Course of Events
Due Diligence Review
Planning the Transaction
Defences to Takeover Attempts
Cross-Border Mergers


For a long time it looked as if corporate Germany and German companies were only playing a subordinate role in the area of mergers and acquisitions. Although the number of corporate mergers has increased consistently by 10% to 20% per year in Germany since 1983 and reached a high point in 1991 with over 2,000 mergers taking place, hostile takeovers and spectacular big mergers tended to remain an exception. Subsequently, the number of mergers, which had risen due to German reunification, declined for some time. This downward trend stopped in 1997 when the number of mergers began to rise again, reaching another high point in 1998 with about 1,900 executed mergers. Although the number of mergers has been relatively stable in recent years, the merger volume has increased considerably to a total merger volume of $261 billion in 1999.

In the meantime, Germany is also said to be experiencing general 'mergeritis'(1). The framework conditions which had been regarded as obstructive - for example, the absence of a broadly based shareholder structure, accounting rules which were hostile to investors, the existence of proxy voting power for deposited shares held by banks, protection of minority shareholders under stock corporation law and, not least of all, employee co-determination - have either been modified or been reduced to minor significance. This is also illustrated by the consistent rise in transactions involving foreign companies, in particular from the United States and the United Kingdom, which has been recorded since 1997. However, more than two-thirds of all transactions remain purely German. This could also be due to the considerable increase in mergers observed in particular among medium-sized businesses worth between DM10 million and DM1 billion.

Internationally, the situation is even more drastic. For example, 1999 saw a total merger volume of approximately $3,400 billion (announced mergers). This means a rise of approximately 60% compared with the total volume of executed mergers in 1998, at least in terms of US dollar volume. The US share accounts for almost two-thirds of the total volume, whereas roughly one-third is attributable to Europe. Compared to the preceding year, this is a major shift towards Europe. The worldwide volume of cross-border transactions also increased. A similar tendency can be observed in Europe(2) .

There seems to be no limit to the different sectors that are involved in mergers. The Federal Cartel Office specifically named the following industries:

  • the automobile industry;

  • the retail trade;

  • the chemical industry;

  • the utility industry;

  • the financial services sector; and

  • the telecommunications sector.

This is illustrated by recent transactions involving major German companies. In the automobile industry, the merger between Daimler and Chrysler and the acquisition of Rolls-Royce by VW caused a sensation. Moreover, it was recently reported that DaimlerChrysler is close to taking up a participation of 34% in Mitsubishi Motors, which would crown its search for a partner in the Asian arena.

From the banking and insurance sectors, the following transactions are notable:

  • the merger between Bavarian banks;

  • Deutsche Bank's takeover of Bankers Trust;

  • Allianz's takeover of Pimco Advisors; and

  • the transaction between Allianz and AGF.

But these transactions are dwarfed by the merger between the two biggest German banks, Deutsche Bank and Dresdner Bank, which will take effect on July 1 2000.

In the chemical and utility industries, the following transactions received considerable attention:

  • the merger between Hoechst and Rhône-Poulenc;

  • the takeover of AGA by Linde; and

  • the merger between RWE and VEW.

As regards the retail trade, the merger between Karstadt and Schickedanz was similarly high-profile.

The liberalization and young market structure of the telecommunications sector also caused upheaval. 1999 saw a series of spectacular transactions, which started with Deutsche Telekom's unsuccessful attempt to act as a 'white knight' in the takeover battle between Olivetti and Telecom Italia. This was followed by the following takeovers:

  • One2One by Deutsche Telekom;

  • Orange by Mannesmann; and

  • E-Plus by KPN and Bell South.

But there was even more to come. Towards the end of 1999 Vodafone AirTouch launched its campaign for the hostile takeover of Mannesmann, which in February 2000 turned into a friendly merger between the companies.

However, the curtain for the big German performance on the M&A stage rose in the steel industry with the merger between Thyssen and Krupp. This list of impressive transactions suggests that the merger wave has only just begun.

But all this says nothing about the extent to which the goals pursued through a transaction are achieved in an individual case. Serious estimates allow the assumption that more than 40% of all mergers have no or little success. Even if it were possible to attribute this to a large extent to the differing corporate or social cultures of the partners, the prospects for success can be greatly improved by comprehensive and careful legal planning and handling of the project. For this reason, the legal advisor should devote special attention to the following.

Course of Events

The course of events in a transaction initiated by the buyer is generally always the same. After a suitable target or partner company is found, sometimes with the help of an investment bank, the basic willingness to cooperate is determined in initial talks and the terms of the deal are set out and more concretely described in a legally non-binding letter of intent or so-called 'heads of agreement'. At the same time, a confidentiality agreement is usually concluded by the companies involved. On this basis, the due diligence examination is carried out at the target company. This then becomes the basis of the contract negotiations.

If the initiative is taken by the seller, an investment bank is first asked to describe in detail the subsidiary or division to be sold in a so-called 'offering memorandum' which emphasizes the benefits for the potential circle of buyers. The offering memorandum is then sent to the prospective buyers, who are also identified by the investment bank, together with a request to submit a (non-binding) offer on the basis of the offering memorandum.

On the basis of the offers, the investment bank, together with the seller, then organizes an auction. At that time, the documents generally demanded by a buyer for inspection as a part of the due diligence examination are made available to interested parties in a so-called 'data room'. In most cases, there is a parallel presentation by the management of the company or division to be sold. Finally, the seller often presents a draft agreement at this stage. The due diligence examination of the documents made available for inspection in the data room, the presentation by management and the draft agreement serve to enable the interested parties to submit a concrete offer. The offers are then compared. Only the potential buyers who have submitted the most attractive offers, both commercially and in view of their comment on the legal aspects of the draft agreement, reach the next round.

In the case of cross-border mergers of equals, a mutual due diligence examination is conducted before or after the conclusion of a basic agreement on the different steps to be taken during the course of the merger. The scope and depth of the examination essentially depends on the size of the companies involved and on the available time frame.

Following the American model, it is also possible for a binding agreement to be first concluded between the seller and the buyer, but the closing of the transaction depends on various conditions, including a satisfactory outcome of the due diligence examination. However, this way of proceeding is exceptional.

Due Diligence Review

The centre piece in the preparation of the transaction is the due diligence.The examination of the target company serves different purposes. Primarily its function is to enable the buyer to obtain an idea of the value of the company to be acquired in order to determine the purchase price. Closely connected with this is the aspect of risk prevention: the acquirer should check for himself what risks exist. In view of these aspects, a due diligence exercise prior to the acquisition of a company may not be common commercial practice (Handelsbrauch), but at least it constitutes an element of the due care to be exercised by prudent management. If an acquisition is made without any prior due diligence, or if this examination is not properly conducted, the management board members or the managing directors and supervisory board members are exposed to the danger of personal liability in case of a failure of the transaction. Further functions of the due diligence examination are the documentation function and the relevance of evidence in case of later disputes about the commercial foundation of the transaction.

The legal necessity of due diligence also follows from German warranty law, which is inadequate for an acquisition of a company. Although German law, unlike American law, does not recognize the caveat emptor ('let the buyer beware') doctrine, and the warranty risk is thus not assigned exclusively to the buyer, it is not the law dealing with liability for defects which principally applies to share deals, but the law relating to warranty as to title. Only if the transaction is in fact an acquisition of a company, is the seller liable for defects in that company. However, this can be assumed with a sufficient degree of certainty only if more than 90% of the shares are acquired. Whether the law relating to liability for defects is applicable to an acquisition of 50% to 90% of the shares depends on the circumstances in each case and is thus an issue to be decided by the judge at trial. This results in considerable legal uncertainty which is aggravated by the fact that, according to various legal authors, the law relating to liability for defects should not apply, and instead the legal remedies frustration of contract or the avoidance of the contract on the ground of malicious deceit should provide the only legal redress.

If, on the other hand, the transaction is based on an asset deal, the provisions of the German Civil Code dealing with liability for defects can, in principle, be applicable. However, nothing much is thereby gained by the acquirer. To begin with, neither the volume of sales nor the level of corporate earnings can be warranted according to a consistent line of rulings by German courts. Moreover, the agreement can be rescinded, or the purchase price reduced, only within a period of six months. If, however, a quality expressly warranted by the seller with respect to the target company is missing, the acquirer can demand damages for non-performance. This obligation includes the obligation to pay damages for all consequential losses and can, under certain circumstances, exceed the purchase price by a substantial amount. Neither result does justice to the parties' interests or is practicable.

For this reason, it is advisable for the companies involved to deal comprehensively in the agreement with the representations and warranties. In practice, it is generally handled in this way in accordance with the Anglo-American model. For this, it is generally necessary to make the results of the due diligence examination a part of the agreement in the form of special warranties (guarantees or warranted qualities) or in the form of exceptions to guarantees (so-called 'disclosures'). In the case of a derogation from legal provisions, the legal consequences of a breach of warranty must also be set out. Any reduction of the purchase price or rescission of the agreement is generally excluded. In addition, it is advisable to include a precise provision concerning the deadlines to be observed for the assertion of claims and concerning the calculation of such claims. It has not yet been clarified by the courts which general disclosure obligations can exist. This will ultimately depend on the circumstances in each case.

Confidentiality issues
Problems arise in several respects from the fact that not only the companies directly involved in the transaction take part in the due diligence examination, but also third parties called in by the buyer or the seller, such as lawyers, accountants and/or consultants. Such persons will often have information which they will not or must not fully or partially disclose to their clients. In such a case, the question arises whether and, if so, under what circumstances such knowledge can be attributed to the company concerned. It must also be considered that such individuals in addition to the actual interested parties have access to sensitive corporate data. For this reason, adequate precautions must be taken to ensure the continued confidentiality of the data and to ensure that a reasonable sanction can be imposed in the event of a violation of confidentiality.

Moreover, the companies involved in the transaction will often be direct competitors of each other or at least operate in related sectors. For the executive organs of the company, this raises the question whether and, if so, under what conditions they must consent to due diligence, and what precautions they can take against any other use of the information obtained by the potential buyer in the event of a failure of the transaction.

In practice these issues became relevant in connection with the planned sale of a participation held by BHF-Bank. The bank wanted to sell its controlling interest in AGIV AG to Metallgesellschaft. However, the due diligence begun by Metallgesellschaft for this purpose was stopped by the board of management of AGIV AG after it learned that Metallgesellschaft wanted to break up important business divisions of AGIV AG. Although the purchase agreement between BHF-Bank and Metallgesellschaft was not concluded because of this withholding of information, no judicial decision was obtained as to whether the conduct of the board of management of AGIV was lawful. No prevailing opinion has yet been produced in this respect by legal literature, and there is no case law on this issue.

In support of a restrictive interpretation of the obligation of the management board of a stock corporation to allow due diligence, the confidentiality obligation under stock corporation law could be mentioned. For this reason, some believe that the management board should be allowed to permit due diligence only within extremely narrow limits, for example, if the survival of the company is in jeopardy. Others believe that an examination must be permitted, provided the interests of the company are safeguarded, in particular by weighing all benefits and disadvantages and by agreeing on confidentiality. For the management board of a stock corporation, the question of whether a third party should or must be allowed insight into the company is particularly significant because Section 93 of the Stock Corporations Act requires management board members to pay damages in the event of a breach of their legal duties. Therefore, careful consideration is necessary not only in the shareholders' interests, but also in the interests of the management board members themselves.

A related problem is the question whether, and under what conditions, due diligence results must be disclosed to third parties. As in the case of the question of admissibility of due diligence, not only the provisions of stock corporation law and possibly the Takeover Code of the Stock Exchange Expert Commission (Takeover Code), but also the prohibition of the disclosure of information by insiders must be observed.

Objects of due diligence
The above makes clear that there are no binding rules and no established legal opinions on the performance of due diligence. Nevertheless a practical standardization has occurred. Thus, the economic position of the company in the market (commercial due diligence), the accounting of the company, in particular in view of special factors (financial due diligence), the legal environment of the company, in particular in view of possible liability risks (legal due diligence), the tax situation of the company (tax due diligence) and the real estate of the company (environmental due diligence) are generally the subject of a special examination.

In addition to the pure information function, the focal point of legal due diligence is the discovery of possible liability risks. For this purpose, it is necessary to devote special attention to the legal provisions relating to the incorporation of the company, the raising of capital and the preservation of equity. Moreover, the point is to establish to what extent third parties may have damages claims or - in consequence of the transfer of ownership - termination rights under agreements against the target company and which important agreements involve considerable commercial risks for the target company.

Because of the recent amendments to labour law provisions, it will be necessary to examine more closely the legal relations between the company and freelance workers to determine whether they constitute relationships subject to mandatory social security.

Further risks can arise from pending or threatened litigation (eg, in the case of a stock corporation) in connection with shareholders' resolutions. Related to environmental due diligence is the examination of the company in view of possible environmental liability cases. Special consideration should be given to the amendments to environmental law introduced by the Federal Ground Protection Act.

In the context of legal due diligence, the possible effects of the transaction on the companies involved must also be examined. In addition to the question whether certain permits will pass to the buyer, this includes effects on corporate co-determination. Not to be overlooked are also possible restrictions of a transaction under cartel competition law.

This brief survey already makes clear that the quality and performance of due diligence has a major impact on the success of a transaction. Its significance will, therefore, continue to grow against the background of the still unsatisfactory number of successful transactions.

Planning the Transaction

After due diligence, a decision must be taken not only on whether to conclude the transaction, but also on how to do so. As far as German law is concerned, a stock corporation first has the options of a takeover (purchase), integration or merger. In deciding the way in which to structure the transaction, various considerations play a role, of which only a few will be discussed here by way of example.

It has recently been made easier to use the acquiring company's shares as valuable consideration. The advantage of this is that less liquid funds are necessary. The federal Supreme Court itself referred to its earlier case law as too strict and impracticable and, therefore, relaxed the requirements to be satisfied by an exclusion of subscription rights. In line with the provisions concerning the authorized capital, it is now sufficient to describe the reason for an exclusion in general terms. This admissibility of inventory resolutions enables companies to act quickly in connection with the acquisition of companies and participations in exchange for the issue of their own shares. Because registered shares are so common, especially in the United States, it could also be advisable in this context to convert any existing bearer shares to enhance their international recognition as a means of payment. Some big German stock corporations are currently in the process of doing so. For example, DaimlerChrysler AG has not issued any more bearer shares.

If the companies involved decide to exchange shares, it is necessary to decide upon which factors the determination of the exchange ratio is to be based. Here the earning capacity value and the stock exchange (market) capitalization will generally have to be taken into account. The evaluation of both companies plays a central role in this.

If the issue is whether, in the case of a stock corporation quoted on the stock exchange, a minority or majority participation or a merger is necessary to achieve the desired operational object, the takeover rules applicable to the companies involved must also not be disregarded. In this context reference is made, for example, to the London City Code, the (voluntary) Takeover Code of the Stock Exchange Expert Commission(3) and the statutory provisions in other countries (eg, France). In the near future, the provisions of the Thirteenth EU Directive (Takeover Directive(4)) will also have to be taken into account. The enactment of the Takeover Directive is currently delayed since the United Kingdom and Spain cannot agree on the authority to be charged with the monitoring and supervisory functions in Gibraltar. Although the details differ, these provisions can, in the case of a participation that is not only a minor interest, give rise to an obligation to also make an offer to the remaining shareholders to purchase their shares. However, the directive allows the member states to make "other suitable and at least equivalent arrangements to protect minority shareholders" instead of the compulsory offer.

Chancellor Schröder appointed an expert commission to assist the government in its efforts to establish a German Takeover Act. At its first meeting, the view prevailed that a compulsory offer must be made to the minority shareholders in case of a participation exceeding the threshold of 30% to 33.33%. Whether or not this compulsory offer will need to be in cash still is an open issue. A squeeze-out of remaining shareholders will be possible if the majority shareholder has achieved a participation of 90% to 95%. The presentation of the first draft of the Takeover Act has been announced for May 2000. Provided that the current time schedule is kept to, the Takeover Act may be expected to take effect in January 2001.

The phenomenon of 'predatory shareholders' actions' can be expected to remain unaffected by the new law. As the most recent developments in the merger between Thyssen and Krupp have shown, individual shareholders are quite capable of delaying a merger by means of an action for setting aside the merger resolutions. To what extent the special proceedings pursuant to Section 16 of the Conversion Act can counteract this remains to be seen. This would allow the trial court, in the case of an action against a merger resolution and the ensuing prohibition of a commercial register entry, to order that the filing of the action does not prevent the commercial register entry from being made. A pre-condition for such an order is that the action against the merger resolution is inadmissible or manifestly unfounded, or that the court has determined, at its discretion, that the avoidance of the substantial disadvantages for the companies involved in the merger and for their shareholders takes priority over the violation of rights claimed by the plaintiffs.

In choosing the most suitable manner of proceeding, other issues can play a role. For example, the choice of the intended corporate structure makes it possible to influence corporate co-determination. And ultimately, a suitable legal framework can also contribute to avoiding the failure of the transaction because of different corporate or social cultures.

Not to be disregarded either are the tax consequences of the transactions as otherwise substantial tax liabilities could arise under certain circumstances for one of the companies involved or for its shareholders. Generally, the central question will be how to avoid the disclosure, and thus the taxation, of any existing silent reserves.

From the point of view of tax law, the choice between a share deal and an asset deal is especially important. For tax reasons, the seller, who is an individual rather than a corporation, will generally be interested in a share deal. Even though the profit from the sale of a major participation is no longer privileged to the extent it was before 1997, the seller will still insist on selling his shares rather than assets. Otherwise he would retain the empty corporate shell which he would then have to liquidate. The buyer, on the other hand, is more likely to be interested in the acquisition of assets. It would allow him to raise the depreciation volume and to write off any goodwill that may have been paid over a period of 15 years. The ensuing tax savings would make the acquisition less expensive. To turn a share deal into an asset deal for the buyer, numerous step-up models have been developed in practice. Since the German government intends to introduce a new tax law in 2001 that will exempt all profits from the sale of participations by corporations from taxation, it is likely to become even more difficult for the buyer to achieve an asset deal instead of a share deal in the future.

Defences to Takeover Attempts

If the management of the companies involved cannot agree on a course of action, what remains is the possibility of a hostile takeover, which is no longer theoretical in Germany in view of the Thyssen and Vodafone AirTouch deals.

In this context, it is not only important what defensive action is available to the takeover candidate, but also what legal limits there are. Firstly, a distinction should be drawn between preventive and reactive measures.

Among the preventive action which could be taken, it is in particular the statutory options that should be mentioned. As they must be supported by the shareholders' meeting, there can be no doubt as to their admissibility. For example, a possible option is to amend the articles of association to impose stricter requirements on a (premature) dismissal of the members of the executive organs, or to grant a certain shareholders' group special nomination rights. Furthermore, the shares could be issued as registered shares (subject to a limitation on transfer). This would at least give management early warning of any takeover attempts. However, after a recent amendment to the law on stock corporations, the creation of a maximum voting right is no longer generally admissible but is only available to companies not quoted on the stock exchange. It is, therefore, relatively uninteresting in a merger context.

In connection with the measures referred to above, one must bear in mind that they have only limited use. Corporate co-determination already creates a legal obstacle to a complete replacement of the supervisory board at least. In addition, such measures will also have an effect on the day-to-day business and may prove to be a hindrance.

The situation is different in the case of reactive action to ward off a takeover attempt. Here, management is in principle able to create disincentives for the planned takeover through concrete measures. As the examples of Thyssen-Krupp and Salzgitter AG show, the active involvement of employees and trade unions as well as political initiatives have proved to be especially effective. But also the involvement of the cartel authorities and the supply of appropriate information to them can, as Holzmann AG has demonstrated, delay and make a proposed takeover more expensive and thus unattractive for the opponent.

In the case of the proposed takeover of Telekom Italia by the Olivetti group, an attempt was made to induce a 'white knight', in the form of Deutsche Telekom, to take over the company. It is also possible to try to spin off corporate divisions which are especially interesting, and to sell them separately, or to raise the takeover costs by increasing the stock exchange value. As in the case of Holzmann, the stock exchange value can be raised by means of a capital increase from the authorized capital or through the repurchase of the company's own shares.

Regardless of whether such measures are in principle admissible - according to the Holzmüller judgment of the federal Supreme Court concerning the spin-off of corporate divisions, the approval of the shareholders' meeting can be necessary, and the repurchase of the company's own shares is also admissible only within the narrow limits of Section 71 of the Stock Corporations Act the question arises whether the management board is obliged under stock corporation law to remain neutral. An express provision dealing with this is not contained in the Stock Corporation Act. However, Article 19 of the Takeover Code and Article 8 of the draft Takeover Directive contain such neutrality obligations. The details differ, but the executive organs of a company are severely limited in organizing defensive action, subject to approval by the shareholders' meeting. Outside these provisions, the admissibility of defensive action has not been definitely determined. The Vodafone AirTouch Case indicates that defensive measures are admissible to the extent under Section 76 of the Stock Corporations Act.

Some regard such action as simple self-defence to protect the independence of the company. However, shareholders willing to sell their shares are deprived of the possibility of realising a profit. This could constitute a violation of the neutrality obligation by the management board and, contrary to Section 53a of the Stock Corporations Act's principle of equal treatment, could put the shareholders willing to sell at a disadvantage. This raises the question whether the management board is at least allowed to intervene in the case of a dubious offer. But for this, it would be necessary to define the conditions under which an offer is dubious, and whether a statement to this effect by the management board would be sufficient to ward off such an offer.

Cross-Border Mergers

Whereas the problems discussed so far relate to purely national transactions, a cross-border merger gives rise to further issues. This follows, to begin with, from the fact that a cross-border merger is possible under tax law, but not under corporate law. An EU directive serving this purpose has been in the process of preparation for some time. However, it cannot be expected to be issued in the near future. Moreover, such a directive would provide a solution at the European level, but not at the global level. The same applies to any possible conclusion to be drawn from the Centros judgment of the European Court of Justice of March 9 1999(5), in which the court has moved away from the so-called 'domicile theory'.

As an amalgamation is not possible, it is therefore necessary in the case of a cross-border merger to resort to alternative constructions. Corporate practice provides many examples of this. In the merger between Daimler-Benz and Chrysler, the two companies first became subsidiaries of the newly-founded DaimlerChrysler AG. This was done by way of an exchange of shares (in the United States through a reverse triangular merger) combined with an increase of capital. Then Daimler-Benz AG merged with its parent company, DaimlerChrysler AG, whereas Chrysler remains legally independent as a wholly owned subsidiary of DaimlerChrysler AG.

Another possible path for the companies involved is the dual-headed structure under which they bring their business assets into a newly-founded subsidiary and set up a further joint subsidiary which then takes over the shares in the subsidiaries together with the business assets. The co-operation between Hoesch and Hoogovens was organized in a similar manner, as was the first merger plan between Hoechst and Rhône-Poulenc. The disadvantage of such a construction is that it can easily be dissolved again and does not force the different original divisions to integrate. Moreover, as the reaction to the first Hoechst Rhône-Poulenc announcement showed, the capital markets do not find this structure particularly attractive.

A further merger possibility is the mutual harmonization of business and shareholder policies through horizontal combination agreements. As a supplementary action in respect of corporate governance, positions in the two companies can be occupied by the same people. Unilever Netherland and Unilever UK are combined in this way.

Although the absence of a suitable legal framework for cross-border cooperation is one of the major problems of a cross-border merger (of equals), it is by far not the only problem. Disregarding the complex tax issues and consequences of such a merger, corporate co-determination constitutes a major problem in the participation of a German company. This system, which is not necessarily well-known abroad, generally causes reservations and can stand in the way of the successful completion of a transaction. Only recently an agreement on the Societas Europaea (SE) once again fell through because of the issue of co-determination. In the DaimlerChrysler case, corporate co-determination was inevitable because the AG is a stock corporation under German law. However, this led to a representation at the supervisory board level only of the work force based in Germany with the American employees not being represented in the supervisory board. This problem could only be resolved by agreement, according to which the German trade unions will take an American representative onto their group.

Furthermore, cross-border mergers regularly involve problems under competition law. A German participation generally raises the question whether the national cartel office or the European Commission in Brussels must clear the case. Also to be taken into account is that not only the cartel authorities in the countries where the companies involved are domiciled have jurisdiction to perform a merger control. Because the foreign effects of a merger are also considered, the cartel authorities of numerous other countries can have jurisdiction, provided an adverse effect on their markets is feared. To avoid surprises in this area, it is necessary to consider this issue fully at an early stage.

If the companies involved are quoted on different stock exchanges, problems under the law relating to capital markets can arise. In particular the Anglo-American stock exchanges impose other, and often stricter, requirements than the German ones. This is noticeable in particular in the area of disclosure and accounting rules in connection with stock exchange admission. It is therefore advisable to compare the requirements. Often it is also recommended that the shares be placed on another stock exchange after a transaction. For example, Mannesmann is interested in the listing of its shares on the Milan stock exchange after the takeover of Infostrada. Such plans should already have been considered at the time of the transaction.

Ultimately, difficulties cannot be avoided even if the merger of equals was chosen for tactical reasons in order to avoid the impression of a takeover. If, in such a case, the merger is to stand the test of time, corporate governance must be dealt with from the beginning, and it must be made clear in which way decisions are to be taken in the event of a difference of opinion. Otherwise, there will then be a loser, which was precisely to have been avoided originally by the merger of equals.


Europe is currently playing an increasingly important role in the M&A market. In the future, the number of cross-border mergers will also rise. Although the public interest focuses on transactions involving big corporations, transactions between companies which are not stock corporations account for the lion's share.

The lawyers handling these transactions will face complex problems in the future. A challenge will be to provide suitable structures to the companies involved, even without the European stock corporation and without the possibility of a cross-border or Europe-wide merger. As described, not only the special features of tax law and company law in the countries where the different companies are domiciled, but also possible cultural differences must be taken into account and bridged.

For further information on this topic please contact Oleg de Lousanoff at Hengeler Mueller by telephone (+49 69 17 09 50) or by fax (+49 69 72 57 73) or by e-mail ([email protected]).

(1) Fockenbrock, Handelsblatt of April 23 1999, p2 ("... Merger of Equals").

(2) For the data indicated, see Müller-Stewens, M&A magazine 1/2000, p1 ("What comes after the record-breaking year?"); Muchow, M&A magazine 1/2000, p2 et seq. ("Deals in the telecommunications sector characterize the M&A-year 1999"); Herden/Reinhard, M&A magazine 2/2000, p73 et seq. ("Spectacular transactions make it a brilliant start of the M&A-year 2000") and the Federal Cartel Report 1997/1998, available at

(3) The text of the Takeover Code is available at

(4) Revised version of the Commission Proposal, OJ No. C 378/10 of December 13 1997 (see also ZIP 1997, 2171 et seq.)

(5) DB 1999, 625.

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