Nature and Rationale of Freeze-Out Under Italian Law on Listed Corporations

Abstract

After investigating the nature, under the Italian Constitution, of the Italian Freeze-Out Rule ("IFOR") for listed corporations (controlling shareholder's right to compulsorily acquire minority shares), the work develops an analysis - under an Italian existing-law and law-making perspective, as well as comparative and law-and-economics perspective - on the interests directly served and on the broader economic rationale indirectly satisfied by IFOR. Under a property, contract and corporate law perspective, IFOR, although not advantaging directly and equally all shareholders of listed corporations, is consistent with Italian Constitution. As to its rationale, IFOR cannot best serve a general interest in optimization of ownership structures in listed corporations or a general interest in good functioning of the official stock-exchanges, nor the particular interest of controlling shareholders in being afforded a voluntary exit from listing. Rather, IFOR is the sole means under Italian law (where freezeout mergers, reverse-stock-split freezeouts or freezeouts by corporate capital reduction are not admissible) to afford controlling shareholders a chance to eliminate operating costs due to conflicts of interests with minority shareholders. By directly serving specific interests of a new controlling shareholder after a take-over bid through public tender offer for all voting shares, freeze-out might indirectly result in making the above kind of bid more frequently adopted for the transfer of control of certain targets and in encouraging potentially efficient raiders to offer higher prices in such bids. Current IFOR, however, cannot serve efficiently the above purposes due to the very high threshold (98%) currently triggering it and to the price conditions set forth by law. The work finally stresses the differences, in terms of interests involved, between freeze-out in going-private and in take-over contexts, warning on the higher risks minority shareholders face in the former and underlying the weakness of European regulatory solutions under Directive 2004/25/Ce, Article 15.