Italy's Proposed 30% Mandatory Bid Threshold and Its Impact on Corporate Governance and Private Equity Returns

Italy's proposed 30% mandatory bid threshold represents a seismic shift in its corporate governance framework and capital market dynamics. By eliminating the existing dual thresholds-25% for large firms and 30% for SMEs-the Italian government, under Prime Minister Giorgia Meloni, aims to consolidate control for established shareholders, reinforce the Milan stock exchange, and reduce the risk of hostile takeovers. This reform, outlined in a draft decree, according to Reuters, has far-reaching implications for institutional investors, private equity strategies, and cross-border takeover activity in European markets.

Corporate Governance: A Shift Toward Shareholder Stability

The current system requires mandatory takeover bids when a shareholder exceeds 25% in large firms (market cap > €1 billion) or 30% in SMEs, according to Baker McKenzie. The proposed 30% threshold for all companies effectively raises the bar for large firms, allowing entities like Poste Italiane-holding 24.8% of Telecom Italia-to acquire additional shares without triggering a mandatory bid, Reuters noted. This aligns with Meloni's broader strategy to stabilize ownership structures and discourage external bidders, particularly in strategic sectors.

Critics argue this could concentrate power among controlling shareholders, potentially undermining minority investor protections. However, proponents contend it fosters long-term governance by deterring short-term speculative takeovers. The reform also introduces flexibility for SMEs, as their articles of association can adjust the threshold between 25% and 40%, according to White & Case, enabling tailored governance frameworks.

Private Equity Returns: Flexibility at the Expense of Liquidity?

For private equity (PE) firms, the 30% threshold offers both opportunities and challenges. Previously, crossing the 25% threshold in large firms necessitated costly mandatory bids, limiting gradual stake-building. The new threshold allows PE firms to incrementally increase ownership without immediate public market obligations, enhancing flexibility in exit strategies, according to Chambers and Partners. For example, a firm targeting Telecom Italia could now acquire shares incrementally, avoiding the need for a full takeover bid until reaching 30%.

However, this flexibility may come at the cost of reduced liquidity. By discouraging hostile takeovers, the reform could limit competitive bidding for targets, potentially lowering control premiums. Studies suggest mandatory bid rules reduce control premiums by ~45 percentage points, according to an Oxford Law blog post, and Italy's higher threshold may amplify this effect. While this benefits long-term holders, it could deter PE firms reliant on quick exits through public market transactions.

Institutional Investor Strategies: Navigating a New Landscape

European institutional investors are recalibrating their strategies in response to the reform. The shift to a 30% threshold aligns with a broader trend of prioritizing quality over quantity in investments, as seen in State Street's 2025 outlook. Italian institutions are increasingly allocating capital to private credit and resilient sectors like technology and healthcare to hedge against market volatility.

The reform also intersects with regulatory complexities, such as Italy's expanded "Golden Power" regime, which grants the government intervention rights in strategic sectors, reported by Yahoo Finance. This has prompted institutional investors to conduct more rigorous due diligence, particularly in cross-border deals involving Italian targets. Meanwhile, the Milan stock exchange's enhanced role as a listing hub may attract long-term investors seeking stable, governance-aligned opportunities.

Cross-Border Takeovers: A European Perspective

Italy's move to a single 30% threshold positions it as an outlier in Europe, where countries like Germany and France typically enforce 30% thresholds for mandatory bids, according to the European Commission. By harmonizing its rules, Italy aims to make its market more predictable for foreign investors while retaining control over strategic assets. However, this could also reduce competitive pressure from international bidders, potentially stifling innovation and efficiency in Italian firms.

The reform's impact on cross-border M&A will depend on how it interacts with the European Takeover Bids Directive. While the directive harmonizes some rules, national thresholds remain a key variable. Italy's higher threshold may encourage more domestic consolidation but could deter foreign acquirers seeking to exploit lower entry barriers elsewhere in Europe.

Conclusion: Strategic Implications for Investors

Italy's 30% mandatory bid threshold reflects a calculated effort to stabilize corporate governance, empower long-term shareholders, and bolster the Milan stock exchange. For institutional investors, the reform necessitates a nuanced approach: leveraging the flexibility of higher thresholds while navigating regulatory complexities. Private equity firms must balance the benefits of gradual stake-building against potential liquidity constraints.

As European markets evolve, Italy's reforms will likely influence cross-border dynamics, favoring strategic, long-term investments over speculative takeovers. Investors who adapt to this new paradigm-prioritizing governance alignment, sector resilience, and regulatory foresight-will be best positioned to capitalize on the opportunities it presents.