6. May an offeror still buy securities in the offeree company during the preparation of a takeover bid, in order to strengthen its position within the shareholdership (also known as stake-building)?

Anyone who is preparing a takeover bid will, for a period during its preparation, generally be in possession of inside information about the bid and, potentially, about the target company (often obtained while conducting due diligence at the offeree company). During this period, a bidder may not acquire any shares in the offeree company unless that acquisition triggers a mandatory takeover bid because it crosses the 30% threshold within the meaning of Article 5 of the Takeover Law.[1] Stake-building on or off the stock exchange is thus prohibited from the time when the information which the offeror possesses meets the definition of inside information.

As discussed in FAQ no. 5, the use of inside information solely for the purpose of proceeding with a takeover bid in accordance with Article 9, paragraph 4 of the Market Abuse Regulation (MAR) is considered 'legitimate behaviour'. In this provision, stake-building[2] is, however, explicitly excluded from the description of 'legitimate behaviour'.This confirms that the acquisition of securities in the offeree company by an offeror who has gained inside information in the course of preparing a takeover bid does not constitute 'legitimate' preparation of or proceeding with a takeover bid. An offeror who during the preparation of a takeover bid possesses inside information (about the offer and/or about the offeree company) and before the publication of the bid acquires securities in the offeree company, generally for a lower price than the subsequent takeover price, is thus engaging in insider dealing.[3] Nor can stake-building by an offeror who is in possession of inside information be regarded as legitimate behaviour within the meaning of Article 9, paragraph 5 of the MAR. The latter provision refers only to the knowledge that one has decided to acquire or dispose of securities, whereby the mere existence of these transactions in itself constitutes inside information, for example because of their volume or the reputation of the investor in question, which may give rise to copycat behaviour among other investors. The provision does not apply, however, to knowledge of the decision to launch a takeover bid, and thus of the fact that in principle a premium will be paid over the market price (much the less, of course, to inside information on the offeree company which was obtained in the course of preparing the takeover bid).

[1] Such an acquisition is distinct from building a stake outside of a takeover bid and at a potentially lower price than that of a subsequent takeover bid, precisely because it triggers the obligation to launch a takeover bid for (at least) the same price.

[2] Defined in Article 3, paragraph 1, 31°, MAR as: 'an acquisition of securities in a company which does not trigger a legal or regulatory obligation to make an announcement of a takeover bid in relation to that company'.

[3] In such cases, the essential characteristic of insider dealing is by definition present, namely, that an unfair advantage was obtained from inside information, to the detriment of third parties who were unaware of such information (within the meaning of Recital (23) of the MAR). It is therefore logical that European lawmakers do not consider this type of action to be legitimate behaviour.