The German draft
acquisition and takeover act as amended
on July 11, 2001
Dirk Roger Rissel, LL.M.
* * *
On March 12, 2001 the reigning coaltion of Social
Democrats and Green Party published a draft act on the regulation of public
offers for the acquisition of securities and on public takeovers (see “The new
draft on the German takeover law”).
This draft acquisition and takeover act was amended in
several aspects on July 11, 2001 (hereinafter referred to as the new draft).
A major change concerns the provisions which regulate
under which conditions defence tactics can be employed by the board of
directors of the target company.
Under the draft act of March 12, 2001 the board of
directors would, in principle, have been obliged to refrain from taking any
measures which jeopardize the success of the takeover offer. That is to say,
the board would have been obliged to remain neutral toward any hostile bids
and to get permission from shareholders before adopting special defensive
measures. However, the board of directors would have been permitted to adopt
the following defensive measures:
||Seek a white knight to make a better offer.
||Measures based on a resolution of the general
meeting after the public offer was published.
||Issue new shares and grant a pre-emptive right to
existing shareholders if the authorization to issue the shares was given
by the relevant shareholders more than 18 months before that.
The new draft distinguishes between defensive measures
which can be undertaken without the resolution of the general meeting (1) and
measures based on a resolution of the general meeting after the offer was
published (2). The new draft introduces the possibilty of taking resolutions
against potential tender offers in advance of a takeover attempt (3). While
the draft act of March 12 had stated which defenisve measures were allowed and
which not, the new draft establishes a “competency clause” which sets forth in
detail under which conditions a defensive action can be taken. Some of the
possible defensive measures are listed at the end of this overview (4).
(1) Defensive measures which
can be undertaken without a resolution of the general meeting:
In accordance with the EU Directive on public
takeovers (the 13th company law Directive on takeover bids) which finally has
not been adopted and the national law of several EU member states defensive
measures of the board of directors of the target company are in principle not
Defensive measures in the course of an ongoing
takeover procedure (that is to say starting from the publication of the
decision of the offeror to make an offer until publication of the results of
the offer) generally need an authorization of the general meeting.
However, the target may court other potential
acquirers without such a resolution in the hope that a tender offer, a more
favorable one, will be made by them (§ 33 sec. 1, second sentence).
The board of directors may also take such actions
which a director of a company that does not face a takeover offer would have
taken in properly exercising his business judgement (§ 33 sec. 1, second
(2) Resolution of the general
meeting in the course of a takeover procedure:
If none of the two aforementioned exceptions apply,
every defensive measure of the board of directors and the supervisory board
needs the authorization of the general meeting of the target company. If by
taking such a measure the success of the takeover offer could be thwarted an
authorization of the general meeting is needed (§ 33 sec. 1, first sentence).
The new draft law does not stipulate any special
requirements for resolutions which are adopted in the course of an ongoing
takeover procedure. Therefore the general majority requirement of § 133 sec. 1
of the German stock corporation law (Aktiengesetz) applies: The majority of
the casted votes is necessary. Also the bidder is entitled to vote provided
that he already holds securities of the target company.
(3) Resolutions against
potential tender offers taken in advance of a takeover attempt
An important change of the new draft is that the
company´s management will be able to seek carte blanche from shareholders at
the general meeting to enact whatever defensive measures it deems to be in the
company´s interests. (§ 33 sec. 2 of the new draft).
However, in order to avoid an abuse, such resolutions
of the general meeting have to meet several requirements (all contained in §
33 sec. 2 of the new draft).
||The resolution of the general meeting needs a
majority of at least 75 % of the shareholders. The articles of
incorporation can stipulate a higher majority of capital and further
||Such a resolution can only be adopted for the
duration of 18 months.
|| The measures to which the board of directors
shall be authorized have to be defined in detail.
||All measures of the board of directors based on
such a resolution against potential tender offers in advance of a takeover
attempt need the consent of the supervisory board. Such consent must be
obtained before the respective measure is taken.
(4) Possible defensive
measures and additional requirements:
Defensive measures which the board of directors will
be permitted to undertake include the following:
||Issue new shares in order to make the takeover
more expensive for the tender offeror.
||The target company may seek to acquire its own
shares by making open market purchases. As a consequence the price of the
shares may rise and the takeover would be more expensive.
||The target company may sell assets that the
bidder wants in order to make itself less attractive to the bidder (Crown
||The target company may create problems of
antitrust law by acquiring another company whose combination with the
tender offeror would be anticompetitive.
||The target company may also make a counteroffer
to take over the tender offeror (Pac Man Defense).
||The going public of one or more subsidiaries in
order to oblige the tender offeror to make a mandatory takeover offer also
for the subsidiaries which would make the takeover more expensive.
The new draft acquisition and takeover act will be
moved forward to a cabinet reading in the near future.
update: October 2001