundations for wind turbines and oil & gas platforms, was admitted to Euronext Amsterdam. The transaction allowed Egeria Capital, Sif’s majority shareholder, and the founding family to place up to 123 million worth of shares with institutional and retail investors. Also this year, Coca-Cola Enterprises had Coca-Cola European Partners plc, in terms of revenue the world’s largest independent Coca-Cola bottler, listed on Euronext Amsterdam, Euronext London and several Spanish stock exchanges. And last but not least, ForFarmers, the European market leader of conventional and organic feed solutions for livestock, was able to sound the gong to celebrate its listing on Euronext Amsterdam as well. These IPOs, together with ASR and Basic-Fit, are a clear indication that the importance of Euronext, the pan-European exchange, spanning Belgium, France, the Netherlands, Portugal and the UK is increasing.
A trend toward consolidation
Another driver for some serious buzz is the Dutch insurance world. That is not only because the insurance trade was more or less invented in the Netherlands in 1688 when Evert van Heijningen closed the first insurance policy for shipping, while simultaneously laying the foundation for Aon, the oldest, still existing insurance firm. The main impetus for that buzz is caused by the trend toward consolidation. There are six major players who all offer extremely competitive products, and then there are a large number of more minor players who are increasingly finding themselves inundated with regulations. Therefore, it is only a matter of time before the smaller companies merge with one of the six large companies. The Dutch insurance sector is one of the few in the Netherlands that has not really been subject to an increase in the number of takeovers by foreign parties. One of the factors playing a role in this is the fierce competition in the Netherlands. The profit margins for insurers are slim and the spin the media has put on lawsuits involving unit-linked insurance products, or ‘profiteering-policy scandals’ as they have been dubbed by the media, also make foreign buyers reluctant to become part of the domestic market. One does not want to acquire a company and then discover there is a huge claim against it.
Focusing on tomorrow
In order to ensure that the Dutch economic future will be as bright as its history, the Dutch government supports companies that develop innovative products. To further strengthen their international position, nine top sectors have been identified by the government as being eligible to receive tax benefits, innovation credit and grants: horticulture and propagation materials, agri-food, water, life sciences and health, chemicals, high tech, energy, logistics and the creative industries. The idea behind these choices are not only gaining access to new markets, boosting economic growth and creating jobs; these were also selected because they can help develop solutions to major social issues such as global food security, ageing populations or life-threatening diseases.
Meanwhile, commercial parties are also taking responsibility to stay ahead of the curve in these disrupting times, as is indicated by the recently founded nx’change. This Amsterdam-based ‘Next Generation Stock Exchange’ uses technological developments to decentralise the means of investment though crowdfunding. The idea behind nx’change is to ‘make raising capital simple’ – a payoff that has already worked for Fastned, which is building a pan-European network of fast charging stations for electric cars, when they became nx’change’s first ever listing.
All in all, nobody knows which companies will be tomorrow’s newcomers in the Fortune 500 or where the next Google, Airbnb or Alibaba will come from. What we do know is that if one looks at the Dutch economy and its business and legal climates, it just might happen here.
Leo Groothuis is a partner and Paul van der Bijl is a counsel at NautaDutilh. Mr Groothuis can be contacted on +31 20 71 71 994 or by email: Leo.Groothuis@nautadutilh.com. Mr van der Bijl can be contacted on +31 20 71 71 735 or by email: Paul.vanderBijl@nautadutilh.com.
© Financier Worldwide
Leo Groothuis and Paul van der Bijl