Public mergers and acquisitions in Germany: overview
A Q&A guide to public mergers and acquisitions law in Germany.
The country-specific Q&A looks at current market activity; the regulation of recommended and hostile bids; pre-bid formalities, including due diligence, stakebuilding and agreements; procedures for announcing and making an offer (including documentation and mandatory offers); consideration; post-bid considerations (including squeeze-out and de-listing procedures); defending hostile bids; tax issues; other regulatory requirements and restrictions; as well as any proposals for reform.
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In 2015, Germany saw an average amount of activity in public M&A, with 18 announced public takeovers. Real estate was one of the most active sectors. Once more, takeover offers, in particular exchange offers, proved to be one of the main means of consolidation in the real estate industry.
Noteworthy contemplated deals in 2015 include:
The failed hostile exchange offer of Vonovia SE for Deutsche Wohnen AG (EUR14 billion).
The considered but not consummated offer of Potash for K+S AG (EUR8 billion).
The announced unsolicited bid of Deutsche Wohnen AG for LEG that could not be consummated due to the hostile bid of Vonovia SE for Deutsche Wohnen AG (EUR4.6 billion).
Strategic buyers in 2015 accounted for about 63% of all public offers.
The public takeover transactions in the first half year of 2016 included the following noteworthy transactions:
The exchange offer of Diebold Inc for Wincor Nixdorf AG, which has been the first exchange offer in which a US issuer offered its shares as consideration in a German takeover offer. To qualify as permissible consideration under takeover law, Diebold shares had to be listed on an organised market in the European Economic Area (EEA) (EUR1.8 billion).
The contemplated business combination of London Stock Exchange and Deutsche Börse AG with a takeover offer for Deutsche Börse by a London holding entity (EUR26 billion).
The pending offer of Midea Group and Mecca International (BVI) for KUKA AG (EUR4.6 billion).
In contrast to previous years, 2016 has not yet seen any significant real estate transactions. Reasons may include:
The failure of the contemplated takeovers of Deutsche Wohnen and LEG Immobilien in 2015.
The fact that, at least among the listed real estate companies, a rather high level of consolidation has been achieved in the recent past and an organic or inorganic growth by way of acquisition of smaller, private companies may seem preferable.
So far in 2016, about two-thirds of the offers have been launched by strategic buyers.
The acquisition of control of target companies listed on an organised market and with dispersed ownership is commonly effected by a voluntary public takeover offer for all outstanding shares.
Additionally, in cases where one or more shareholders hold significant stakes (in particular, controlling stakes that the takeover law defines as ownership of at least 30% of the voting rights), takeovers are commonly structured as voluntary takeover offers with the major shareholders signing irrevocable undertakings to tender their shares or bilateral share purchase agreements as the basis for parallel block trades. The offer price cannot then be lower than the price in the block trade. Alternatively, the block trade could first be signed and consummated triggering the obligation of the acquirer to launch a subsequent mandatory bid for all other outstanding shares (see Question 16).
Effective control can sometimes be gained by an acquisition of less than 30% of the voting rights and without an obligation to make an offer for all shares (Kalte Übernahme). In these circumstances, effective control can be exercised if a shareholder secures a stable actual majority in the general meeting (faktische Hauptversammlungsmehrheit) of the target company and so gains indirect influence on the composition of the management board. However, here the shareholder must be careful to avoid acting in concert with other shareholders that can trigger a mandatory offer.
A change of control can also be implemented by a merger. Since the implementation of a merger requires, among other things, the conclusion of a merger agreement by the management board of both companies, a merger is only possible in a solicited scenario. However, a number of distinctive features of a statutory merger (shareholder approval and contestation suits) expose a contemplated transaction to increased legal uncertainty. Therefore, it is not a very common transaction structure for the acquisition or combination of listed companies. Also, a statutory merger results in the target's shareholders becoming shareholders of the receiving company.
Accordingly, "mergers of equals" are often structured as the combination of two public offers by a NewCo (for example, Deutsche Börse and LSE) or as a combination of a public offer by a NewCo and a (reverse triangular) merger transaction into the NewCo (for example, the formation of DaimlerChrysler) (see Question 1).
Proxy fights in Germany
A change of control in a target company (at board level) in theory can be implemented by a proxy fight. A proxy fight is legally permissible. However, the law does not explicitly provide for proxy fight proceedings. In particular, there is no means of obtaining full information on the shareholders of the target. Also, where the proxy can exercise the voting rights at its sole discretion, these voting rights are attributed and therefore can induce the obligation of the proxy to launch a mandatory bid. Accordingly, proxy fights are not used in public takeovers.
Hostile bids are permitted but still remain uncommon. Reasons for this can include:
A significant number of public companies still have one or more large shareholders.
Specifics of corporate law require a qualified majority (75% casted votes) for some measures that an acquirer may want or need to implement, therefore requiring the acquisition of a relatively large stake.
Bidders seem rather reluctant to launch an offer for a listed entity without prior (limited) due diligence.
Mandatory co-determination in certain scenarios impedes the gaining of actual control of larger listed target companies.
Regulation and regulatory bodies
For targets listed on an organised market, the main statutes are the:
Securities Acquisition and Takeover Act (Wertpapiererwerbs-und Übernahmegesetz).
Stock Corporation Act (Aktiengesetz).
Securities Trading Act (Wertpapierhandelsgesetz) (and the Market Abuse Regulation).
Stock Exchange Act (Börsengesetz).
Securities Acquisition and Takeover Act
The Securities Acquisition and Takeover Act, enforced by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BaFin), contains the core provisions for voluntary and mandatory public offers.
The Securities Acquisition and Takeover Act governs public offers for stock listed on an organised market, that is:
Voluntary offers for parts of the shares (less than 30%) and voluntary takeover offers for all shares in the target.
Provisions for the mandatory offer (see Question 16).
Type of consideration (cash, shares or a mixture of both) and mandatory minimum consideration requirements.
The Securities Acquisition and Takeover Act does not apply to offers for (all) shares of public entities not listed on an organised market, but for example, on the open market (Freiverkehr).
The Securities Acquisition and Takeover Act is supplemented by two ordinances (each enforced by BaFin):
Ordinance relating to the contents of the offer document, the consideration payable in the case of takeover bids and mandatory offers and exemption from the obligation to publish and to make an offer.
Ordinance on the takeover conflict of law rules, which describes the applicability of the takeover law in public offers that affect more than one jurisdiction.
Stock Corporation Act
The Stock Corporation Act governs the general rights and duties of the members of the management and supervisory board and the general meeting of the target. It includes the duty of the members of the management and supervisory board to always act in the best interest of the company. The law does not follow a strict concept of shareholder primacy but the concept of best interest of the company, which also comprises the interest of other stakeholders such as employees, creditors and the public interest.
Securities Trading Act and Market Abuse Regulation
The Securities Trading Act provides for disclosure obligations of significant voting rights positions. It is also enforced by BaFin.
From 3 July 2016, the Market Abuse Regulation replaced certain parts of the Securities Trading Act and now exclusively governs:
Insider compliance obligations.
The duty to disclose certain inside information in all EEA member states.
Stock Exchange Act
The Stock Exchange Act provides for certain listing rules that apply to target companies listed in Germany, in particular the prerequisites for a de-listing on application of the management board of the target.
In its decision to allow a potential bidder due diligence, the management board of the target must act in the best interest of the target company and comply with its duty of care and its fiduciary obligations.
Therefore, it must balance the company's interest in the potential bid and the necessity to secure confidentiality of the company's affairs and can (based on the assessment) decide to allow a due diligence. This requires in general:
Conclusion of confidentiality agreement.
Reasonable grounds to believe that there is a good probability that an offer will be recommended and consummated (for example, memorandum of understanding).
In general, the scope of due diligence is rather limited compared to private M&A transactions.
In general, the management board of the target company is under no duty to allow a due diligence unless the hostile bid is qualified to be in the interest of the company.
According to the prevailing opinion, special rules apply in the event of a competing bid. The management board of the target generally has to allow due diligence by a hostile bidder if it allowed due diligence by the friendly bidder unless the identity of the bidders (for example, strategic bidder versus non-competing financial investor) or other circumstances do justify an unequal treatment.
There is a number of public resources from which information for a desktop due diligence can be obtained. Relevant resources include:
Commercial Register (www.handelsregister.de), which provides general corporate information.
Company Register (www.unternehmensregister.de), which provides general corporate and certain capital markets and financial information.
Federal Gazette (www.bundesanzeiger.de), which provides general corporate information and financial statements.
German Trade Mark Register (https://register.dpma.de), which provides information on registered IP rights.
The target's webpage, which must include information related to corporate governance and the general meeting.
The website www.dgap.de, which provides ad hoc announcements and voting rights notifications.
The land register, which contains information on real estate that, however, is not freely accessible.
Once the bidder has resolved to launch a public offer, it must immediately disclose this intention. Prior to this announcement of the offer, the bidder and target are subject to a set of mandatory secrecy-related rules.
Before the (final) decision to launch a public offer, the information on the potential bid qualifies as inside information. Therefore, the bidder must ensure compliance with the insider trading prohibition.
The acquisition of further shares by the future bidder does not qualify as insider trading.
If the management board is aware that the bidder is considering an offer (and a bid is therefore reasonably likely) the target company also has to ensure compliance with the prohibition of insider trading.
Also, from the target's perspective the potential bid will not only qualify as inside information, but as inside information relating to the target company and therefore is subject to ad hoc disclosure. Until the decision of the bidder to launch an offer is disclosed, the management board of the target can delay disclosure of the negotiations if there is:
A legitimate interest for the delay.
The public is not misled by the postponement of the ad hoc disclosure.
The issuer is capable of ensuring secrecy.
In the event of a leak, the target company must immediately disclose the negotiations irrespective of the source of the leak.
If the bidder is an entity listed in the EEA, it is subject to the same set of obligations regarding ad hoc disclosure.
Agreements with shareholders
The Securities Acquisition and Takeover Act stipulates disclosure for significant voting rights positions or derivative positions with similar economic effect.
Disclosure of voting rights
A person whose voting rights position in an issuer meets, exceeds or falls below the thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% must, without undue delay, and within four trading days at the latest, notify this to the issuer and simultaneously to BaFin.
Attribution of third-party voting rights
In calculating the voting rights position, voting rights held by a third party are taken into account in the following cases:
Shares held by a subsidiary.
Voting rights held by a third party for the account of the party subject to the notification requirement.
Voting rights that are assigned as collateral by the party subject to the notification requirement to a third party, unless the third party is authorised to exercise the voting rights attached to the shares and declares its intention to do so independently of the instructions of the party subject to the notification requirement.
Voting rights in respect of which usufruct has been created in favour of the party subject to the notification requirement.
Voting rights that can be acquired by the party subject to the notification requirement by a declaration of intent.
Voting rights that have been entrusted to the party subject to the notification requirement or which it can exercise by means of proxy voting and at its sole discretion.
Voting rights of a third party with whom the person subject to the notification requirement has co-ordinated its behaviour, which requires a consensus on the exercise of voting rights or collaboration in another manner with the aim of bringing about a permanent and material change in the target company's business strategy.
Disclosure of instruments with similar economic effect
Where the following apply then anyone holding, directly or indirectly, instruments must, without undue delay, and within four trading days at the latest, notify the issuer and the BaFin if the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% have been reached, exceeded or fallen below that if the instruments:
Result in an entitlement to acquire (unilaterally and under a legally binding agreement) already issued shares in an issuer whose home country is Germany that carry voting rights.
Grant discretion on the acquisition of the shares.
Have the same economic effect.
Instruments within this meaning are in particular:
Credit default swaps.
Contracts for difference.
Due to this principle-based approach, a hidden stakebuilding appears to be no longer feasible.
Aggregation of voting rights and instruments
With the exemption of the 3% threshold, persons whose aggregated voting rights and positions in instruments with similar economic effect reach, exceed or fall below one of the relevant thresholds are subject to corresponding disclosure requirements.
Agreements in recommended bids
Reasoned statement of the management and supervisory board of the target
The management and supervisory board of the target company are under a duty to comment on any public offer in a reasoned statement that must elaborate on the most relevant features of the offer document.
The management board and supervisory board can issue a joint reasoned statement, but can also publish separate statements. In general, the reasoned statement must include a recommendation of the boards as to whether the target shareholders should accept or reject the offer. In specific circumstances, the boards of the target company can abstain from such recommendation.
The reasoned statement must be issued without undue delay following the posting of the offer document. In the absence of complex structures, for example, cross-border or exchange offers, the reasoned statement must be published no later than two weeks following receipt of the offer document.
Business combination agreements (BCA)
BCAs have become increasingly common, in particular where the bidder and target are of comparable size. A BCA may comprise:
Future strategy, integration and management of a combined group.
Consideration of the offer.
Transaction structure and timeline.
Conditions of the offer.
Obligation of the management board of the target company to recommend the offer in the reasoned statement (including a fiduciary out).
Continuance of business until closing or settlement.
No-shop clauses, which are an undertaking of the management board of the target company to not solicit for competing bids, are considered permissible.
The permissibility of no-talk clauses is disputed. At a minimum, a fiduciary out is required, which allows the target management to enter into talks if it has reasonable ground to believe that a competing proposal is in the best interest of the target company, including its shareholders.
Break fees to be paid by the target company are not a common feature of takeover practice. Although there is no explicit prohibition of break fees, there is legal uncertainty on their overall permissibility and permitted terms and conditions.
Break fees of the target company are under certain circumstances considered permissible if the transaction or offer is in the best interest of the target company. The decisive issue is not the size of the takeover premium but whether the takeover has a positive impact on the target company itself (for example, realisation of synergies or economies of scope or scale). Additionally, the amount of the break fee must be appropriate. 1% of the transaction value is considered a permissible amount.
Occasionally, business combination agreements provide for break fees of the bidder (reverse break fee). The above restrictions do not apply to these break fees.
Before the posting of the offer document, the bidder must take the steps necessary to ensure that it is able to perform the obligations resulting from the offer once they become due. The precise requirements depend on the type consideration offered:
Cash offer. For a cash offer, an investment services enterprise (Wertpapierdienstleistungsunternehmen) that is independent from the bidder must confirm in writing that the bidder has sufficient cash available to perform all claims of the target shareholders. In a credit facility agreement, this must be reflected by a certain funds period.
Exchange offer. For an exchange offer, the bidder must prove to BaFin that it has or will have the shares to settle the offer. This will in the majority of cases where the bidder is a German AG require the preparation of a general meeting deciding on a capital increase of the bidder.
Announcing and making the offer
Making the bid public
Announcement of the intention to launch a takeover offer
The statutory timeline is initiated by the announcement of the intention to launch a public offer (voluntary takeover offer) or of the acquisition of at least 30% of the voting rights (mandatory offer).
Filing of offer document and review by BaFin
Within four weeks following this notification, the bidder must file the offer document with BaFin, which can extend the filing period by up to four weeks. BaFin reviews the offer document for up to ten working days. The review period can be extended for a maximum of 15 working days (in this case, Saturday is considered a working day).
Posting of offer document
The offer document must be published (posted) by announcement on the internet and in the Federal Gazette (Bundesanzeiger) if either:
The review period lapses without a prohibition order of BaFin.
BaFin approves the offer within this period.
With the posting of the offer document, the acceptance period starts and must be at least four and no longer than ten weeks.
Extended acceptance period
On the lapse of the initial acceptance period, the preliminary results of the offer are announced and an additional acceptance period of two weeks commences. After expiration of the extended acceptance period, the final results are disclosed and the (successful) offer is settled.
Under takeover law, a competing offer is an offer made during the acceptance period of the initial offer. The launch of a competing offer leads to an alignment of the acceptance periods. The acceptance period for both offers is determined by the end of the acceptance period of the competing offer.
As a general rule, voluntary takeover offers can be subject to conditions, provided the fulfilment of the condition does not depend on decisions by the bidder or persons acting in concert with the bidder. Unlike the UK City Code on Takeovers and Mergers, German takeover law does not recognise the concept of pre-conditions.
In a mandatory bid, conditions are in general prohibited. Conditions relating to necessary governmental or public approvals (for example, anti-trust) may be included in the offer document.
In contrast to the UK, there is no minimum mandatory acceptance threshold for the offer. However, very often offers are subject to a certain minimum acceptance threshold. Most common is a minimum shareholding of 75%, which allows the bidder to implement certain corporate reorganisation measures following a successful bid (for example, domination agreement or profit transfer agreement).
Further conditions frequently included in the offer are:
Business or market material adverse change (MAC) clauses.
No event of non-compliance at the target.
A further set of conditions relates to no-defence actions and includes no:
Amendments to the articles.
Transfer of assets.
Corporate reorganisations (spin-off or merger).
No competing bid.
In both recommended and hostile bids, the target's shareholders receive the following:
Announcement of the bidder's intention to launch an offer.
An offer document prepared by the bidder and reviewed by BaFin.
A (joint) reasoned statement of the management and supervisory board of the target.
Announcement of intention to launch a takeover offer/gaining of control
At the beginning of the official takeover proceedings, the bidder announces its intention to launch a voluntary takeover. The announcement need not, but will often, already include certain key terms and conditions of the offer.
Generally, in the four weeks following the announcement of the public offer, the bidder must prepare the offer document, which (after a review by BaFin) is published. The offer document enables the target shareholders to decide on an informed basis and contain, among other things, information about:
Type and amount of the consideration.
Conditions on which the effectiveness of the offer depends.
Actions taken by the bidder to ensure full performance of the offer.
Information on the bidder's intentions with regard to the future business of the target company, including potential consequences for the employees.
Information on any cash or non-cash benefits that are granted to, or the prospect of which is held out to, members of the management and supervisory board of the target company.
If shares are offered as consideration, the offer document must contain all information of a usual securities prospectus.
(Joint) reasoned statement
The management and supervisory board of the target must comment on the offer in a reasoned statement. The management and supervisory board can publish individual statements, but in practice a single (joint) reasoned statement is usually issued.
The reasoned statement must be prepared and published without undue delay. In the absence of extraordinary circumstances, a two-week period for receipt of the offer is acceptable. The reasoned statement has among other things to elaborate on:
Type and amount of the consideration being offered.
Expected consequences of a successful offer for the target company, the employees and their representative bodies, the terms and conditions of employment, and the business locations of the target company.
Objectives pursued by the bidder with the offer.
Intention of the members of the management and supervisory board regarding acceptance of the offer, insofar as they hold securities of the target company.
The recommendation whether the target shareholders must accept or reject the offer (only in exceptional circumstances not required).
The reasoned statement can include as an attachment a separate statement of the works council or the employees of the target company (see Question 15).
The management board of the target must:
Immediately inform the competent works council or (where there is no works council) the employees directly about the receipt of the announcement of the bidder's intention to launch a takeover offer.
Submit the offer document to the works council or employees on receipt.
Submit the (joint) reasoned statement of the management and the supervisory board to the works council or employees.
The target's management board only has to inform the works council or employees, but is under no duty to consult with them on the offer or its evaluation. Where the target company employs more than 100 employees, corresponding information duties exist in relation to the economic committee (Wirtschaftsausschuss).
The competent works council or (where there is no works council) the employees of the target directly can comment on the offer in a separate statement. The statement does not form part of the reasoned statement of the management and supervisory board, but is attached to the statement.
Any person that directly or indirectly gains control, that is at least 30% of the voting rights of the target company, is under a duty to launch a mandatory bid for all outstanding shares of the target company. For calculating the 30%-threshold, the attribution rules as listed above apply, that is, particular co-ordinated behaviour (acting in concert) can give rise to a mandatory offer (see Question 8).
No mandatory bid is required where control is acquired as result of or in connection with a voluntary takeover offer since voluntary and mandatory takeover offers are subject to the same set of relevant provisions.
The following consideration is permissible:
Combined cash and share offers.
Until recently, exchange offers have been an exemption. However, recently, in particular in the real estate industry, exchange offers have become more common. However, cash remains the predominant consideration in public takeover offers.
Offers aimed at gaining control, that is, aimed at the acquisition of at least 30% of the voting rights (voluntary takeover offer), and mandatory offers triggered by the acquisition of at least 30% of the voting rights must offer the target shareholders "adequate consideration". To qualify as adequate, the offered consideration must at least equal the higher of the:
Weighted average stock exchange price of the target's shares during the last three months prior to the announcement of the intention to launch an offer or the disclosure of the acquisition of control respectively.
Value of the highest consideration paid or agreed by the bidder or a person acting in concert with the bidder for the acquisition of shares within the time period beginning six months prior to disclosure of the intention to launch a public offer or the gaining of control and ending one year after the end of the acceptance period of the offer.
Public offers for target companies that are not listed on an organised market but on an open market and public offers that are not aimed at the acquisition of control, that is at least 30% of the voting rights in the target company, are not subject to these mandatory minimum consideration provisions.
The cash consideration of an all cash offer or of a combined cash and share offer must be denominated in Euros.
Shares to be offered within the course of an exchange offer must be liquid and admitted to trading on an organised market within the European Economic Area (EEA). For example, a US-listed bidder must first have its shares also listed on an organised market in the EEA before it can use its shares as consideration in an exchange offer (for example, Diebold and WincorNixdorf) (see Question 1).
Compulsory purchase of minority shareholdings
German law provides three methods for squeezing-out minority shareholders:
Squeeze-out according to general stock corporation law.
If the bidder owns at least 95% of the share capital of the target, it can request the convocation of a general meeting that resolves on the transfer of the remaining shares to the bidder against "adequate" cash consideration. On registration of the squeeze-out resolution with the commercial register, the shares are transferred to the bidder with in rem effect.
A shareholder directly owning 90% or more of the share capital of the target company can implement a merger squeeze-out under the German Transformation Act (Umwandlungsgesetz). Within the course of a merger squeeze-out, the target company is merged into its parent entity and the minority shareholders are squeezed out against "adequate" cash consideration on effectiveness of the merger. Both the transferring and absorbing entity must be either:
Stock corporations (AG).
Partnerships limited by shares (KGaA).
European companies (SE).
Therefore, in a takeover scenario it is recommendable to use an acquisition vehicle in any of those forms to be able to implement a post-offer merger squeeze-out.
Following a voluntary takeover offer or a mandatory takeover offer, the bidder whose shareholding equals at least 95% of the capital carrying voting rights can apply with the competent court for transfer of the remaining target shares against "adequate" cash compensation. The takeover squeeze-out does not require a shareholders' resolution. If the offer has been accepted for at least 90% of the relevant share capital the consideration of the takeover offer is deemed to be adequate.
Restrictions on new offers
If an offer fails due to the non-fulfilment of a minimum acceptance condition, a new offer is prohibited for one year. BaFin can grant an exemption from the one-year period if the target company consents to the exemption.
If the offer fails due to the non-fulfilment of other conditions, the one-year period does not apply and a new offer is immediately permissible.
A one-year waiting period also applies where BaFin prohibits the launch of an offer due to non-compliance by the bidder with the requirements of mandatory law.
There are several means to effect a de-listing of a stock corporation.
Ex officio de-listing following squeeze-out proceedings
Where the bidder successfully consummates a squeeze-out at target level, following effectiveness of the squeeze-out, the quotation of the target shares are cancelled. Following the cancellation, the management of the stock exchange revokes the stock market listing ex officio.
A "cold" delisting is effected by a merger of a listed company (target) into a non-listed company. The receiving non-listed company must offer those shareholders of the transferring target company that object to the merger to purchase their target shares against adequate cash consideration.
Regular de-listing upon request of the target's management board
Even if minority shareholders remain in the company, the management board can apply to the stock exchange to revoke the listing of the target shares. A revocation is only permissible if (at the time of the application) an unconditional public offer to acquire all outstanding shares in the target company has been posted. The consideration to be offered has to comply with the mandatory minimum price rules of the Securities Acquisition and Takeover Act, with the sole exemption that the weighted average share price of the target shares is calculated not as a three-month, but as a six-month average.
In principle, from the announcement of the intention to launch a takeover bid until the end of the offer, the management board of the target company must abstain from any actions that could frustrate the success of the offer. However, there are a number of exemptions to this principle:
The prohibition to frustrate the offer only arises after the announcement of the offer, that is, preventive actions against hostile bids are permissible and only have to comply with the general directors' duties and the limits set by general corporate law.
Despite a pending bid, the target company can take any action that a prudent and conscientious businessman would have taken.
The general meeting can authorise the management board for a period of up to 18 months to execute certain defence measures.
The solicitation of a competing bid (white knight) is always permissible.
Actions approved by the supervisory board are permissible.
Not permissible under the law are shareholder rights plans (for example, poison pills).
Despite these rather comprehensive means to frustrate a bid, legal defence measures are rare. In the past, more often an initially hostile bid induced negotiations between bidder and target and resulted in a bid with an increased consideration that subsequently has been recommended by the target's board.
Implementation of EU defence regime in Germany
Germany made use of the options granted by Directive 2004/25/EC on takeover bids (Takeover Directive) to opt out from both the:
EU prohibition to frustrate public offers.
Accordingly the following principles apply:
As a default rule, the EU prohibition to frustrate bids and the breakthrough rule do not apply. Therefore, the management board is only bound by the slightly less restrictive German prohibition of frustrating actions.
Potential target companies in their articles of association can opt in the EU prohibition of frustrating actions or the breakthrough rule.
The articles of association of a potential target company can limit the applicability of the stricter EU defence regime to offers of companies that also have opted into the EU regime (principle of reciprocity).
The EU rules are slightly stricter than the German provisions insofar as:
Both the management and supervisory board are subject to the prohibition of frustrating actions.
Authorisations of the general meeting to take defence actions are only permissible if the general meeting takes places following announcement of the offer.
Actions outside the ordinary course of business are only permissible if their implementation has been initiated before the announcement of the bid.
The takeover law does not provide for a breakthrough rule.
Until now, the European provisions or the opt-in has had no practical relevance in Germany.
There are no transfer taxes in Germany (for example, stamp taxes).
However, if the company (irrespective of its jurisdiction of incorporation) owns German real estate, real estate transfer tax can be triggered where 95% or more of the shares are transferred to or united in the hand of one single purchaser. Real estate transfer tax could be avoided by only purchasing 94.9% of a company's shares. To achieve this result in public offers, which in general have to comprise all outstanding shares, certain trustee models have been invented.
Other regulatory restrictions
Anti-trust or merger control
Public offers that qualify as a concentration under merger control law as set out in the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen), which meet the relevant turnover thresholds stipulated under merger control law, and which do not fall within the jurisdiction of the European Commission the Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation) (because they do not qualify as a concentration under the Merger Regulation or because the turnover thresholds under the Merger Regulation are not met) are subject to merger control.
Unlike the EU merger control regime under the Merger Regulation, which applies exclusively to public bids if these aim at the acquisition of control over the target in the meaning of merger control law, the German merger control regime can also apply to the acquisition of a non-controlling minority shareholding by way of a public offer in the form of an acquisition offer (Erwerbsangebot) aimed at the acquisition of less than 30% of the target's voting rights. Under the German merger control regime, the acquisition of 25% or more of the voting rights in another undertaking or, below the 25% threshold, the acquisition of competitively significant influence on another undertaking qualify as a concentration.
Merger control law stipulates the following turnover thresholds, which need to be met cumulatively:
The bidder and the target together generated worldwide turnover of more than EUR500 million in aggregate in the last financial year.
One of the undertakings concerned (bidder or target) generated turnover in Germany of more than EUR25 million in the last financial year.
The other undertaking concerned generated turnover in Germany of more than EUR5 million in the last financial year.
Takeover bids can under merger control law (comparable to the regulation under the Merger Regulation) be consummated prior to clearance by the German Federal Cartel Office (Bundeskartellamt) provided that:
The voting rights of the acquired shares are not exercised prior to clearance (or exercised only to protect the full value of the investment based on an exemption granted by the Federal Cartel Office, an exemption which is to be interpreted very narrowly).
The bidder notifies the concentration to the Federal Cartel Office without undue delay.
If the bidder chooses this option, he bears the anti-trust risk, that is, the risk that the concentration later needs to be unwound through sale of the acquired shares following prohibition of the concentration by the Federal Cartel Office.
Therefore, the bidder usually waits for clearance by the Federal Cartel Office before consummation of the bid. The Federal Cartel Office has one month from filing of a complete notification (Phase I) to consider whether it initiates an in-depth investigation (Phase II). If the Federal Cartel Office initiates an in-depth investigation, it generally must decide within four months from filing of the notification to clear or to prohibit the concentration.
It is generally accepted by BaFin that merger clearance can only be obtained after the expiration of the (extended) acceptance period.
Banking or financial institutions
Where the target is a bank or another financial institution the acquisition of a qualifying participation within the meaning of the Banking Act or the increase of a pre-existing participation above certain thresholds needs to be notified to BaFin and the German Federal Bank. The notification must include detailed information on the transaction and the acquirer. BaFin's confirmation that the (complete) filings have been submitted, which must be made within two business days, triggers a review period of 60 business days. However, in practice, it might take several weeks until BaFin confirms the completeness of the filing. Once confirmed that the filing is complete, BaFin can still require additional information, thereby extending the review period for additional 20 to 30 business days, depending on the domicile and regulatory status of the acquirer. Following completion of the filings, BaFin or (within the framework of the "single supervisory mechanism") the European Central Bank (ECB), decides whether to prohibit the offer. A prohibition particularly occurs where the bidder is qualified as unfit. The right of objection is reflected in the offer document by inclusion of a condition that the contemplated acquisition will not be prohibited by BaFin or the ECB, as applicable. Additional requirements apply if the target is a bank that participates in a deposit protection scheme.
Where the target is an insurance company, the bidder must notify BaFin in its capacity as insurance supervisory authority about the contemplated acquisition. Following notification BaFin can prohibit the acquisition within 60 days. A prohibition occurs in particular if the bidder is determined to be unfit. The objection right of BaFin is reflected in the offer document by inclusion of a condition that the contemplated acquisition is not prohibited by BaFin.
Broadcasting or media
Under the state treaty on broadcasting services and telecommunication media (Staatsvertrag für Rundfunk und Telemedien) any contemplated change in the ownership of a media enterprise needs to be filed with the competent state media authority. The acquisition of a participation in a media enterprise is only permissible if the competent state media authority does not object.
Public law further provides for certain notification and approval requirements depending on the target's business object.
The Federal Ministry of Economics and Technology can prohibit an acquirer that is not domiciled in the EU from making a direct or indirect acquisition of 25% or more of the voting rights to ensure the public order or security of Germany.
The offer document can include a condition that the Federal Ministry of Economics and Technology does not prohibit the execution of the offer pursuant to foreign trade law provisions.
According to the state treaty on broadcasting services and telecommunication media (Staatsvertrag für Rundfunk und Telemedien) only natural persons or corporations with domicile or registered office in the EEA may be admitted as a broadcaster.
The announcement to launch a public offer does not generally prohibit the bidder from acquiring shares outside the public offer. However, these outside purchases can affect the mandatory minimum price and may be subject to general insider trading rules (where the bidder gained inside information within the course of the due diligence).
During the offer, the bidder must publish the number of securities of the target company to which the bidder, the persons acting in concert with him, and subsidiaries of the latter are entitled. At the beginning of the offer, the announcements must be made on a weekly basis. In the last week of the acceptance period, the announcements are made on a daily basis.
Target's management or supervisory board
Members of the management and supervisory board of the target that own target shares must disclose in the reasoned statements whether they intend to accept the offer.
Also, for any trades in target shares of persons discharging managerial responsibilities at the target, the general rules on the disclosure of directors' dealings or managers' transactions apply.
The regulatory authorities
BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht)
Main area of responsibility. BaFin is the single financial supervisor. BaFin supervises banks, financial services providers, insurance undertakings and securities trading to ensure proper functioning, stability and integrity of the financial market.
Federal Ministry of Justice and Consumer Protection
Description. Contains almost all federal acts and statutes in German.
BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht)
Description. Contains all statutes and acts relevant for BaFin in German.
A translation of the Securities Acquisition and Takeover Act prepared by BaFin can be found here:
A translation of the Securities Trading Act prepared by BaFin can be found here: www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Aufsichtsrecht/Gesetz/WpHG_en.html;jsessionid=32A6BFE4DDEEABD18FE0FECE0E6F4E25.1_cid372?nn=7856842 (latest amendments are not yet reflected)
Dr Alfred Kossmann, Partner
Shearman & Sterling LLP
Professional qualifications. Germany, lawyer; USA (New York), attorney
Areas of practice. Corporate and capital markets law; mergers and acquisitions; private equity; public takeovers; corporate reorganisations; joint ventures.
- Advising Albemarle in its US$3.2 billion sale of its surface treatment business to BASF (2016).
- Advising General Electric in various sale transactions in 2014 and 2015.
- Advising a US client in connection with an attempt to acquire an MDax corporation (2014).
- Advising Hypo Real Estate Holdings in connection with various public offers, including from the German government (2008/2009).
Languages. German, English
Dr Andreas Löhdefink, Partner
Shearman & Sterling LLP
Professional qualifications. Germany, lawyer; England and Wales, Solicitor
Areas of practice. Mergers and acquisitions; private equity; public takeovers; corporate law; insurance and reinsurance; capital markets; financial supervisory.
- Hypo Real Estate Holding on the reprivatisation and IPO of Deutsche Pfandbriefbank.
- Nokia on sale of HERE to Automotive Industry Consortium and on its acquisition of Siemens' 50% stake in their joint venture, Nokia Siemens Networks.
- Qatar Holding LLC on the acquisition of a 9.1% shareholding in Hochtief AG, and on its investment in Volkswagen AG and Porsche Automobil Holding SE.
- Barclays Capital in connection with its fairness opinion in the public takeover of EnBW, and as investment bank in connection with a contemplated public takeover.
- Swiss Life on the public takeover of AWD Holding AG.
- Software AG on the public takeover of IDS Scheer AG.
- Gfk on an attempted "merger of equals" with TNS by way of a public takeover offer.
Languages. German, English, French