Cyprus takeovers in limbo as “squeeze out” not possible

The future of mergers and acquisitions in Cyprus is in jeopardy because of the inability of people or companies successfully acquiring in excess of 90% of the capital of a target company to delist it from the Exchange since the “squeeze out” rules cannot be implemented.

As a result of the passage of the new Mergers and Acquisitions rules that were drafted by the Cyprus Securities and Exchange Commission (CySEC) in line with EU Directives, a person or company acquiring more than 30% of the capital of a listed company needs to submit a public offer for up to 100% control.

The problem starts when in cases of the 90% acceptance level being passed and the purchaser wishing to delist the target stock from the CSE, the “squeeze out” rule is not possible to be implemented, since the CSE regulations have not been changed.

Squeeze-out is commonly referred to as the process whereby the remaining minority shareholders still holding or who have not tendered in their shares are forced to sell at the same terms of the public offer so that the acquirer can reach the desired 100% control target.

A senior CSE official told the Financial Mirror that the “squeeze out” issue is a problem, but said the blame lies with the CySEC since when the law was drafted and passed through Parliament, no provisions were made on the impact of the law and how the CSE should implement the Law.

The CSE said it sent a 15-point letter to the CySEC asking for clarifications on a number of issues for which it has not yet received any answer. For example, the Law is not clear on who will do the squeeze-out, whether it will be the acquirer, its KEPEY representative and if so, who will be the KEPEY representative and the guarantee of funds that in future need to be delivered to the remaining minority shareholders.

Another hot issue is when the owner of the shares cannot be located or has died, who will the money be sent to and if the CSE will be liable to lawsuits when relatives or next of kin later on demand the money according to the will of the deceased.

“The CySEC passed the law and they should have thought about all these things, which is why we (CSE) have sent a 15-point list of questions to them to resolve, so that the CSE regulations can be amended and the squeeze-out can be implemented,” a CSE source told the Financial Mirror.