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The new draft on the German takeover law


Rechtsanwalt Dr. Dirk Roger Rissel, LL.M.

* * *

The reigning coalition of Social Democrats and Green Party has published a draft on March 12, 2001 which shall provide the legal framework for takeovers in Germany. The law shall enter into force on January 1, 2002. For the time being, takeovers in Germany are not governed by law. There is just a voluntary takeover code. However, only few listed companies have submitted to the code.

The new draft differs in various aspects from the previous draft which was published on June 29, 2000 on the subject matter. The following is a summary of the main differences:
 
 

1. Extended scope of application

The scope of application of the new takeover law has been considerably extended. According to § 1 of the draft not only takeovers and offers for takeovers fall within the scope of the law, but all public tender offers for the puchase of shares of a domestic stock corporation (inländische Aktiengesellschaft) or a limited corporation by shares (Kommanditgesellschaft auf Aktien), even if these offers are not attempting to gain control of the company.

Thus the law applies also to those tender offers which attempt to purchase a shareholding below the threshold of control (30 % of the voting rights) and to tender offers which – departing from an existing situation of control of the company - attempt a consolidation of the shareholding.

Furthermore, also tender offers fall within the scope of the law which do not relate to shares, but to securities which permit the holder to purchase stock (convertible bond, warrant)
(§ 1 and § 2 sec. 2 of the draft). 

The draft now covers public tender offers for the purchase of securities (öffentliche Angebote zum Erwerb von Wertpapieren) and voluntary tender offers (freiwillige Übernahmeangebote) and mandatory offers (Pflichtangebote). 

Besides the general rules (allgemeine Vorschriften) and the provisions relating to the competence of the Federal Supervisory Office (Zuständigkeit des Bundesaufsichtsamtes für den Wertpapierhandel) in section 1 and 2, the draft contains in its third section general rules which apply to every public tender such as requirements for the tender offer paper, the tender documentation (§ 11), the liabilty for an incorrect tender documentation (§ 12), provisions relating to a change of the tender offer (§ 21) and provisions relating to the obligation of the board of management of the target corporation to make a statement on the tender offer (§ 27). These provisions shall ensure rapid and transparent tender proceedings. 

Section 4 contains special requirements for takeover bids which aim at the control of the Company. According to § 34 of the draft such takeover bids are not only governed by the provisions of section 3, but also by those of section 4. With respect to the valuable consideration (Gegenleistung) certain minimum requirements are stipulated in § 31 of the draft in connection with § 3 of the decree. According to § 32 of the draft the bidder is not allowed to make an offer which applies just to a part of the shares of the target corporation. In case of takeover bids the board of management and the supervisory board of the target corporation have certain duties (§ 33).  The board of management and the supervisory board may not do anything that could impede the success of the tender offer. The issuance of stock and the acquisition of the target company´s own shares, for example, is forbidden. However, the target corporation may court other potential acquirers (“white knights”) in the hope that a tender offer, perhaps a more favorable one, will be made by them (§ 33 sec. 3 of the draft). 

Section 5 of the draft governs mandatory offers. According to § 39 of the draft such takeover bids are not only governed by the provisions of section 5, but also by those of section 3 and 4.
 
 

2. Easier calling of the shareholders meeting

Under the new draft it is now easier to call a shareholders meeting, in order to decide on defense measures. Besides the regulations which were already included in the first draft of June 29, 2000, the Company is now free to choose the place where the shareholders meeting shall take place. It does not have to be the principal place of business of the company. 

There is no more requirement in the new draft to call the shareholders meeting within two weeks after publication of the tender offer, in order to cause the extended time limit for acceptance of the tender offer. Therefore the extended time limit also applies e.g. if the calling of the shareholders meeting only occurs three or four weeks after publication of the tender offer.

Finally, in case of calling of a shareholders meeting, the time limit for accepting the tender offer has been extended from two months to ten weeks (§ 16 sec. 3 of the draft). 
 
 

3. Modifications relating to the valuable consideration

The provisions relating to tender offers and mandatory offers have been modified as follows:

For the sake of actuality, the period of reference for determining the valuable consideration has been reduced from six to three months (§ 31 sec. 1 and 3 of the draft).

A detailed regulation concerning the value of the valuable consideration is now stipulated in section 1 of the decree.

In case the bidder has acquired shares of the target company prior to a takeover, he is obliged to offer to the other shareholders at a subsequent tender offer or mandatory offer at least 85 % of the highest price paid by him. In case the bidder has purchased shares on the stock market, he has to offer the highest amount. A discount is not possible (§ 4 of the decree).
 

4. Modifications relating to the stipulated time limits

Some time limits have been modified:

The period of time in which the tender offer statement has to be filed with the Federal Supervisory Office after publication of the tender has been extended from two to four weeks (§ 14 sec. 1). The period of time was extended to better handle difficulties that have arisen with cross-border takeovers.

In accordance with the European takeover directive the maximum time limit for accepting the tender offer has been extended from six to ten weeks (§ 16 sec. 1).
 
 

5. Statement of the board of management of the target corporation on the tender offer: obligation to attach the statement of the employees´ representation

If there is a statement of the employees´ representation, the board of management of the target corporation (which is obliged to make a statement on each tender offer) is henceforth explicitly obliged to attach the statement of the employees´ representation to its own statement (§ 27 sec. 2).
 
 

6. Reduction of the members of the advisory council

The number of the members of the council which shall advise the Federal Supervisory Office in connection with public tender offers has been reduced from 21 to 15, in order to ensure the councils´ ability of work (§ 5 of the draft). 
 
 

7. Detailed regulation in a decree

For a better clarity and legibility of the law detailed regulation concerning additional statements which have to be included in the tender offer statement and concerning the determination of the valuable consideration are stipulated in a decree (Rechtsverordnung).
 

update: march 2001

 

 


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