Going Dutch Has New Meaning In Corporate Takeover Battles

A short article from the Wall Street Journal
on May 22, 2006 by Adam Cohen.

Going Dutch Has New Meaning In
Corporate Takeover Battles

By Adam

May 22,


AMSTERDAM — When Italian fashion
icon Gucci and Luxembourg steelmaker Arcelor SA faced hostile takeover bids,
both turned to the same place for their defense — the

Unlike other European
jurisdictions, the Netherlands allows companies to create a foundation, called a
stichting in Dutch, that holds shares with special voting rights or shelters
assets from corporate predators. Some of the country’s lawmakers and lawyers
fear these foundations, like Amsterdam’s brothels and marijuana shops, are a
feature of a permissive society that persists for the pleasure of

“Anyone can come here, find
a notary, and — boom — in 10 minutes you have a stichting,” said Judge Huub
Willems, who heads the Enterprise Chamber of the Amsterdam Court of Appeals,
which hears disputes over such

Arcelor formed the Strategic
Steel Stichting in the Netherlands early last month to keep its Canadian unit,
Dofasco — and perhaps itself — out of Mittal Steel Co.’s reach. Mittal wants
to sell Dofasco to avoid antitrust problems and raise cash for its Arcelor
buyout, for which it increased its offer to ?23.3 billion ($29.76 billion)
Friday. But the stichting’s bylaws block the sale of Dofasco for five years.
Even if the strategy doesn’t block a takeover, it may prove a thorn in Mittal’s

European Union officials are
worried about such defensive tactics and have spent almost two decades trying to
eliminate obstacles to consolidation in the 25-nation bloc. But on Saturday, a
new EU takeover law took effect that allows stichtings and other defensive
measures to continue, because EU member countries had balked at losing the
ability to protect their companies. A clause that would have prohibited
“frustrating action” wasn’t included in the final version. Under the new law,
for instance, the buyer of a German company needs to consult the company’s
employees before a deal can be final. In Sweden and Denmark, bidders still will
have to contend with special voting rights that let shareholders control a
company without holding the majority of the capital. And the stichting still
will be allowed in the Netherlands.

stichting can house charities and other nonprofit groups, but it also has a long
tradition as a protectionist device. In 1907, Royal Dutch/Shell Group first
established a defensive stichting, giving the company’s board enhanced voting
powers to counter unwanted buyers. The mind-set of that era was to keep out
“bloody foreigners,” according to Paul Storm, a lawyer with the law firm
NautaDutilh in Rotterdam. Over the past decade, Dutch resistance to foreign
ownership has waned. Instead, foreigners are adopting the stichting. In 1997,
when the luxury-goods business was consolidating, Gucci hired Scott Simpson, a
lawyer at Skadden, Arps, Slate, Meagher & Flom in London, to design a
defense strategy.

A specialist in
hostile takeovers, Mr. Simpson has been involved in some of the Continent’s
largest deals, including Vodafone-Mannesmann and Sanofi-Aventis. Mr. Simpson
teamed up with Martin van Olffen, a lawyer at De Brauw Blackstone Westbroek in
Amsterdam. When French luxury group LVMH Mo‘t Hennessy Louis Vuitton SA
built a 34% stake in Gucci, the company issued a matching number of shares to
the stichting to dilute LVMH’s stake.

agreed in 2001 to be sold to LVMH’s rival PPR SA. Since then, Mr. Simpson and
other lawyers have wielded the stichting to fight other takeovers. “When I saw
that Mittal wanted to force the sale of Dofasco, that’s when I first thought of
the stichting,” he said. Mittal says its bid for Arcelor doesn’t hinge on the
sale of Dofasco. But in a nod to future troubles the stichting could create for
Mittal, U.S. antitrust regulators cleared the company’s takeover bid with a
condition that Mittal sell Dofasco or “alternative

The stichting’s statutes could
create a situation where a significant part of the world’s largest steelmaker —
Dofasco — is controlled by a hostile three-member board. Two stichting board
members are Arcelor General Counsel Federik Van Bladel and former Arcelor board
member Robert Hudry. Mittal’s lawyers are considering ways to unwind the
stichting. Arcelor says it also has other defensive options.


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