Squeeze-Out & Sell-Out in Italy

Squeeze-out and sell-out rights in Italy give majority shareholders the power to compulsorily acquire remaining minority stakes, and give minority shareholders the reciprocal right to force a buyout, once specific ownership thresholds are crossed. Both mechanisms are governed primarily by the Consolidated Law on Finance (Testo Unico della Finanza, or TUF), and apply to companies listed on regulated Italian markets. For acquirers completing a takeover bid, understanding these rights is essential: they determine whether full consolidation is achievable, at what price, and within what timeframe. This guide covers the legal framework, ownership thresholds, pricing rules, procedural steps, and practical considerations for both majority and minority shareholders navigating squeeze-out and sell-out in Italy.

The core rules on squeeze-out and sell-out in Italy are set out in Articles 108 and 111 of the TUF, as amended to implement the EU Takeover Bids Directive (Directive 2004/25/EC). These provisions apply to companies whose shares are admitted to trading on a regulated market in Italy, principally Euronext Milan (formerly Borsa Italiana). The rules are supplemented by Consob (Commissione Nazionale per le Società e la Borsa) regulations, in particular the Issuers'; Regulation (Regolamento Emittenti), which sets out procedural and disclosure requirements.

The TUF distinguishes between two scenarios. First, a squeeze-out under Article 111 allows a shareholder who has reached the 95% threshold following a mandatory or voluntary public tender offer (OPA) to compulsorily purchase the remaining shares. Second, a sell-out under Article 108 gives minority shareholders the right to demand that the majority acquirer purchase their shares once the 90% threshold is crossed. These two rights are closely linked in practice: crossing 90% triggers the sell-out obligation, while crossing 95% activates the squeeze-out right.

Consob plays a central supervisory role throughout. It monitors compliance with disclosure obligations, reviews the fairness of the consideration offered, and can intervene if procedural requirements are not met. Failure to comply with Consob';s requirements can delay or invalidate the process, exposing the acquirer to regulatory and civil liability.

A non-obvious requirement is that both rights apply only in connection with a public tender offer. A shareholder who accumulates a 95% stake through market purchases alone, without launching a tender offer, does not automatically acquire the right to squeeze out remaining minorities under Article 111. The tender offer nexus is a prerequisite that foreign acquirers frequently overlook.

The 90% threshold is the first critical milestone. Under Article 108 of the TUF, once an acquirer holds more than 90% of the share capital of a listed company following a tender offer, two consequences follow simultaneously. The acquirer becomes obliged to launch a residual tender offer for the remaining shares if it does not restore a sufficient free float within a prescribed period. Minority shareholders, in turn, acquire the right to demand that the acquirer purchase their shares at a fair price.

The 95% threshold is the second milestone. Under Article 111, once the acquirer holds at least 95% of the share capital following a tender offer, it may exercise the squeeze-out right and compulsorily acquire all remaining shares. The acquirer must notify Consob and the target company, and must pay a consideration determined in accordance with the rules applicable to the preceding tender offer.

In practice, the calculation of these thresholds requires careful attention. The TUF refers to the total share capital, not merely the voting share capital. Shares held by the target company itself (treasury shares) are generally excluded from the denominator for the purpose of calculating the threshold, but the precise treatment depends on the company';s articles and the specific structure of the offer. A common mistake is to calculate thresholds based on voting rights rather than total capital, which can lead to premature or incorrect notifications to Consob.

It is also worth noting that the thresholds apply to each class of shares separately where the target has multiple share classes. An acquirer may reach 95% of ordinary shares but hold a lower proportion of savings shares (azioni di risparmio), which are common in Italian listed companies. In that case, the squeeze-out right applies only to the class in which the threshold has been reached.

The price payable in a squeeze-out or sell-out is not freely negotiable. The TUF and Consob regulations prescribe the basis on which the consideration must be calculated, and Consob has the power to review and, in certain circumstances, adjust the price.

For a squeeze-out under Article 111, the consideration must be at least equal to the price paid in the preceding tender offer. If the tender offer was a mandatory offer (OPA obbligatoria), the price is determined by reference to the highest price paid by the acquirer for shares of the same class in the twelve months preceding the offer. If the offer was voluntary, the price is the offer price itself, provided it was accepted by shareholders representing at least 90% of the shares tendered in the offer.

For a sell-out under Article 108, the same pricing logic applies. Minority shareholders who exercise their sell-out right are entitled to receive the same consideration as was offered in the tender offer, subject to Consob';s review. If Consob considers that the offer price did not reflect the fair value of the shares - for example, because the acquirer had access to non-public information or because the offer was structured in a way that disadvantaged minorities - it may require an independent valuation.

In practice, pricing disputes are one of the most common sources of litigation in Italian squeeze-out proceedings. Minority shareholders and activist funds sometimes challenge the adequacy of the consideration, particularly where the tender offer price was set at the minimum required by law rather than at a premium reflecting the full value of control. Courts have generally upheld Consob';s pricing methodology, but cases involving complex corporate structures or illiquid shares have produced divergent outcomes.

Many acquirers underestimate the risk of price challenges. Engaging an independent financial adviser to prepare a fairness opinion before launching the tender offer, and documenting the valuation methodology thoroughly, significantly reduces exposure to post-squeeze-out litigation.

The procedural sequence for a squeeze-out under Article 111 of the TUF is structured and time-sensitive. Missing a deadline or omitting a required notification can delay the process by several months and attract Consob scrutiny.

The key steps are as follows:

• The acquirer must notify Consob and the target company within three months of the closing of the tender offer that it has reached the 95% threshold and intends to exercise the squeeze-out right.
• Consob reviews the notification and the proposed consideration, and may request additional documentation or an independent valuation.
• The acquirer publishes a notice to remaining shareholders setting out the terms of the squeeze-out, the consideration, and the payment procedure.
• Remaining shareholders receive payment and their shares are transferred to the acquirer by operation of law, without requiring individual shareholder consent.
• The target company';s shares are delisted from Euronext Milan following completion of the squeeze-out.

The entire process from notification to completion typically takes between two and four months, depending on Consob';s review timeline and whether any shareholders challenge the consideration. In straightforward cases where the tender offer price is clearly supported by market data, the process can be completed closer to the two-month end of that range.

For a sell-out under Article 108, the procedural sequence is initiated by minority shareholders rather than the acquirer. Minorities must notify the acquirer of their intention to exercise the sell-out right within a period specified by Consob, typically three months from the date on which the 90% threshold was crossed. The acquirer is then obliged to purchase the shares within a further period set by Consob.

In practice, founders should consider whether to structure the tender offer to reach 95% in a single step, rather than crossing 90% and then accumulating further shares over time. Crossing 90% without immediately reaching 95% creates a window during which minority shareholders can exercise sell-out rights on their own timetable, which can complicate the acquirer';s planning and cash management.

If you are structuring a tender offer in Italy and want to ensure the squeeze-out mechanics are correctly built into the transaction timeline, contact us at info@vlolawfirm.com. We can help structure the setup correctly the first time.

Understanding how squeeze-out and sell-out rights operate in practice requires looking at the position of each party separately.

Scenario one: a foreign strategic acquirer completing a full takeover

A non-Italian industrial group launches a voluntary tender offer for 100% of the shares of a mid-cap Italian listed company. After the offer closes, the acquirer holds 96% of the ordinary share capital. It wishes to delist the target and integrate it fully into its group structure. Under Article 111 of the TUF, the acquirer can exercise the squeeze-out right and compulsorily acquire the remaining 4%. The consideration must equal the tender offer price. The acquirer notifies Consob, publishes the required notice, and completes the squeeze-out within approximately three months. The target is then delisted and merged into the group.

A common mistake in this scenario is failing to account for savings shares or other non-ordinary share classes. If the target has savings shares outstanding and the acquirer has not reached 95% of that class, a separate process is required for those shares, which can extend the timeline and require a separate valuation.

Scenario two: a minority shareholder exercising sell-out rights

An Italian institutional investor holds a 3% stake in a listed company. A private equity fund acquires 92% of the company through a mandatory tender offer. The institutional investor did not tender its shares during the offer, believing the price undervalued the company. Under Article 108 of the TUF, the investor can now exercise its sell-out right and demand that the acquirer purchase its shares at the offer price. The investor notifies the acquirer within the Consob-prescribed period. If the investor believes the offer price was inadequate, it can simultaneously challenge the price before Consob or the competent court, seeking an independent valuation.

This scenario illustrates why minority shareholders should act promptly after a tender offer closes. Missing the notification deadline for the sell-out right means the minority loses the statutory entitlement and must rely on market sales or other remedies, which may be less favourable once the company is delisted.

Completion of a squeeze-out under Article 111 of the TUF automatically triggers the delisting of the target company';s shares from Euronext Milan. The delisting is effected by Borsa Italiana following notification by the acquirer and Consob';s confirmation that the squeeze-out has been completed. No separate shareholder vote is required for delisting in this context, which is a significant advantage for acquirers seeking a clean and rapid exit from public market obligations.

Once delisted, the target company is no longer subject to the continuous disclosure obligations applicable to listed companies under the TUF and the EU Market Abuse Regulation as implemented in Italy. This reduces compliance costs substantially and allows the acquirer to restructure the target';s governance, reporting lines, and financial arrangements without the constraints of public company rules.

Post-squeeze-out integration typically involves a merger (fusione) of the target into the acquirer or a holding vehicle. Italian merger law, governed by Articles 2501 and following of the Civil Code, requires a merger plan, independent expert reports, and a shareholders'; meeting resolution. For a wholly owned subsidiary following a squeeze-out, the simplified merger procedure (fusione semplificata) under Article 2505 of the Civil Code is available, which eliminates the need for shareholder approval at the subsidiary level and reduces the documentation burden.

A non-obvious requirement is that the merger must be registered with the competent Companies'; Register (Registro delle Imprese) and becomes effective only after a 60-day opposition period during which creditors can object. Acquirers who assume that integration can be completed immediately after the squeeze-out often encounter delays at this stage. Building the 60-day creditor opposition period into the post-acquisition integration timeline is essential.

Many underestimate the tax implications of the post-squeeze-out merger. Italian tax law provides for a participation exemption (PEX) regime under which capital gains on the disposal of qualifying shareholdings may be 95% exempt from corporate income tax. However, the application of PEX to squeeze-out proceeds and the treatment of the merger for Italian tax purposes require careful analysis, particularly where the acquirer is a non-Italian entity.

What happens if a minority shareholder refuses to accept the squeeze-out consideration?

Under Italian law, the squeeze-out right under Article 111 of the TUF operates by operation of law once the procedural requirements are satisfied. A minority shareholder cannot block the transfer of their shares by refusing to accept the consideration. The shares are transferred to the acquirer automatically upon completion of the statutory procedure, and the consideration is deposited on behalf of the minority shareholder. The minority';s only recourse is to challenge the adequacy of the consideration before Consob or the competent court, seeking a higher price. Such challenges do not suspend the squeeze-out itself, meaning the acquirer obtains full ownership while the price dispute is resolved separately. Courts have jurisdiction to order a supplementary payment if the original consideration is found to be inadequate.

How long does the squeeze-out process take and what does it cost?

The timeline from notification to Consob to completion of the squeeze-out typically ranges from two to four months in straightforward cases. Complex structures, multiple share classes, or price disputes can extend this to six months or more. The main cost components are Consob filing fees, legal and financial advisory fees, and the cost of the independent valuation if required by Consob. Professional fees for a mid-market transaction generally start from the low tens of thousands of euros for legal advice alone, and can be significantly higher where a contested valuation or litigation is involved. The consideration paid to minority shareholders is the largest cash outflow and depends on the number of remaining shares and the offer price.

Can a squeeze-out be exercised outside the context of a public tender offer?

Under the TUF framework, the squeeze-out right under Article 111 is available only following a public tender offer. A shareholder who reaches 95% through open market purchases or private transactions without conducting a tender offer does not have access to the statutory squeeze-out mechanism. In that scenario, the majority shareholder would need to consider alternative routes, such as a voluntary delisting procedure (which requires a prior tender offer under Consob rules) or a merger under the Civil Code. The merger route is available regardless of how the majority stake was acquired, but it requires shareholder approval and is subject to the creditor opposition period. For companies with a small number of remaining minority shareholders, a negotiated buyout may be the most practical solution.

Squeeze-out and sell-out rights in Italy provide a structured and legally certain mechanism for completing full consolidation of listed companies after a tender offer. The framework under Articles 108 and 111 of the TUF is well-established, but the procedural requirements, pricing rules, and threshold calculations demand careful planning. Both acquirers and minority shareholders benefit from early legal advice to protect their positions and avoid procedural errors that can delay or complicate the process.

VLO Law Firms advises international clients on corporate transactions in Italy. We can assist with tender offer structuring, squeeze-out and sell-out procedures, Consob filings, pricing analysis, and post-acquisition integration. To request a consultation, contact: info@vlolawfirm.com