Lessons from privatised KPN for privatisation of ABN

Protection constructions are currently a subject of discussion once more.

A brief historical summary is that roughly until the close of the eighties of the last century all the Dutch listed companies protected themselves against hostile take-overs by means of a variety of protection constructions. The tide turned in the nineties and awareness grew that protection could also result in inefficiencies. The question of the desirability of protection constructions formed part of the corporate governance debate which arose at that time. The proponents of restricting the protection options argued that more shareholder influence would lead to better supervision and discipline of management. The opponents of such restriction pointed out the danger of the Dutch listed companies being ‘sold off’. The discussion gained more momentum because of the accounting scandals at the beginning of this century. A much voiced opinion was that exerting discipline by shareholders’ influence should be encouraged (even) more. Around 2004 this opinion was somewhat reconsidered when it appeared that activist shareholders, such as hedge funds, had entered the Dutch market and were seen as ‘locusts’ sucking Dutch companies dry with a view to short-term profits and to the disadvantage of the stakeholders in such companies.

Currently the feeling is that Dutch companies need a certain amount of protection against certain hostile take-overs and undesired shareholder activism.

Against this background it is interesting to look at recent developments:
ABN Amro wants a listing with protection and prefers certification of its shares. Mylan is ‘attacked’ by Teva and capitalises its foundation which can issue preference shares.
Most of the listed companies protect themselves by means of such preference protection shares. Recent examples of their use include the approach by America Movil towards KPN and the attempt of Boskalis to break through the protection wall of Fugro.

The question is how safe legal protection constructions really are. On the basis of a brief analysis of the Boskalis case many question marks are being put next to the apparent trust of Dutch listed companies in their protection constructions.