Application of the German take-over code
In Germany, public tender offers are governed by the Purchase of Securities and Company Take-overs Act (Wertpapiererwerbs- und Übernahmegesetz (WpÜG)). The WpÜG provides for general conditions for public take-overs and other public tender offers for the acquisition of securities in Germany.
Generally, the WpÜG relates to public tender offers to acquire shares in a company (Target Company) which is (i) a stock corporation or partnership limited by shares having its registered seat in Germany or (ii) a company with its registered seat in another member state of the European Economic Area and which is listed on a regulated market (A) in Germany or (B) in Germany and in another EEA member state, but not in the state in which the Target Company has its seat. However, with respect to take-over offers and mandatory offers for shares of a German Target Company listed only on an organised market in another EEA member state, the WpÜG applies only with respect to particular aspects e.g. provisions relating to control, the obligation to make a mandatory offer and actions taken by the management or other company law questions. In case of an EEA-German Target Company pursuant to (ii) above, the WpÜG governs European offers if Germany is the only or the initial or principal market place.
The WpÜG generally provides for three types of public tender offers:
- Voluntary tender offers that are not aimed at gaining control;
- Voluntary tender offers that are aimed at gaining control. These are referred to in the legislation as “take-over offers”; and
- Mandatory offers that must be made if control is gained.
For the purposes of the legislation, “control” is deemed to mean the holding or, as the case may be, acquiring of at least 30 per cent of the voting rights of the Target Company. Voting rights attaching to shares include, along with the offeror’s own voting rights, those held by a subsidiary or affiliated companies of the offeror or a third party on account of the offeror. Shares that have been transferred to a third party as security and in which a usufruct exists for the benefit of the offeror, or that the offeror is able to acquire by making a declaration of its intention to do so, are also taken into account.
If the offeror and another shareholder act in concert with regard to the Target Company the voting rights of both of them are taken into account for determining the total number of voting rights.
The WpÜG stipulates the following general rules:
- Holders of securities of the same class in the Target Company must be treated equally.
- Holders of securities in the Target Company must be given enough time and sufficient information to be able to make an informed decision about the tender offer.
- The management board (Vorstand) and the supervisory board (Aufsichtsrat) of the Target Company must act in the best interest of the Target Company.
- The offeror and the Target Company must carry out the procedure promptly. The business of the Target Company must not be hindered for longer than reasonably necessary.
- The creation of market distortions through the trading of securities in the Target Company by the offeror or any other company affected by the tender offer is not permitted. This includes prohibited insider trading and market manipulation.
Public tender offers
Decision to make a public tender offer
The offeror must publish its decision to submit a public tender offer without delay to the management of the relevant stock exchanges, the Federal Authority for Financial Services (Bundesanstalt für Finanzdienstleistungen or BAFin), the management of the Target Company, as well as to the works’ council of the offeror, and if a works’ council does not exist, its employees.
So long as the tender offer is not aimed at gaining control, it can be limited to a portion of the shares of the Target Company. The offeror must tender for the acquisition of the securities. It is not permitted to publicly invite the holder of securities to submit an offer for sale to the offeror.
The offeror must, within four weeks of the publication of its decision to submit a public tender offer, produce and submit to the BaFin a document relating to that tender offer (Offer Document). This time period can be extended by up to four weeks for cross border tender offers or if capital measures are necessary. The BaFin’s approval period is ten working days which may be extended by a further five working days.
Once publication is permitted by BaFin, the Offer Document has to be published immediately on the internet or in the electronic federal gazette. It must contain basic information regarding the details of the tender offer and the offeror, the Target Company, the securities that are the subject of the tender offer and the consideration as well as the conditions of the offer and any conditions precedent attaching to the offer.
The Offer Document must also contain details regarding the financing of the offer and information regarding the expected consequences on the assets, financial position and results of operations of the offeror as well as the offeror’s intentions with respect to the future business activities of the Target Company. If material information in the Offer Document is inaccurate or incomplete, any person who has accepted the tender offer can make a claim against the offeror and those persons acting jointly with him for the damage suffered by that person.
If the Offer Document does not contain the information required, or the information obviously breaches the WpÜG or the offeror has not submitted an Offer Document to the BaFin, or the Offer Document was not published in accordance with the WpÜG, the BaFin will prohibit the offer. After the publication of the Offer Document, certain ongoing publication obligations exist (e.g. disclosure of the number of accepted voting rights).
If a tender offer has been prohibited, a new tender offer can only be made after the expiration of one year. Financing of the tender offer
The offeror must ensure that it has the appropriate means at its disposal to pay the consideration offered. Should the tender offer provide for a cash payment as consideration, confirmation of such payment must be provided by an independent financial services enterprise. If, contrary to such confirmation, this is not the case, any person who accepted the tender offer can claim damages against the independent financial services enterprise for compensation for the damage suffered by him.
The period of acceptance of the tender offer (Acceptance Period) may not be less than four weeks, but also, in principle, not more than ten weeks (in case a general meeting of the Target Company needs to be held). If an amendment is made to the tender offer (for instance an increase to the consideration), the Acceptance Period is extended by two weeks.
There are no rules governing the specific amount of the consideration.
Competing tender offer
If during the Acceptance Period of a tender offer, another tender offer is made by a third party (competing tender offer), the Acceptance Period for the competing tender offer is to apply to both tender offers.
Comment by the management board and the supervisory board, advertising
The management board and the supervisory board of the Target Company must provide and publish a reasoned opinion in respect of the tender offer and any amendment to it. In order to combat abuses in advertising, the BaFin can prohibit certain types of advertising in connection with tender offers.
Take-over offers are tender offers that are aimed at gaining control, i.e., acquiring 30 per cent or more of the voting rights in the Target Company and thus must apply to all of the Target Company’s shares. In addition to the rules applying to tender offers the following specific rules are applicable to public take-over offers.
The consideration must take into account the average stock market price of the Target Company’s shares and previous acquisitions by the offeror. The consideration must be (at least alternatively) in cash if the offeror (or an affiliated company) has acquired at least five per cent of the shares in the Target Company for cash in the six month period before the date of the publication of the Offer Document.
Generally, the cash consideration is to be determined in relation to the weighted average stock market price over the last three months before publication of the announcement of the intention to submit an offer. However, if the offeror (or an affiliated company) (i) within a period of six months prior to the publication of the Offer Document or (ii) after publication of the Offer Document and before the publication of the final results of the offer or within one year after publication, acquires shares for a higher consideration than the offer price, then the consideration owed to tendering shareholders is increased by the difference in value.
Defence actions of the management board of the target company
Generally, after a Take-over Offer, the management board of the Target Company may take no action that could prevent the offer from being successful (Neutrality Obligation). The management board is, however, entitled to:
- Take actions that a prudent (ordentlicher) and conscientious manager of a company, that is not the subject of a take-over offer, would have taken;
- Search for a competing tender offer; and Take actions that have been approved by the supervisory board of the Target
Moreover, before a decision to make an offer is published, the general meeting can authorise the management board to take actions that fall within the general meeting’s powers in order to prevent the success of the offer (the validity of such authorisation is 18 months) (e.g. utilisation of authorised capital, acquisition of treasury shares). However, the articles of association of the Target Company may limit the possible measures to be taken by the management by excluding the aforementioned actions. In order to allow for a “level playing field“ between the offeror and the Target Company, the articles of association of the Target Company may provide that the aforementioned limitation of management does not apply unless the offeror or a company controlling the offeror is subject to the same limitations of their management in case of Take-over offers.
In connection with any tender offer, it is prohibited for the offeror to offer or promise to members of the management board or the supervisory board of the Target Company “unjustified” cash payments or other benefits of monetary value.
Whoever directly or indirectly obtains control of a Target Company (i.e. by acquiring at least 30 per cent of the voting rights) must, without delay and at the latest within seven calendar days, publish this fact stating the number of voting rights held by him. Within four weeks of publication, the offeror must submit an Offer Document to the BAFin and must publish a tender offer (mandatory offer). Such an obligation does not apply if control of the Target Company is acquired by way of a take-over offer.
Upon written application, the BaFin can exempt the offeror from the obligation to publish and submit a mandatory offer. In particular this applies to group internal reorganisations and, in specific cases, if the offeror intends to prevent the Target Company from becoming insolvent.
In general, all the provisions relating to public tender offers and take-over offers are also (to the extent that such provisions do not conflict with those relating to mandatory offers) applicable to mandatory offers. In contrast to take-over offers, mandatory offers may generally not be subject to conditions precedent with the exception of the obtainiment of necessary regulatory approvals such as an anti-trust or merger clearance. Moreover, partial mandatory offers are not allowed. In addition, in case of a prohibition of the offer the one year period during which a further tender offer may not be made does not apply to mandatory offers.