Background

Summary 

In February 2016, Consob, the Italian financial regulator found Hitachi Rail guilty of collusion and ordered it to increase the price of its takeover bid for Ansaldo STS:

  • Consob ruled that Hitachi violated the law in offering minorities a lower price than that effectively paid to Finmeccanica when purchasing 40% of STS and 100% of Breda from Finmeccanica in 2015.
  • Consob also declared that Hitachi and Finmeccanica colluded to artificially increase the price paid for Breda and reduce the price paid for STS, resulting in Hitachi’s mandatory tender offer to minorities of STS being launched at an artificially lower price.
  • Consob subsequently levied a price increase to the original mandatory tender offer promoted by Hitachi, raising the price from €9.50 to €9.899 per share, equivalent to €32 million of value.
  • Hitachi appealed Consob’s decision to TAR (Administrative tribunal in Italy) claiming there was no collusion.
  • Separately, Elliott and other minority investors also appealed Consob’s decision to TAR, claiming the cost of collusion as borne by the minorities is worth much more than €32 million.
  • Hitachi indicates in its own internal materials the collusion to be worth €550 million.
  • The matter has now been referred to the European Court of Justice with ruling not expected before later this year.
  • Ultimately, Hitachi violated the law as expressly declared by Consob, the Italian financial regulator [and is factually incorrect in its statement “has not been found guilty of collusion”.]

Simultaneously, several other legal proceedings are ongoing in the courts:

  • Elliott has filed various requests for “injunctions” (in Italian “ingiunzioni” and “sospensive”) in the court of Genoa to request emergency remedies, claiming that Hitachi, having acquired STS shares in a fraudulent manner, should not be allowed to exercise the voting rights associated with those shares; moreover, decisions taken by STS’s AGM with the determining vote of Hitachi should consequently be voided/reversed.
  • Elliott’s requests were rejected by the court, but primarily because the outcome of such emergency remedies was deemed too disruptive to the operations of the company.
  • Fully fledged lawsuits, essentially an in depth continuation of Elliott’s emergency requests, are being and will be discussed in the courts but are likely to go through 3 levels of judgement and take many years to complete.

 

Background

In February 2015 Hitachi Rail ("Hitachi"), a subsidiary of Japanese conglomerate Hitachi Ltd., signed agreements to acquire 40% of Ansaldo STS ("STS", an Italian transportation company with a global presence in the field of railway signalling and integrated transport systems, listed on the Italian stock-market) and substantially all the business and operations of Ansaldo Breda (an unlisted rolling stock manufacturer, "Breda") from Finmeccanica (as of 28th April 2016 renamed to Leonardo, a global high-tech company and key player in the Aerospace, Defense and Security sector). The acquisitions closed in November 2015.

Under the terms of the deal Hitachi paid Finmeccanica EUR 9.50 per share for its shares in STS for a total consideration of EUR 761 million and, according to the press release, EUR 36 million for the business of Ansaldo Breda (with the exclusion of certain contracts and revamping activities) and certain real estate assets.

While STS is a profitable provider of signalling systems for the rail sector, Breda is a rolling stock manufacturer that has been loss-making for many years.  The purchase of STS was conditional on the buyer also buying Breda, as a "package deal" (as indicated in Hitachi internal Board presentations).

Under Italian takeover rules the acquisition of c.40% of STS from Finmeccanica triggered the need for Hitachi to launch a Mandatory Tender Offer ("MTO") on the remaining c.60% of STS at "no less than the highest price paid" in the last twelve months.

On November 10th and November 11th 2015 two shareholders of STS - the investment fund Amber Capital LP ("Amber") and Bluebell Partners Ltd - separately filed with CONSOB (Italian stock market regulator) a request to open an investigation into the MTO announced by Hitachi for the remaining 60% of STS’ shares.  The claimants asked CONSOB to investigate a potential collusion whereby the value attribution between the reported purchase price of the shares of Ansaldo STS and Breda’s activities resulted in the reported value of Breda’s activities being overestimated and the reported purchase price paid by Hitachi for the 40% of the Ansaldo STS’ share capital underestimated by a corresponding amount.

On February 4th 2016, CONSOB found that the MTO price resulted from a collusion between Hitachi Rail and Finnmeccanica; the CONSOB ruling stated that the joint disposal of the two assets meant that the acquisition of Breda for a positive value (EUR 36 million) was subsidised by the acquisition of STS at a discount to fair value (EUR 761 million).  Therefore, CONSOB required Hitachi Rail to increase the price of the takeover bid by c. EUR 0.400 cents per share to EUR 9.899 cents per share (this was only the second occasion on which the Italian regulator has exercised its power to require an increase in the offer price in a mandatory takeover situation).

CONSOB’s mandated revised tender offer price of EUR 9.899 per share has been appealed in the Administrative Regional Tribunal ("TAR") by Amber which is asking for EUR 14.00 per share, and by Hitachi which is asking to ascertain that no collusion took place.  Elliott is also appealing the decision and on April 7th 2016 filed a separate appeal to TAR claiming collusion to be much greater than the EUR 32 million (or EUR 40 cents per share) as determined by CONSOB and equivalent to EUR 15.000 per share and asking for the annulment of CONSOB's ruling. 

The MTO closed on March 14th, 2016.  It attracted very little interest and Hitachi was in the event only able to acquire 6.42% of STS shares in the MTO, achieving only a 46.48% percent shareholding rather than the 100% it was targeting, making it de facto impossible for Hitachi to achieve its stated objective of delisting Ansaldo STS and very difficult for it to achieve its other commercial objectives for the company (including managing Ansaldo STS and Hitachi Rail on an integrated basis). Hitachi’s stake eventually increased by another 4.29% through subsequent purchases by Hitachi at EUR 10.50.  Today Hitachi’s stake stands at 50.77%.

 

For more details, view our Timeline.

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This website and the information contained within it (together referred to as "this website") is an information resource for shareholders in Ansaldo STS SpA ("Shareholders"). Through this website shareholders can access copies of the correspondence between Elliott Advisors (UK) Limited ("Elliott"), Elliott International LP, Liverpool Limited Partnership, Elliott Associates LP (“Elliott Funds”) and the management of each of Hitachi Ltd. (“Hitachi”) and Ansaldo STS SpA (“Ansaldo STS”), the press releases issued by Elliott in relation to the acquisition by Hitachi of its shareholdings in Ansaldo STS, the letters written by Elliott and/or the Elliott Funds to CONSOB and other information relevant to the acquisition and each of Hitachi’s and Ansaldo STS’s subsequent conduct (the "acquisition").

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