«They say things are happening at the border, but nobody knows which border» (Mark Strand)
by Andrea Sacco Ginevri
Abstract: This Article analyzes the main issues arising from the new Italian regime on Blockholders disclosure recently introduced by a new paragraph of Article 120 of the Italian Securities Act. The analysis moves from a preliminary recognition of the new rules governing the transparency obligations on the acquisition of relevant shareholdings in Italian listed companies.
Then, this paper compares the Italian provisions with those set forth, in the same field, by the applicable laws and regulation in the U.S. and in France. Such a comparison gives useful tools to deal with certain issues connected to the initial application of the new Italian regime scrutinized hereinunder.
In conclusion, this preliminary analysis shows how the new rule introduced by par. 4-bis of Article 120 of the Italian Securities Act falls into a grey area between disclosure and conduct rules, probably due to the fact that it has been enacted mainly for the purpose of reducing hidden creeping acquisition in the Italian financial markets.
Summary: 1. Introduction. – 2. The new par. 4-bis of Art. 120 of the Italian Securities Act between disclosure and conduct rules. – 3. An overview of the U.S. and French legal frameworks. – 4. Preliminary thoughts.
1. On 16 October 2017, the Italian Law Decree No. 148 – setting forth “urgent provisions on financial matters and for undeferrable matters” (so-called “Tax Decree”) – has entered into force. In particular, Article 13 of the Tax Decree has introduced a new paragraph 4-bis in the body of Article 120 of the Italian Securities Act (i.e. Legislative Decree No. 58 of 24 February 1998) which requires the purchaser of highly material shareholdings in the voting share capital of any Italian listed company (i.e. above 10, 20 and 25%) to file a statement on the goals pursued by the purchaser with the acquisition.
In the view of the Italian legislator, such provision aims at improving transparency and safeguarding the proper functioning of the market, increasing the level of information of the stakeholders in corporate M&A transactions (see the Press release of the Italian Government No. 50 of 13 October 2017).
The Tax Decree has been recently converted, with amendments, by the Law 4 December 2017, No. 172, entered into force on December 6, 2017.
Art. 13 of the Tax Decree has directly amended the Italian Securities Act by revising the provisions on mandatory disclosure of material shareholdings in Italian listed companies set forth by Art. 120 mentioned above.
Such latter provision – which, as known, is included in Section I (“Ownership Structures”), of Chapter II (“Listed companies”) of Title III (“Issuers”) of Part IV of the Italian Securities Act – sets forth, in paragraph 2, that any person holding a stake in “a listed issuer having Italy as home Member State” which exceeds 3% (or 5% for a SME) – or the other thresholds set forth by the Italian Stock Market Supervisory Authority (i.e. Consob) – shall communicate such shareholding both to the relevant issuer and Consob.
The relevant implementing provisions issued by Consob, and set forth in Articles 117 and following of the Consob Regulation in issuers No. 11971 of 1999, indicate, in addition to the other thresholds of material shareholdings for the purposes of the aforementioned disclosure notice (5%, 10%, 15%, 20%, 25%, 30%, 50%, 66.6% e 90%), also the criteria for the calculation of such holdings as well as the terms and conditions of the notice.
As well known, with the notice provided under Art. 120 of the Italian Securities Act, market participants acquire knowledge of the size of the shareholding acquired, of the direct owner of such shareholding and of the ultimate beneficial owner of the shareholding itself.
2. More in details, Article 13 of the Tax Decree has introduced in the body of Article 120 a new paragraph 4-bis, which requires that, upon acquisition of a shareholding in a listed company equal or exceeding 10%, 20% and 25% of its share capital, the purchaser giving the notice under Article 120 represents and states (also) the goals that the same intends to pursue in the six months after the investment.
For companies other than SME, the provisions of the new paragraph 4-bis are, in any case, without prejudice to art. 106, paragraph 1-bis, of the Italian Securities Act, pursuant to which – in the event that, after a purchase, the 25% threshold is exceeded and there is no other shareholder with a higher stake – the relevant purchaser is required to launch a mandatory tender offer, with the consequent disclosure and fulfillment duties.
The statement provided under the new paragraph 4-bis shall indicate, under the declarant’s own responsibility: a) the terms of financing of the acquisition; b) whether the purchaser is acting alone or in concert; c) whether the same intends to desist from other purchases or to carry on with additional purchases, as well as if the purchaser intends to acquire control of the issuer or, in any case, exercise an influence on the management of the company and, in such cases, the strategy that the same intends to follow and the terms for its implementation; d) the intentions regarding any shareholders’ agreements and arrangements to which the purchaser is a party; e) whether the purchaser intends to propose the amendment or removal of the administrative or supervisory bodies of the issuer.
Without prejudice to the above, in the event that, within six months from the delivery of the notice, there is a change in the intentions of the declarant “on the basis of supervening objective circumstances”, the declarant shall deliver, without delay, a new reasoned notice to the issuer and Consob, from which the above-mentioned six month-term shall run again.
The latter provision allocates the new rule introduced by par. 4-bis into a grey area between disclosure and conduct rules, notwithstanding the circumstance that it has been enacted mainly for the purpose of improving the transparency of creeping acquisition (i.e. of acquisition below the mandatory tender offer threshold but potentially aimed at triggering a change of de-facto control over the issuer).
All the above is without prejudice to the provisions on market manipulation under Article 185 of the Italian Securities Act, which punishes with criminal sanctions anyone who disseminates false information or sets up sham transactions or employs other devices likely to produce a significant alteration in the price of financial instruments.
In addition, pursuant to paragraph 4-bis – as amended following the conversion process – both the initial statement and its subsequent amendment shall be transmitted to the issuer whose shares are subject to the acquisition and to Consob, as well as to the market according to the terms and conditions set forth by the Consob regulation, issued for the implementation of Article 120, paragraph 4, lett. c) and d), of the Italian Securities Act . Consob was granted with the faculty to identify, through its own regulation, the cases in which the aforementioned statement is not due, taking into consideration the features of the entity required to make the communication or the company whose shares have been purchased .
Pursuant to paragraph 5 of Article 120 of the Italian Securities Act, as amended by Article 13 of the Tax Decree, in case of failure to file the statement required by the aforementioned paragraph 4-bis, the voting rights attached to the listed shares or (when applicable) the other financial instruments purchased cannot be exercised. In the event of failure to comply with the above, Article 14, paragraph 5, of the Italian Securities Act shall apply and the resolution or act adopted with the decisive vote or intervention of such securities can be challenged also by Consob pursuant to paragraphs 6 and 7 of the same Article 14.
Moreover, according to Article 193, paragraph 2, of the TUF – as amended by art. 13 of the Tax Decree – and save that the fact constitutes a crime, in the event of failure to file the statement required by paragraph 4-bis of the art. 120 the following administrative measures and sanctions shall apply: a) a public statement indicating the responsible of the breach and the nature of the same; b) an order to remove the alleged breach, which may indicate the measures to adopt and the term for their implementation, as well as to refrain from any repetition of such conduct, when the same is deemed scarcely offensive and dangerousness; c) a monetary administrative sanction from Euro ten thousand up to Euro ten million, or, if higher, up to five percent of the aggregate annual revenues.
3. Blockholders disclosure provisions comparable to those introduced by the Tax Decree in Italy have since long been adopted in other foreign countries’ corporate legislations, and in particular in the United States and in France.
The eldest experience of the so called blockholders disclosure system dates back to the United States’ late sixties .
To date, the relevant provisions are set forth in Section 13(d) of the Securities Exchange Act, pursuant to which any person, after acquiring, directly or indirectly, equity securities of a listed company (also through a security-based swap) comes to hold, directly or indirectly, more than 5 per centum of the relevant class, shall file with the Securities and Exchange Commission (SEC), within ten days from the acquisition (or the shorter term which may be set forth by the SEC), a statement containing, inter alia, the following information:
Similarly to Italian law, the Securities Exchange Act requires that if any material change occurs in the facts set forth in the statement filed with the SEC, an amendment shall be filed with the SEC.
Even more similar to the newly-introduced Italian blockholders disclosure legislation are the provisions adopted and implemented, since 1998, in the French legal system . To date, the relevant regulation is set forth in art. L233-7 of the Code de Commerce, which – similarly to art. 120 of the Italian Securities Act – governs the transparency of the ownership structure of listed companies.
In particular, paragraph 7 of the above article provides that the persons required to file the statement on “material shareholdings” pursuant to the previous paragraphs of the same art. L233-7 are also required to disclose and represent, upon exceeding the thresholds of 10%, 15%, 20% and 25% of the share capital or voting rights, the goals that the same intend to pursue in the following six months.
Such statement, which must be filed with the issuer and the Autorité des Marchés Financiers (“AMF”) within the end of the fifth open-market day after the relevant threshold has been exceeded (deadline set forth by the relevant implementing regulation and provided in the Statement Form prepared by the AMF), must include, amongst others, the following information:
Also, the French provision governs the event of possible changes in the statements filed; however, the current provision of the Code de Commerce appears broader than the correspondent provisions of the Italian and U.S. legal systems, as it provides that, in case of changes in the intentions within six months, the declarant must file a new statement to the issuer and the AMF, from which the six-month term starts running again. In the original text of art. L233-7 – which was in force until January 2009 and, in such part, more similar to the provision of the new paragraph 4-bis of art. 120 TUF – a change in the intentions was allowed only in the event of “modifications importantes dans l’environnement, la situation ou l’actionnariat des personnes concernées”.
4. The decision to introduce also in the Italian legal framework a set of provisions on “early warning” disclosure has the main goal of increasing the transparency of the so-called takeovers below Mandatory Tender Offer threshold (i.e. creeping acquisitions) , to protect and safeguard the proper functioning of the market and the equal treatment of all stakeholders.
Unlike the golden powers provisions– which are also supplemented and partially strengthen by the Tax Decree – the provisions on blockholders disclosure protect the interests of the entire market and the related stakeholders and not (only) those of specific sectors deemed of strategic and national interest.
However, a first remark concerns the scope of the new paragraph 4-bis of Article 120. As anticipated above, such provision expressly refers to the acquisition of securities in “listed companies”. A first issue regards therefore what type of listed companies the provision intends to refer to. Considering the systematic inclusion of the new provision within the text of Article 120 and, more in general, within the Chapter on “Listed companies”, it seems reasonable to conclude that, although not expressly specified, reference is to be made to the acquisition of securities in “listed companies having Italy as home Member State”, just as provided by paragraph 2 of the same Article 120. Such conclusion seems further supported by the circumstance that paragraph 4-bis is included in a system of notices and statements already provided by Article 120, further requiring that the person who files the statement required by the said paragraph 2, when the conditions and requisites set forth under paragraph 4-bis are met, must also disclose and state its goals. The statement required by paragraph 4-bis is therefore an additional statement that supplements the statements already required by the other paragraphs of Article 120 (in the French system the same form of the notice on the holding of material shareholdings – the same form which, in Italy, is enclosed under Annex 4 to the Consob regulation on issuers – includes also the section on the reasons and goals of the acquisition).
A second issue of particular interest, given that the Tax Decree has been enacted quite recently, concerned the practical enforceability of the new paragraph 4-bis pending the adoption of the relevant implementing regulations by Consob. According to the original wording of the provision, as already mentioned, the “early-warning” statement had to be transmitted to the issuer and to Consob within ten days starting from the date of the purchase of the shareholdings, and Consob was granted with the power to determine, through regulation, the terms and conditions of the disclosure to the market. On the basis of the wording of the provision, it seemed reasonable to conclude for a “staggered” effectiveness of the new provisions: (i) immediate, with reference to the statement to the issuer and to the market; (ii) deferred (after issuance of the Consob regulation), with reference to the communication to the market.
On a practical level, prudence has, however, led to a full implementation of the new regulatory provision, even for the part of the same provision concerning the communication to the market .
Analogous principle of prudence seems to be applicable also with the entrance into force of the new provisions, as amended by the conversion law, which provides that the statements shall be transmitted to the issuer and to Consob, as well as to the market according to the terms and conditions set forth under Consob regulation issued for the implementation of Article 120, paragraph 4, lett. c) and d).
Pending any possible regulatory intervention by Consob, today it seems that, also for the statements provided under paragraph 4-bis, reference should be made to the terms and conditions of the communication and disclosure to the market already provided under Articles 121 and 122 of the Consob regulation on issuers concerning the disclosure of material shareholdings.
As for the content of such statement, reference must be directly made to the list provided under paragraph 4-bis, which – despite the doubts that may arise in its interpretation (for example as regards the notions of “concert” and “influence on the management”) – appears, in any case, sufficiently “self-explanatory”. Indeed, following the conversion procedure, the previous provision according to which Consob was granted with the power to specify the content of the items of the statement has been eliminated.
Further areas of attention, which will need specific analysis refer, as an example, to the calculation criteria of the significant holdings and the conditions that legitimate a change in the intentions of the purchaser, as already communicated.
As for the first aspect, that is the holdings calculation criteria, it appears reasonable to apply, in general, the criteria under Articles 118 and following of the Consob regulation on issuers implementing the other paragraphs of art. 120 of the Italian Securities Act, pursuant to which the following must be computed in the relevant calculation: (i) the shares owned by a party, even if the relevant voting rights belong or are granted to third parties or are suspended; (ii) the shares in relation to which a party has or is granted the relevant voting rights under one of the circumstances set forth by paragraph 1 of the mentioned Article 118 of the Consob regulation; as well as (iii) the shares owned by nominees, trustees or subsidiaries and the shares in relation to which the above persons have or exercise the voting rights.
Other than as provided under paragraph 3-bis of art. 118 of the Consob regulation in relation to the other disclosures provided by art. 120, pursuant to paragraph 4-bis it should not be considered relevant the so called “passive exceeding” of the thresholds, as it may occur in the presence of multiple votes shares. The purpose of the “early warning” provision, as noted, is to increase the transparency of information “upon acquisition” of shareholdings exceeding specific qualified thresholds. So, where the exceeding of such thresholds is independent from a voluntary act of the shareholder, paragraph 4-bis should not apply. Such conclusion seems to be confirmed also by the circumstance that paragraph 4-bis, for the purpose of defining the object of the disclosure, identifies elements which refer to an intentional increase of the shareholding held.
As regards the second aspect, a relevant issue arises as to whether there is any limit, and – if so – which ones, to the possibility to change the intentions already disclosed before the expiry of the six month-term. As reminded above, the provision indeed sets forth that “without prejudice to what provided under art. 185, if, within the next six months from the delivery of the statement, there is a change in the intentions on the basis of supervening objective circumstances” a new statement must be filed, from which the above-mentioned six month-term shall run again. The possibility to change the intentions already communicated would seem therefore limited by, and subject to, the occurrence of supervening objective circumstances that justify the change. The purpose of such limitation should probably be brought back to the intention to avoid that the information transparency and the disclosure value descending from the first statement may be “nullified” ad nutum by the shareholder.
Other considerations refer to the set of sanctions, broadly intended.
First of all, the provisions of paragraph 4-bis on the change in the declarant’s intentions expressly refer and save the application of the provisions of (the sole) Article 185 of the Italian Securities Act which sanctions the offense of market manipulation. To the contrary, no reference is made to the other provisions of the Italian Securities Act on the subject of market abuses (Articles 181 and following), which, to date, punish with both criminal and administrative sanctions the cases of insider trading and market manipulation, nor to the new European directive on market abuse. In this regard, the above provisions, even if not expressly referred to, should be in any case taken into account.
As specifically regards the sanctions introduced by Article 13 of the Tax Decree by way of amendment to Article 193 of the Italian Securities Act (as confirmed following the conversion), please note how the reference to paragraph 4-bis has been introduced only in paragraph 2 of such Article 193, which imposes sanctions over companies, entities and associations for the case of failure to make the required communication. To the contrary, Article 13 of the Tax Decree does not expressly mention the following paragraphs 2.1 and 2.2 of the same Article 193, which regulate the different hypothesis where the sanctions are respectively imposed on individuals or persons holding managerial, direction or control positions, or on the personnel of legal entities, whether and when the behavior of such persons has contributed to cause the breach committed by the latter. It is also not mentioned paragraph 2.3, which sanctions the different specific case of delay in the communications provided under Article 120, paragraphs 2, 2-bis and 4; indeed, differently from paragraph 2, such provision does not include any reference to the new paragraph 4-bis.
In a nutshell, the above preliminary thoughts show how the new rule introduced by par. 4-bis of Article 120 of the Italian Securities Act falls into a grey area between disclosure and conduct rules, maybe due to the fact that it has been enacted mainly for the purpose of reducing hidden creeping acquisition in the Italian financial markets.
 According to the provision originally introduced by the Tax Decree, the statement had to be transmitted to the issuer and to Consob within ten days starting from the date of the acquisition of the shareholdings, while Consob was entrusted with the power to determine, through regulation. the terms and conditions of the disclosure to the market.
 Before the conversion, Consob had been delegated to adopt, through its own regulation, implementing provisions aimed at clarifying: (i) the content of the items of the statement; (ii) the cases in which the latter was not due by the holders of the financial instruments provided with the rights set forth by art. 2351, paragraph 5, of the Italian Civil Code, taking into consideration, as appropriate, the size of the shareholding and the characteristics of the declarant; and (iii) the provisions relating to the controls to be carried out by Consob itself on the content of the statements and the relevant terms.
 See, among others, L.A.Bebchuck and R.J.Jackson Jr., The Law and Economics of Blockholders Disclosure, in Harvard Business Law Review, 2012, 39 foll.
 In this respect see C.Maison Blanche and A.Barat, La nouvelle obligation de transparence sur les operations de detentions temporaire avant tenue des assembles: Réflexions préliminaires, in Revue trimestrielle de Droit Financier, 2011, 80 foll.
 See L.Enriques and M.Gatti, Creeping Acquisitions in Europe: Enabling Companies to Be Better Safe than Sorry, 2014, available at http://www.ssrn.com.
 In particular, please note: (i) the statement of Mark N. Lampert (BFV Partner L.P.) in relation to CTI Biopharma S.p.A. (cfr. Notice of Borsa Italiana no. 21958 of November 22, 2017); (ii) the statement of Elliot International in relation to Ansaldo STS S.p.A. (cfr. Notice of Borsa Italiana no. 21959 of November 22, 2017); and (iii) the statement of Aruba in relation to Dada S.p.A. (cfr. Notice of Borsa Italiana no. 22009 of November 23, 2017).
Andrea Sacco Ginevri is Adjunct Professor of Law & Economics at LINK Campus University of Rome and Ph.D in Law and Economics at Roma Tre University (e-mail: firstname.lastname@example.org).