*
The Implementation of the XIII Directive:
Germany
European Takeover Law: The State of the Art
Università Commerciale Luigi Bocconi
15 December 200*
The Implementation of the XIII Directive:
Germany
European Takeover Law: The State of the Art
Università Commerciale Luigi Bocconi
15 December 2008
*
The Implementation of the XIII Directive:
Germany
European Takeover Law: The State of the Art
Università Commerciale Luigi Bocconi
15 December 200
*
The Implementation of the XIII Directive:
Germany
European Takeover Law: The State of the Art
Università Commerciale Luigi Bocconi
15 December 2008
*
Introduction
II. German takeover law: selected features
III. Control
IV. Mandatory bid
V. Takeover bid
VI. The default rule for target companies: limited passivity
The opt-in/opt-out regime for (target) companies
VIII. The right of squeeze-out
IX. Concluding remarks
* I. Introduction
Takeover law
Act on the Acquisition of Securities and on Takeovers
(the “Act”) (2002)
- major amendments
- Act on the Implementation of the Takeover Directive
(2006)
- Risk Limitation Act: extension of the acting in concert
(August 2008)
Regulation on the Contents of the Offer Document, the Consideration in the Case of Takeover Bids and Mandatory Bids and the Exemption from the Obligation to Publish and Make a Bid (the “Bid Regulation“)
Stock Corporation Act, Securities Trading Act, Commercial Code
* Act on the Acquisition of Securities and on Takeovers: Table of Contents
General Provisions
Jurisdiction of the Federal Financial Authority (“BaFin”)
Offers for the Acquisition of Securities
Takeover Bids
Mandatory Offers
Squeeze-out, the Right of Sell-out
Procedures
Legal Remedies
Penalties
Jurisdiction of Courts, Transitional Arrangements
* II. German takeover law: selected features
Three types of bids regulated
mandatory bid
takeover bid: bid aimed at acquiring control
simple bid: bid not aimed at acquiring control
Interrelation between takeover bids and mandatory bids
requirements for both bids are (nearly) identical, e.g.
mandatory price rules for voluntary takeover bids
no partial takeover bid allowed
consequence: no mandatory bid required upon acquisition of control as a result of a takeover bid (Sect. 35(3) of the Act)
Frustrating actions available to a target: severely limited
Squeeze-out: transfer of shares by court order
* III. Control
Threshold for control: 30 % of the voting rights of the target company at a minimum (Sect. 29(2) of the Act)
Attribution of voting rights: Sect. 30 of the Act
identical to Sect. 22 of the Securities Trading Act?
transposition of Art. 10 of the Transparency Directive
national level:
German legislator
but: different objectives
European Securities Markets Expert Group
Lateral attribution of voting rights to the offeror:
if the offeror is able to control how the voting rights will be exercised in a shareholder meeting
(Sect. 30(1) of the Act)
chain principle applies in attributing votes
* Schaeffler KG acquisition of Continental AG
Facts
direct holdings: 2,97% (+ 4,95 % qua financial instruments)
total return equity swaps with 9 banks: 28 %
Merrill Lynch as coordinator
banks‘ holdings below 3 %-threshold
total return equity swap: cash settlement only
but: banks will sell to a bidder
Problems
unilateral attribution of voting rights?
“voting rights of a third party which are held by such third party for the account of the offeror“ (Sect. 30(1)(1) No. 2 of the Act = Sect. 22(1)(1) No. 2 of the Securities Trading Act)
Schaeffler able to control bank‘ use of voting rights?
bid enforcement mechanisms available to BaFin?
Future
* Multilateral attribution of voting rights:
voting rights owned by a third party with which the offeror or its subsidiaries coordinate their conduct in respect of the offeree company by virtue of an agreement or in any other manner;
agreements on the exercise of voting rights in individual cases are exempted.
Shareholders will act in concert
if they coordinate their voting behaviour or
if they join forces to effectuate a substantial and long-term change of the company’s strategy/goals
amendment by the Risk Limitation Act (2008)
(Sect. 30(2) of the Act)
Legislator’s intention:
partial overturn of existing jurisprudence
Federal High Court of Justice (“WMF”) in 2006
prevention of “undesirable activities of activist shareholders”
* But: limited impact of revision
co-ordinated exercise of votes
election of supervisory board members (still) exempt
co-ordinated rejection of board-sponsored voting proposals (authorized capital) admissible
co-ordinated exercise of influence by other means
means
co-ordination on the level of the supervisory board?
substantial and long-term change of business
business model alteration, sale of a major subsidiary
exemption for one-time changes available?
election of the chairman of the supervisory board („WMF“)
change of business
* - Parallel acquisition of shares as a concerted action?
legislator´s stated intention v. legislative intention
Schaeffler/Conti case
required by Art. 2(1)(d) of the Directive?
- Acting in concert (Art. 2(1)(d) of the Directive):
“persons who cooperate with the offeror … on the basis
of an agreement … aimed at acquiring control”
“acquiring control”:
“pure” acquisition principle?
acquisition as a minimum requirement?
co-ordinating the exercise of votes sufficient?
minimum or maximum harmonisation?
* IV. Mandatory bids (Sect. 35 to 39 of the Act)
Persons required to make a bid:
anyone who directly or indirectly gains control (Sect. 35)
indirectly controlled company
subsidiary as sole target
subsidiary of a target company
BaFin may grant an exception for small subsidiaries
bidders in the case of an attribution of voting rights
unilateral attribution: subsidiaries etc. required to join bid?
multilateral attribution: all persons acting in concert?
compatible with Art. 5(1) of the Directive
exemptions available?
no statutory exemptions/exceptions granted by BaFin
delimiting Sect. 35 despite Art. 5(3) of the Directive?
possible exceptions granted by BaFin
Intra-group changes; acquisition of control in a work-out
* Bid price requirement: dual minimum price threshold
Threshold 1: consideration offered must correspond at least to the highest consideration “granted” or “agreed” for the acquisition of shares of the target company … during the six months prior to the publication of the offer
But see Art. 5(4) of the Directive: “paid”, “gezahlt worden”
and
Threshold 2: Weighted average stock market price during the three months prior to the publication of the offer
in line with the Directive because of Art. 3(2)(b) of the Directive?
not available: price adjustment by the BaFin (but see Art. 5(4) of the Directive)
Price discrimination between common and preferred non-voting stock admissible (“Wella/P&G”)
* Enforcement of the bid requirement
offeror is barred from exercising any membership rights attached to his or her shares
BaFin may impose administrative fines on the offeror
bid made by BaFin in behalf of the bidder?
shareholders may claim interest for the delayed payment
even if the required bid has not yet been made?
Federal High Court („WMF“): questionable
shareholder claim for specific performance?
* V. Takeover bids (Sect. 29 to 34 of the Act)
Full bid requirement
Mandatory bid price requirements identical to bid price requirements governing mandatory bids
in line with the Directive?
admissible because of Art. 3(2)(b) of the Directive?
but see Art. 15(5) of the Directive:
different presumptions with respect to the fair consideration to be offered in squeeze-out proceedings
depending on the type of the preceding bid
* VI. The default rule for target companies:
limited passivity
Interplay between Sect. 33 of the Act and Sect. 93(1) of the Stock Corporation Act
Starting point: after the publication of the decision to make a bid the management board of the target company may not take any actions that may frustrate the success of the bid (first sentence of Sect. 33(1))
applicability to the supervisory board doubtful
not applicable to the shareholder meeting
General exemptions (sentence 2 of Sect. 33(1)):
actions taken by a prudent and diligent manager
in the absence of a bid
search for a white knight
* Exemptions depending on a prior approval by the supervisory board (sentence 2 of Sect. 33(1) of the Act)
duty of care/duty of loyality
BJR (sentence 2 of Sect. 93(1) of the Stock Corporation Act): not applicable because of a potential conflict of interest (possible job loss)
standards for approval:
action must be in the target company's interest
independence as such being a company's interest?
the company's interest must clearly outweigh the shareholders' interest in selling their shares
* Exceptions depending on a shareholder meeting’s authorization obtained during the offer period
limited relevance for several reasons:
minimum period for calling a shareholder meeting
offeror will challenge a resolution by filing an action to set aside said resolution
Exceptions depending on a shareholder meeting’s authorization obtained before the publication of the decision to launch a bid (Sect. 33(2) of the Act)
authorization must be expressly granted for the purpose of frustrating a hostile bid
but: shareholders may only authorize such actions that fully comply with the general requirements of the Stock Corporation Act
* e.g., in case of authorized capital shareholders may empower the board to exclude pre-emptive rights in order to frustrate a hostile bid, but are barred from authorizing the board to issue the new shares below their intrinsic value
e.g., a sale of substantive assets may be authorized but not at a below-market price
A final note: the importance of pre-bid defenses
cases:
Freenet v. United Internet/Drillisch (2008)
MLP v. AWD/Swiss Life (2008)
lessons: the pivotal role of authorized capital
* VII. The opt-in/opt-out regime for (target) companies
A regime without any subjects
Opt-in in the articles of association
opt-in with respect to
board passivity (Art. 9 of the Directive)
or/and
break-through rule (Art. 11 of the Directive)
opt-out with respect to a bidder if the bidder or a controlling “enterprise” does not face comparable restrictions other than those chosen by the bidder
bidders or controlling “enterprises” (“Unternehmen”)
broader than Art. 12(3) of the Directive (“companies”) since “Unternehmen” do not have to be organized in a corporate form
shareholder resolution
* VIII. The right of squeeze-out
(mostly) uniform rules regardless of the type of preceding bid
Two squeeze-out mechanisms in the form of exclusive alternatives available subsequent to a successful bid:
Sect. 39a et seq. of the Act (only subsequent to a bid)
and
Sect. 327a et seq. of the Stock Corporation Act (general)
differing preconditions and procedures
Fair Consideration
offer price to be presumed fair where, through acceptance of the bid, the offeror has acquired at least 90% of the voting rights comprised in the bid
extension of the 90% threshold to mandatory bids in line with Art. 15(5) of the Directive?
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