Concert party agreements

Concert party agreements refer to arrangements among individuals or entities to collectively exercise control or influence over a company’s affairs.
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Updated on Jun 6, 2024
Reading time 4 minutes

3 key takeaways

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  • Concert party agreements involve coordinated actions among related parties to influence or control a company’s operations, shareholding structure, or decision-making processes.
  • These agreements may trigger regulatory disclosure requirements, particularly in the context of corporate takeovers, mergers, or acquisitions, to ensure transparency and fair treatment of shareholders.
  • Regulatory authorities closely monitor concert party arrangements to prevent potential abuses, market manipulation, or breaches of corporate governance principles.

What are Concert Party Agreements?

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Concert party agreements are contractual arrangements or informal understandings among individuals, entities, or groups (referred to as the “concert party”) with a shared interest in influencing the affairs of a company. These agreements typically involve concerted actions related to the acquisition, disposal, or voting of shares, as well as strategic decision-making aimed at maximizing their collective interests. Concert party agreements may be formed in various contexts, including corporate takeovers, shareholder activism, joint ventures, or strategic alliances, and they often require disclosure to regulatory authorities and public shareholders.

Importance of Concert Party Agreements

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  • Corporate Control: Concert party agreements play a crucial role in determining the ownership structure and control dynamics within a company, influencing strategic decisions, board composition, and shareholder resolutions.
  • Transparency and Disclosure: Regulatory disclosure requirements ensure transparency and fairness by providing shareholders and market participants with information about the existence, terms, and implications of concert party arrangements.
  • Regulatory Compliance: Compliance with regulatory frameworks governing concert party agreements is essential to prevent market abuses, insider dealing, conflicts of interest, or breaches of corporate governance standards.

How Concert Party Agreements Work

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Formation

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  • Mutual Agreement: Concert party agreements are typically formed through mutual consent among related parties sharing common interests, objectives, or investment strategies.
  • Terms and Conditions: The agreement may outline the rights, obligations, responsibilities, and limitations of each party, including voting rights, shareholding restrictions, confidentiality provisions, and exit mechanisms.

Activities

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  • Collective Action: Parties to the agreement coordinate their actions to achieve common objectives, such as acquiring a controlling stake, influencing board decisions, or implementing strategic initiatives.
  • Voting Bloc: Concert parties may pool their voting rights to exert significant influence over corporate resolutions, director appointments, mergers, or other critical matters requiring shareholder approval.

Disclosure Requirements

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  • Regulatory Scrutiny: Concert party agreements may trigger regulatory disclosure obligations, particularly in the context of public companies, takeovers, or substantial shareholdings, to ensure transparency, market integrity, and investor protection.
  • Materiality Thresholds: Regulatory authorities set thresholds for disclosing concert party agreements based on factors such as the percentage of voting rights acquired, the aggregate value of shares held, or the level of control exerted over the company.

Examples of Concert Party Agreements

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  • Takeover Bids: Shareholders forming a consortium to launch a joint takeover bid for a target company may enter into a concert party agreement to coordinate their actions, share resources, and negotiate with the target’s board.
  • Shareholder Activism: Institutional investors or activist shareholders seeking to influence corporate governance, strategy, or performance may form a concert party to pool their voting rights and advocate for changes in board composition or business practices.
  • Joint Ventures: Companies entering into joint ventures or strategic alliances may establish concert party agreements to govern their collaborative efforts, investment commitments, profit-sharing arrangements, and decision-making processes.

Real-world Application

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  • Mergers and Acquisitions: Concert party agreements are common in merger and acquisition transactions, where acquiring parties may collaborate with other investors, lenders, or strategic partners to finance, negotiate, and implement the transaction.
  • Shareholder Engagement: Institutional investors, activist shareholders, or shareholder groups use concert party agreements to coordinate their engagement with company management, board directors, and other stakeholders to advocate for shareholder rights, governance reforms, or value-enhancing strategies.
  • Regulatory Compliance: Companies, investors, and advisors must comply with regulatory requirements governing concert party agreements, including disclosure obligations, transparency standards, and regulatory approvals, to ensure legal compliance, market integrity, and investor confidence.

Sources & references

Arti

Arti

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Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000 Invezz related data points, has read every piece of research, news and guidance we\'ve ever produced, and is trained to never make up new...