Italy Spices-up its Recipe for Growth with New Measures Aimed at Reinvigorating Appetite for Equity Investments
By BRUNO COVA, ANTONIO AZZARÀ & SILVIO CAVALLO
Law decree No. 91 of 24 June 2014 (dubbed the “competitiveness decree”, as converted into law,
The Decree, which is part of a broader reform package to promote growth and increase the competitiveness of the Italian economy, sets forth, inter alia, provisions specifically designed to encourage equity investments into listed and non-listed companies: a much-in-the-need commodity in a market traditionally over-reliant on bank debt financing.
The most significant effects of the Decree may be summarized as follows:
an Italian joint stock company (società per azioni) may now be incorporated with a share capital lowered to Euro 50,000;
Italian joint-stock companies may now issue shares carrying multiple voting rights;
differentiated mandatory tender offer regimes now apply to Italian listed companies, depending upon their size; and
Italian listed companies may now issue shares carrying increased voting rights.
Certainly to be welcomed is the reduction in the minimum capital requirements for joint-stock companies, which brings Italy closer to European standards of company formation. By slashing start-up costs, the measure purports to render the joint stock company (which benefits from full separate legal personality and is designed to permit prompt and easy transfers of interests therein) the platform of choice for business and investments in Italy.
The introduction of shares carrying multiple votes (azioni a voto plurimo) provides shareholders with an additional tool for customizing governance arrangements to fit the specific needs of their organization. In particular, this measure may prove particularly attractive for owners of smaller, family-held businesses—many of whom have long been considering partnering with an equity investor, but have never made the move for fear of dilution—to open the capital base without relinquishing control. This may be good news for private equity investors too: a string of opportunities to invest into successful Italian companies looking for growth may materialize soon.
Regarding public companies, the Decree marks a departure from two traditional paradigms of financial regulation: “one size fits all” and “one share, one vote”.
In particular, in a market dominated by medium/small enterprises, the introduction of an ad hoc, lighter-touch, tender offer regime and additional flexibility may encourage smaller companies to tap the capital markets and may be an incentive for institutional investors, often over-cautious for fear of high compliance costs and heavy-handed regulation, to invest in Italian listed companies.
Less clear-cut is the effect of the newly-introduced shares carrying increased voting rights (azioni a voto maggiorato). Institutional investors have traditionally been strong advocates of “shareholder democracy” and have been skeptical (if not overtly hostile) toward deviations from the “one share, one vote” principle.
However, in the Italian market, where pyramids and cross-ownership mechanisms are rife, increased voting rights shares may represent a more transparent way to secure control. In principle, the instrument also has the potential to encourage long-termism and may benefit institutional investors, which, since the start of the financial crisis, have been growing more active and aggressive.
This is not to say that increased-voting is immune from risk: it may be used to separate investment (and risk) from control and may permit the government (which is expected to launch a large-scale privatization campaign) to retain de facto golden shares after selling-off its stakes. A more in-depth judgment upon the instrument, however, would require reading provisions under the consolidated finance act
The following is a summary of some of the most significant changes introduced to the Italian civil code (“Civil Code”) and the Finance Act, pursuant to provisions under the Decree.
Amendments to the Civil Code
Corporate Capital Requirement
As a result of the amendments set forth under the Decree,
Broad flexibility is permitted in designing the instrument: multiple voting rights, in fact, may be limited to certain matters and/or be subject to certain conditions, as specified in the by-laws.
The resolution introducing azioni con diritto di voto plurimo may be adopted with favorable vote of shareholders representing two-thirds of the share capital present at the relevant shareholders’ meeting (irrespective as to whether convened at first or second call).
Although not generally permissible for listed companies, a private company with azioni a voto plurimo shall be allowed to maintain multiple voting upon listing.
Certain Extraordinary Transactions
The Decree increases flexibility and simplifies the formalities to effect certain extraordinary transactions, in particular with respect to:
the acquisition of substantial non-cash assets from directors or shareholders in a joint-stock company;
the alteration of the status of an unincorporated entity (società di persone) to a body corporate (società di capitali);
pre-emption offers to existing shareholders in the event of the allotment of equity securities;and
the determination of the value of the shareholding upon withdrawal from a listed company.
Amendments to the Finance Act
Mandatory Tender Offer Regime
The Decree amends the Finance Act to distinguish between:
small/medium enterprises (“SMEs”), i.e., listed companies with a market capitalization lower than Euro 500 million or an annual turnover not exceeding Euro 300 million; and
large companies (“LCs”), i.e., listed companies other than SMEs.
The creation of two separate classes of listed companies comes with the implementation of differentiated mandatory tender offer regimes.
In particular, under the formerly applicable regime, the obligation to launch a mandatory tender offer for the entire share capital of a listed company was triggered where a person held a shareholding in excess of 30%.
SMEs, on the other hand, are given the option—as an alternative to the standard 30% threshold, which would apply if no choice is made—to determine the threshold triggering the obligation to launch a mandatory tender offer, within a scale ranging from 25% to 40%.
In addition to the foregoing, SMEs may, by inserting ad hoc provisions in the by-laws, opt-out of the “consolidating” tender offer (opa da consolidamento) regime, whereby any acquisition of additional shares or voting rights in excess of 5% completed, in a period of 12 months, by any person holding certain qualified shareholding, triggers the obligation to launch a mandatory tender offer for the entire share capital of the company.
Shares Carrying Increased Voting Rights
As a result of the Decree, listed companies (both, LCs and SMEs) shall be allowed to issue shares carrying increased voting rights (azioni a voto maggiorato), up to two votes per share, if maintained in the portfolio for a “loyalty period” of at least 24 months.
A favorable regime has been introduced to encourage and facilitate the issue of shares with increased voting rights. In particular:
the adoption of a resolution introducing the voto maggiorato will not allow dissenting shareholders to withdraw from the company;and
until December 31, 2015, the favorable vote of shareholders representing the majority of the share capital present at the meeting (irrespective of whether at the first or any subsequent call thereof) shall constitute a quorum for the adoption of a resolution introducing azioni a voto maggiorato.
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