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Takeover of listed companies

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When taking over companies whose shares are admitted to trading on an organised market (public takeovers), the detailed regulations of the German Securities Acquisition and Takeover Act (WpÜG) must be observed. The main aim of the WpÜG is to provide a framework ensuring transparency and to prevent unregulated takeovers. Public in this context means that acquisition offers are not directed at individual shareholders but at a large, undefined group of addressees.


The following article provides an overview of the main terms used in the WpÜG in connection with public takeovers and generally outlines the process of a public takeover.


Types of offers

The WpÜG distinguishes between voluntary offers (takeover bids and other acquisition offers) and mandatory offers.


Takeover bids are required if an bidder intends to acquire a controlling position in the target company for the first time. Simply speaking, a controlling position means the holding of at least 30 percent of the voting rights in the target company by a shareholder. If several shareholders act jointly and in concert, the number of their voting rights must be added together (acting-in-concert). This also applies to other acquisition offers and mandatory offers.


Other acquisition offers are deemed to exist if an bidder either intends to acquire for the first time through a public initial offering a holding of less than 30 percent of the voting rights in the target company or to increase his already existing controlling position in the target company. A special case of the other acquisition offer is the delisting acquisition offer, in which the bidder seeks the revocation of the admission of the target company to the stock exchange (delisting).


A shareholder or a majority of shareholders (acting in concert) is obliged to make a mandatory offer if he has/they have acquired control of the target company in another way, i.e. not by means of a voluntary offer.


Timeline of a public takeover

The bidder must publish without undue delay his decision to make a voluntary offer or, once control of the target company has been acquired, his obligation to do so.


Within a maximum of eight weeks after the publication, the bidder must submit an offer document to the Federal Financial Supervisory Authority (BaFin). The offer document serves as a source of basic information concerning the acquisition offer for the shareholders in the target company. If, after successful examination, BaFin allows the bidder to make the offer, the offer must also be published without undue delay. By publishing it, the bidder makes a binding offer to the shareholders in the target company to acquire the shares held in the target company.


As regards the form and content of a public offer, the bidder must comply with mandatory provisions of the WpÜG.


Consideration

The consideration offered by the bidder must be adequate and may not fall below the minimum value set by law. In the case of a takeover bid, the consideration must at least correspond to the average domestic stock exchange price of the shares in the target company over the three months preceding the publication of the decision. In the case of a mandatory offer or a delisting acquisition offer, the period is six months. There is no minimum price for other acquisition offers. It should be noted that for all types of offers, the consideration does not necessarily have to be paid in cash, but can also take the form of stock awards.


Conditions

The bidder may not arbitrarily determine conditions regarding the offer. Permissible are only conditions the meeting of which cannot be caused exclusively by the bidder himself. The permissible conditions thus include, for example, the achieve-ment of certain minimum acceptance thresholds or obtaining official approvals. In the case of delisting offers, it should be noted that they may not be tied to any conditions whatsoever.


Acceptance periods

The period for shareholders to accept an offer can be four to a maximum of ten weeks. When the acceptance period expires and the concluded transfer agreements are fulfilled, the takeover procedure under the WpÜG generally ends.


Exceptions apply, for example, to voluntary offers. In this case, the bidder can extend the offer period once by a further two weeks relying on the so-called "Zaunkönig-regelung" rule (the name of the rule was inspired by the bird called Zaunkönig which is German for wren) after he has published the new number of voting rights he holds.


Another exception applies if the buyer acquires further shares in the target company over the counter within one year of the expiry of the acceptance period (subsequent acquisition). If the consideration granted for these shares exceeds the consideration specified in the offer, the bidder is generally obliged under the WpÜG to pay the difference to the shareholders who have accepted the public offer.


Squeeze-out

If, after completion of the takeover procedure, the bidder holds at least 95 percent of the voting rights in the target company, the remaining minority shareholders can be excluded from the company through a squeeze-out procedure. The procedure of the German Stock Corporation Act as modified by the WpÜG has mainly the advantage that – if a takeover bid involves a squeeze-out – no resolution of the general meeting is required. Minority shareholders can therefore be excluded by court order upon request. Furthermore, the compensation to be paid to the excluded shareholders may under certain circumstances be equal to the takeover price arising from the public offer. This eliminates the need for conducting an often very expensive company valuation procedure to determine the amount of compensation.

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