Dutch treat: Netherlands judiciary only goes halfway towards adopting Delaware trilogy in takeover context

Vanderbilt Journal of Transnational Law, Oct, 2008 by Danielle Quinn

ABSTRACT

This Note examines Dutch takeover law in light of the current inter-EU competition to attract entities to individual Member States. The recent hostile takeover of the Dutch bank, ABN AMRO, provides an excellent example of the Netherlands' opportunity to use its judiciary to solidify its reputation as a competitive, business-friendly jurisdiction. The Dutch Enterprise Chamber can aid the Netherlands in becoming the preeminent EU country--a similar status to Delaware's Chancery Court in the United States. Although the Enterprise Chamber attempted to introduce Delaware law in ABN AMRO, it unfortunately misapplied the law. As a result, the Dutch Supreme Court had to overrule its decision; however, the possibility of adopting Delaware takeover law remains. This Note proposes that the Dutch Enterprise Chamber adopt the Delaware takeover trilogy--Revlon, Unocal, and Unitrin--in order to provide certainty to Dutch takeover law and improve its corporate governance, which, in turn, should aid the Netherlands in attracting enterprises. Although it is too early to know, the Netherlands may become a "European Delaware."

TABLE OF CONTENTS

  I. INTRODUCTION
 II. BACKGROUND
     A. RBS-led Consortium's Acquisition of ABN AMRO
        1. The Dutch Enterprise Chamber Decision: An Attempt to
           Introduce Delaware Trilogy
        2. The Dutch Supreme Court Decision: Apparent Rejection of
           Delaware Trilogy
     B. Dutch Law
        1. Takeover Code & EU Takeover Directive
        2. Dutch Takeover Defenses
     C. Delaware Law
        1. Takeover Law
        2. Delaware Takeover Defenses
III. ANALYSIS: COMPATIBILITY OF DUTCH AND DELAWARE TAKEOVER LAW FROM A
     COMPARATIVE PERSPECTIVE
     A. Judicial Decisions: Dutch Supreme Court Leaves Opening Amid
        Apparent Rejection of Enterprise Chamber's Introduction of
        Delaware Trilogy
        1. Underlying Policy: Promote Certainty and Reliability
           within Dutch Law
       2. Unprecedented Expansion of Shareholder Rights
       3. ABN AMRO Poor Facts: Nothing for Revlon- or Unocal-duties to
          Attach To
     B. Analysis of ABN AMRO Case Under Delaware Law
 IV. PROPOSED SOLUTION: DUTCH JUDICIAL ADOPTION
     OF TAILORED DELAWARE TAKEOVER TRILOGY
     A. Characteristics of Delaware's Success
     B. The Current EU Landscape
     C. Dutch Judicial Adoption of Delaware Takeover Trilogy
        1. Benefits
        2. Potential Drawbacks
  V. CONCLUSION

I. INTRODUCTION

In October 2007, after a long and contentious battle between two of the world's largest banks, the Royal Bank of Scotland-led Consortium triumphed over Barclays and acquired the Dutch bank ABN AMRO in the largest deal in the banking industry to date. (1) The intense takeover battle began in early 2007 when the third largest bank in the world, UK-based Barclays, publicly announced its intent to purchase the largest Dutch bank, ABN AMRO. (2) Within a month, Barclays and ABN AMRO announced a 63.74 billion [euro] deal, (3) whereby Barclays would acquire ABN AMRO from its shareholders in a stock-for-stock transaction. (4) Shortly after, a Consortium led by the Royal Bank of Scotland (RBS), also a UK bank, entered the arena with an attractive 72.27 billion [euro] combination stock-for-cash and stock-for-stock offer (5)--in face value, nearly 10 billion [euro] more to ABN AMRO shareholders than Barclays. (6) The battle for ABN AMRO had begun.

Desiring to thwart the Consortium's hostile bid and to solidify the deal with Barclays, the ABN AMRO Board allegedly utilized a crown jewel defense by selling off its North American subsidiary, LaSalle Bank Corporation. (7) Bank of America contracted to purchase LaSalle for $21 billion. (8) ABN AMRO management explicitly assured Bank of America that shareholder approval was not required prior to the sale of LaSalle, confirming Bank of America's independent legal research. (9) Almost immediately after announcement of the deal, however, ABN AMRO shareholders expressed significant disapproval. (10) Viewing the sale of LaSalle as a defense by management to deter RBS and entrench themselves under management-friendly terms with Barclays, (11) ABN AMRO shareholders petitioned the Dutch Enterprise Chamber (also known as the Chamber of Business Affairs) to enjoin the deal pending shareholder approval. (12)

Although "hostile takeovers are the exception, not the rule," (13) they are important within the corporate world for a number of reasons. First, they incentivize many bidders and targets to proceed on a friendly basis, since the risk that a friendly merger may turn hostile constantly underlies negotiations. (14) Both parties recognize the possibility that the bidder "may take its case directly to the target's shareholders if the target's board 'just says no' [upon considering the unsolicited attempt]." (15) Second, many companies have used hostile takeovers as a tactic to accomplish strategically important acquisitions. (16) For instance, if a bidder, such as the RBS Consortium, sees two competitors merging--ABN AMRO and Barclays--the bidder may feel compelled to make a hostile bid "as a matter of strategic market positioning." (17) Third, a bidder may feel forced to use hostile means if the target refuses even to talk with the bidder. (18) Finally, hostile takeovers are especially relevant in the context of transnational transactions, such as the battle over ABN AMRO, because "hostile activity has been more active overseas than in the U.S." in recent years. (19)