Competing tender offers are parallel offers by independent bidders to the same target company. Although competing tender offers are common in other regions, they are rarely seen in Germany. The failed takeover of stock-listed Techem AG in 2006 was the first bidder competition under the German Securities acquisition and Takeover Act, or Wertpapiererwerbs- und Übernahmegesetzes (WpÜG).
The high transaction volumes at a takeover of a publicly listed corporation might prevent potential bidders from entering a bidding competition. However, such reluctance might be diminished by the increased funds raised by private equity firms and their increasing activity in the sector of stock-listed companies. In the past year, the press has reported several attempts by private equity investors to take over Continental AG. As a result, competing offers might be seen more frequently.
Advantages and Disadvantages of Competing Tender Offers
Usually, competing tender offers result in higher offer prices for the shareholders. The quoted takeover of Techem led to a final offer price of €55 per share, compared to an initial price of €44 per share. However, bidding competition also has several disadvantages, particularly for the target company. For example, the takeover process consumes a substantial portion of existing management resources. Under the WpÜG, the management and supervisory board of the target company must issue a thorough statement on the offer. This statement must include an opinion on the fairness of the offered price and must be renewed after each increase in the offer price.
Another disadvantage is that contractual partners and banks will await the result of the takeover and the completion of a new shareholder structure before making substantial investments in the target company or granting credit. As a result, the management will endeavor to end the pending phase of a takeover process as soon as possible. Competing offers increase this pending phase, since the WpÜG does not contain any provision regarding the maximum term of a takeover process in case of competing offers.
WpÜG Provisions Regarding Competing Tender Offers
The only WpÜG provision for competing tender offers states that the target company shall not be impaired in its business operations. However, each amendment to a tender offer (e.g., an increase in the offer price) results in an extended offer period for the relevant tender offer and also for the competing offer, to balance out the offers. In theory, tender offers could be extended ad infinitum, which is, of course, not acceptable for the target company. Therefore, some scholars in Germany argue that a bidder should be able to increase the offer price only once. The British Takeover Code resolves such dilemma by the so-called “guillotine”—the Takeover Panel may impose a final time limit for announcing revisions to competing offers.
Under German law, it may be possible for the German Federal Financial Supervisory Authority, or Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), to intervene in the case of extensive competing offers. In general, the BaFin may prohibit a tender offer that causes damage to the target company. In such cases, the BaFin has broad discretionary power. It may even be possible for the BaFin to recommend and enforce an auction process such as that set forth in the British Takeover Code.
Such an auction process might be more appropriate than a total prohibition of further increases in the offer prices. A balance between the interests of the bidder, the target company and the shareholders is possible, and the target company is freed from the restrictions of a current takeover process. In addition, the shareholders receive a higher price for their shares than they would under a prohibition of further increases in the offer price, and they also receive an appropriate term to decide on the acceptance of the offer. However, such an order by BaFin remains without legal basis in Germany so far.
Competing tender offers cause problems for the target company, and these problems are insufficiently governed by the WpÜG. Because of the incomplete provisions regarding competing takeover offers, it would be advisable for the BaFin to issue certain guidelines. Alternatively, the legislator could enact an auction process similar to the British example. As a result of the increasing activity of private equity investors in the public sector, such a provision could become relevant very soon.