Overview of the new
German Takeover Law
Dirk Roger Rissel, LL.M.
* * *
On 1 January 2002 Germany has introduced its first
ever takeover code, setting ground rules for companies and investors alike in
a country where hostile bids are rare. This paper shall outline the scope of
the Takeover Law, its structure, the provisions concerning a public offer, the
specific defensive measures a target company´s management may implement and
the introduction of the so-called “squeeze-out” provision.
1. Scope of the Takeover Law
The new German Takeover Law regulates all public
offers to acquire certain market-traded equity securities of German domestic
companies (whether for stock, cash or a combination thereof with additional
provisions to apply where the acquisition or holdings exceed a defined
The Takeover Law sets
the reporting requirements
the criteria for the consideration to be offered
the duration of the offer period, and
the conditions under which the target may employ defence tactics against a
The Takeover Law applies to all public offers where the target is a
German-based stock corporation (Aktiengesellschaft) or partnership limited by
shares (Kommanditgesellschaft auf Aktien), whose stock is publicly traded on
an “organised market” in Germany or anywhere within the European Economic Area
2. Structure of the Takeover Law
The Takover Law contemplates three sorts of public
offers to acquire securities.
The sections of the first main part (“Securities
Acquisition”, §§ 10 – 28) apply to all public offers made to stockholders to
directly acquire their shares, without regard to the number of shares or the
ultimate purpose of the acquisition. A public offer is defined in § 2 para. 1
as publicly announced offer to acquire a target company´s stock through
purchase or exchange from individual shareholders.
The second part (“Takeover Offers”, §§ 29 – 34) also
applies if the public offer is submitted with the intent to gain a controlling
interest in the target company (defined as 30 per cent of the voting shares).
These provisions require the suitor to make a non-discriminatory offer for all
the outstanding shares at a minimally acceptable price.
The third part (“Mandatory Offers”, §§ 35 – 39)
applies when a party in fact attains a controlling interest in a company (i.e.
30 per cent or more of all voting shares). Pursuant to these provisions the
party is obliged to make a fair and non-discriminatory offer (Pflichtangebot)
to the remaining shareholders subject to essentially the same criteria
regulating the voluntary takeover offer.
3. The public offer under the Takeover Law
Once a party makes a decision to submit a public offer,
it is first obliged to notify the relevant exchange authorities and the
Federal Supervisory Office for Securities Trading (hereinafter FSO).
It is then obliged to announce the intention to submit
a public offer without undue delay through the officially prescribed methods
If validly submitting the offer requires authorisation
by corporate resolution, the offeror may announce the offer as subject to
shareholder approval. Apart from that conditions to the offer, the fulfilment
of which lie completely within the control of the offeror (or those acting in
concert), may not be set (§ 18 para. 1). The offeror may condition the offer
on a minimum of acceptances. However, the offeror may not reserve an
unconditional right to rescind the offer (§ 18 para. 2).
Within four weeks of the public announcement of the
intention to make an offer, the offeror is required to submit a detailed
“offer document” (Angebotsunterlage) to the FSO. According to § 11 this offer
document must contain
ufficient identifying information on the offeror
the consideration being offered
effective dates of the offer period
any conditions for acceptance
the purpose of the acquisition
means of financing
post-acquisition plans for the target
In case of cash or combination offers, a certified
statement from an independent financial institution
(Wertpapierdienstleistungsunternehmen) – normally an investment bank –
confirming that the offeror has secured adequate means of financing to
complete the proposed transaction is also required (§ 11). Only after the
document is approved by the FSO, whose decision shall be issued within ten
workdays of submission, the offer document may be publicly distributed (§ 14
para. 2). After approval by the FSO the document must be posted on the
Internet without delay and either distributed broadly in print form free of
charge or published in the officially designated financial gazettes (§ 14 para.
3). A copy must also be delivered to the target company´s management board (§
14 para. 4) which, in response to the public offer, must publish a report
containing thorough assessment of the offer´s probability of success, likely
effect on company affairs and a recommendation to the shareholders (§ 27 para.
The acceptance period which the offeror determines
must be at least four weeks long, and last no longer than ten weeks (§ 16 para.
1, citing § 14 para. 3 sent. 1). If a competing offer is issued, or if changes
to the original offer are made, automatic extensions will be imposed. If a
competing offer is issued, the acceptance period for the original offer will
be automatically extended by two weeks. Amendments to the offer may be made
until one day prior to its expiration. Such changes may however only be ones
favourable to the target shareholders, such as an increase in consideration
offered, a lowering of the minimum acceptance threshold, or waiver of other
conditions. During the offer period, the offeror is obliged to report the
number of acceptances weekly, and during the final week, daily, via the
Internet (§ 23 para. 1), thereby keeping shareholders informed of current
developments. After the original closing date (as well as upon expiration of
any extension period), the results must be posted immediately (§ 23 para. 1)
In case of a limited offer, over-subscription by shareholders will be
satisfied strictly on a pro rata basis (§ 19).
If the offeror initially has the intention to acquire
control of 30 per cent or more of the voting shares through the contemplated
offer, his offer is defined in § 29 as a takeover bid (Übernahmeangebot).
Takeover bids are subject to the additional requirements set out in §§ 30 –
40. These provisions require that in a takeover attempt any offer must be
extended to all shareholders in a non-discriminatory manner, and that the
consideration offered for the shares be “reasonable” (§ 31). “Reasonableness”
of the consideration offered will be determined by the FSO with reference to
the weighted average market price over the three-months-period immediately
preceding the offer announcement, and the price paid by the offeror, or those
deemed acting in concert, for any shares acquired over the preceding three
months, including non-market packet purchases (§ 31 para. 1). Any cash
payments must be made in Euro (§ 31 para. 2). In case stock is offered wholly
or partially for the target´s shares, it must be “liquid”, i.e. readily
convertible to cash, and vested with voting rights (§ 31 para. 2). If the
offeror has acquired a substantial block of the target´s shares (i.e. 5 per
cent or more) through cash purchase in the three months preceding the
announcement of the offer, or has paid cash for any shares subsequent to the
announcement to make an offer, he will be obliged to offer cash contribution
for the shares yet to be acquired (§ 31 para. 3).
An offer which seeks to acquire more than 30 per cent
but is limited to less than 100 per cent of the remaining outstanding shares
(a limited offer for control) is expressly forbidden (compare § 32 and § 19).
However, an offer to acquire less than a controlling stake is permitted,
provided it does not ultimately result in control, directly or through others
acting in concert, of 30 per cent or more of the target company´s voting
If a voluntary takeover offer succeeds in gaining 30
per cent or more of the voting shares, the acceptance period will be extended
another two weeks to allow the remaining shareholders to take advantage of the
offer (§ 16 para. 2). Shareholders who accept the offer will be entitled to a
supplemental matching payment if the offeror subsequently pays higher
consideration for similar shares in a non-market transaction within one year
following the effective date of the original offer (§ 31 para. 5).
Even if there is no intention to take over a company,
a shareholder may nevertheless gain direct or indirect control of 30 per cent
or more of the voting stock (the percentage includes offeror´s subsidiary´s
holdings in the target, shares held by others for the benefit of the offeror,
or shares held by others acting in concert with offeror with regard to the
target company). Such shareholder will be compelled to extend to all remaining
shareholders an offer similar to that required under a voluntary takeover bid.
When the 30 per cent threshold has been reached the controlling shareholder
must publicly disseminate this fact through the supra-regional official
financial gazette or appropriate electronic financial reporting system (§ 35
para. 1). Prior to reaching the 30 per cent threshold, however, a shareholder
is under no additional obligation to publish the extent of his holdings under
the Takeover Law. Within four weeks of publication of a controlling stake, the
shareholder has to submit a mandatory offer to his fellow shareholders (§ 35
para. 2). If the control of 30 per cent was accomplished through a properly
constituted voluntary takeover offer, the acquirer is freed from the duty of
announcing his holdings and resubmitting an offer document (§ 35 para. 3).
Like a voluntary takeover bid, the offer must be “reasonable” and
non-discriminatory, treating all remaining shareholders on equal terms (see
the reference in § 39).
4. Defensive measures
In contrast to the previously submitted drafts of the
Takeover Law which have opted for management neutrality (with narrow
exceptions) as the general rule, § 33 of the Takeover Law grants a target
company´s management board considerable power in opposing a hostile takeover
Two situations exist in which the management board can
get authorisation to defend against takeovers: prior to the
announcement of any takeover offer and after the announcement of an
Prior to the announcement of any takeover offer, the
shareholders of a potential target company may resolve to grant the management
board advance authorisation to undertake certain measures if an offer is made
(each of which must be specified in the shareholder´s resolution). Such an
authorisation is valid for up to 18 months (and so, in practice, must be
renewed annually). Such shareholder´s resolution empowering the board must be
passed by a 75 per cent majority of the share capital present and voting. In
addition, the company´s supervisory board must approve the implementation of
any such measures before they are actually undertaken.
If the bidder has already made a takeover offer, the
target company´s management board may employ any permissible defence measures
to prevent the takeover being successful, provided it obtains express approval
from the supervisory board for each measure.
The sort of measures the Takeover Law contemplates
the issue of a large number of further shares in the target company for
example to a “friendly” third party with
shareholders´ subscription rights disapplied.
the buy-back of shares
the sale of certain profitable parts of the target company´s business which
are important to the bidder
the launch of a counter-offer for the shares of the bidder company
soliciting alternative offers of friendlier bidders (permissible without the
approval of the supervisory board once an actual offer is announced)
Although the Takeover Law gives companies looking to
defend themselves against potential bidders considerable power, in practice,
the requirement that any defensive measures must be approved by a 75 per cent
majority of the share capital present and voting will be a significant
obstacle. Moreover, authorisations for defence measures rendered either before
or after the announcement of an offer do not free the management board from
its ultimate duty of care and responsibility to act in the best interest of
the company. Selling off a core business for example might prevent a takeover,
but it may not be attractive if it significantly affects the remaining
businesses or the company´s profitability.
5. “Squeeze-out” provision
The Takeover Law contains an amendment to the German
Stock Corporation Act (Aktiengesetz) that allows majority holders to acquire
minority shareholders´ stock via a mandatory cash buyout (“squeeze out”). When
a shareholder acquires more than 95 per cent of the voting rights of a
company, he is entitled to acquire the remaining shares by compelling the
minority holders to sell him their shares for a fair price for strictly in
cash and thus consolidate control in the hands of single party or group (§ 327
of the Stock Corporation Act as amended). This demand to purchase must be
approved by shareholder resolution at the general shareholders´ meeting. The
price for the shares is to be determined by the majority shareholder, taking
into account the current circumstances. However, if an offer has been made in
the previous six months and reached a level of acceptance of 90 per cent this
offer´s consideration shall serve as criterion for what constitutes a
It is important to note that the “squeeze out” is neither limited to stock
corporations nor needs there to be a preceding takeover offer.
update: March 2002