«Law & Practice Contributed by P+P Pöllath + Partners Contents Trends Disclosure Market developments p.343 Making bids public p.358 Key industries ...»
Law & Practice
Contributed by P+P Pöllath + Partners
Market developments p.343 Making bids public p.358
Key industries p.344 Types of disclosure p.359
Disclosure of financial statements p.360
Overview of the regulatory field Disclosure of transaction documents p.360
Acquiring a company p.344
Duties of directors
Regulatory bodies p.344
Foreign investment p.347 Principal directors’ duties p.361 Antitrust regulations p.347 Special or ad hoc committees p.361 Labour law p.348 The business judgement rule p.361 Independent advice p.361 Recent legal developments Shareholder activism p.361 Takeover legislation p.348 Defensive measures Stakebuilding Hostile tender offers p.36 2 Disclosure thresholds p.348 Directors’ use of defensive measures p.363 Obligations of acquiring shareholders p.349 Directors’ duties p.364 Preventing a business combination p.365 The negotiation phase Disclosure requirements p.350 Litigation Due diligence p.351 Transactional stage p.365 Standstills and exclusivity p.352 Tender offers p.352 Structuring Mandatory offer thresholds p.354 Consideration p.354 Use of offer conditions p.355 Minimum acceptance conditions p.355 Deal security measures p.355 Additional governance rights p.356 Mechanisms employed to buy-out shareholders p.356 Irrevocable commitments p.357 Law & Practice Germany Law & Practice Contributed by P+P Pöllath + Partners P+P Pöllath + Partners is an internationally operating law firm, whose 34 partners and more than 100 lawyers and tax advisers in Berlin, Frankfurt and Munich provide high-end legal and tax advice. The firm focuses on transactional advice and asset management. P+P partners regularly advise on corporate/M&A, private equity and real estate transactions of all sizes. P+P has achieved a leading market position in the structuring of private equity and real estate funds and tax advice and enjoys an excellent reputation in corporate/M&A matters as well as in asset and succession planning for family businesses and high net worth individuals. P+P partners are regularly listed in domestic and international rankings as the leading experts in their respective areas of expertise.
The authors Dr Wolfgang Grobecker is a partner at P+P Pöllath + Part- admitted as a lawyer in Germany and as a solicitor of the ners. He renders legal advice for domestic and foreign Supreme Court of England & Wales. Jan is regularly listed in institutional and private investors, corporations and board domestic and international rankings as a leading expert in members in the fields of corporate transactions (public and his areas of expertise.
private), advisory matters and corporate litigation. His clients include international corporations, banks, insurance Inga Bricker, LL.M (NYU) is a lawyer at P+P Pöllath + Partcompanies and private equity companies. Wolfgang’s pub- ners. Having practised in Germany, New York and Israel, she lications include articles on corporate law in Germany, par- specialises in cross-border M&A transactions, private equity, ticularly on stock corporations, public takeovers and taking venture capital investments, debt financing and joint venprivate. He is well recognised by domestic and international tures with a focus on US- and Israel-related transactions.
surveys as one of the leading experts in his practice areas. Inga is admitted as a lawyer in Germany, New York and Israel. Before joining P+P, she served as a senior counsel Dr Jan Wildberger is a partner at P+P Pöllath + Partners. He with a leading Israeli law firm. Inga has extensive experience specialises in transactional law (M&A, private equity, ven- in a variety of international business transactions and comture capital) with a special focus on cross-border leveraged mercial agreements, particularly in the high-tech sector. She buyouts. Jan has practised corporate and transactional law is fluent in German, English, Spanish and Hebrew.
since 1998 and was a partner at major national and international law firms in Frankfurt am Main and London. He is Trends Market developments Due to the Eurozone crisis and low market activity, the German M&A market was difficult in 2011 and remained nearly unchanged in 2012 as the slowdown in global M&A continued, and is still waiting for recovery in 2013. However, as BRIC nations replaced the Eurozone countries in the top 10 by deal value, Germany remained the only top 10 country from the five Eurozone members which were among the top 10 countries for M&A activity in
2007. As China will be the preferred investment destination for global corporation in 2013, Germany currently ranks fifth as target country. In addition, German target volume slightly
increased to 1,488 from 1,375 in 2011, and deal value grew to USD79.511 billion from USD68.477 billion in 2011.
In Europe, Germany is currently the second largest target country after the UK for Chinese investors. The main drivers for BRICs – especially China’s and India’s extensive investment activities in Germany – are branded products, technology, know-how, distribution channels and Western European management. On the other hand, China has already opened up to foreign investors, such as Grohe’s investment into Chinese bathroom fittings manufacturer Joyou.
Key industries In 2011/2012 industrials contributed 30% of the total amount of the M&A transaction volume in Germany, followed by the financial sector (23%) and real estate (8%).
Overview of the regulatory field Acquiring a company The most practical way to obtain control of a publicly listed company in Germany is by the acquisition of shares via a public tender or takeover offer.
Cross-border statutory mergers are possible, following the EU Directive 2005/56/EC on cross-border mergers of limited liability companies (Cross-border Mergers Directive), as adopted by the German Reorganisation Act (Umwandlungsgesetz). This applies to Societas Europaea (SEs), stock corporations (AGs), partnerships limited by shares (KGaAs) and limited liability companies (GmbHs). However, cross-border statutory mergers are of minor practical importance since the acquiring company has to offer an exit option to dissenting shareholders via cash compensation to be based on the intrinsic value of the target company.
This regularly proves to be a prohibiting factor.
If a party seeks to obtain control of a public company, ie to acquire at least 30% of its voting rights (as defined by the German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz)), a takeover offer (Übernahmeangebot) is mandatory. This requirement should be considered if an investor seeks to acquire a substantial participation in a publicly listed target.
Regulatory bodies Public takeovers are regulated by the Takeover Act, the Offer Ordinance (WpÜG Angebotsverordnung) and other statutory ordinances. In addition, other legislation not specific to public takeovers applies, in particular the rules of the German Stock Corporation Act (Aktiengesetz) and the Reorganization Act (Umwandlungsgesetz).
Compliance with the Takeover Act is regulated by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BaFin). In particular, BaFin’s powers
(i) preventing the bidder from making a proposed offer that does not comply with statutory requirements, and from making any subsequent offers for one year;
(ii) prohibiting the exercise of voting rights in shares of the target company; and (iii) imposing fines of up to EUR1 million.
(a) Takeover Act:
Offers. The Takeover Act regulates any public offer (öffentliches Angebot) to acquire shares of publicly listed stock corporations, SEs and partnerships limited by shares that have their seat either in Germany, or in another European Economic Area (EEA) member state. In the latter case the shares have to carry voting rights that are (i) either admitted to trading only on a German authorised market, or (ii) first admitted to trading on a German authorised market and then in another EEA member state, but not in the state in which its corporate seat is located, or (iii) simultaneously admitted to a German and another EEA member state’s market but where BaFin is chosen as supervisor.
There are three classes of public offers:
(i) a takeover offer (Übernahmeangebot), ie a takeover bid aimed at obtaining control of the target. Control means the power to exert at least 30% of the target’s voting rights, individually or on a joint basis acting in concert with others;
(ii) a mandatory offer (Pflichtangebot), which must be made if and when control has been obtained other than by means of a takeover offer and no exemption applies; and (iii) an acquisition offer (sonstiges Erwerbsangebot) aimed at buying less than 30% of the target’s voting rights (together with any other target shares attributed to the bidder) or aimed at buying non-voting preference shares only.
(b) Other legislation Stock Corporation Act The Stock Corporation Act (and its extensive case law) is the main source of legislation for targets, their officers and shareholders. Its provisions are partially superseded or reiterated by the Takeover Act. Importantly, a German stock corporation’s management board must always act in the company’s best interests, which is not necessarily identical to the shareholders’ best interests. In general, the company’s best interest (Unternehmensinteresse) comprises the interests of the shareholders, the employees and the creditors of the target company. This focus of the target management’s fiduciary duties on the company’s best interest may give rise to numerous issues during a takeover. In addition, the Stock Corporation Act and the Takeover Act govern various defence measures of the
target’s management against hostile takeovers, and also both contain rules on squeeze-outs (see Mechanisms employed to buy-out shareholders).
Reorganisation Act (Umwandlungsgesetz). The Reorganisation Act allows statutory mergers by transferring one entity’s assets to another pre-existing entity, or transferring two existing entities’ assets to a new entity. It also provides a legal framework for de-ergers (Spaltungen) and changes of legal form (Formwechsel), for example from a corporation to a partnership. Statutory mergers under the Reorganisation Act combine the selective approach of an asset deal with the universal succession of a share deal. Universal succession under the Reorganisation Act takes effect by way of the registration of the statutory merger with the commercial register by the competent local court. Registration with the commercial register may, however, be blocked by voidance claims initiated by activist shareholders, which in turn may be overcome via a fast-track release proceeding (Freigabeverfahren). The Act also contains provisions on a merger-specific squeeze-out (see Mechanisms employed to buyout shareholders). In addition, the instruments contained in the Reorganisation Act may be used to take a target private (“cold de-listing”), such as by merging a listed target into a non-listed entity.
Securities Trading Act (Wertpapierhandelsgesetz). This act regulates insider trading (which is a criminal offence in Germany), ad hoc disclosure requirements, directors’ dealings and the acquisition of a certain aggregated voting right percentage. With reference to insider trading, the target’s officers cannot pass on any information regarding a public takeover that is not in the public domain, unless the disclosure is justified by the target’s operational interest or is legally required. This in general also applies where the acquisition of target shares is designed as a defence measure against a hostile takeover. They must also take appropriate measures to ensure that the distribution of insider information is restricted internally in accordance with the target’s operational interests. The target can be obliged to publish an ad hoc announcement regarding the takeover under the Securities Trading Act. In addition, according to the director’s dealing rules, the officers of the target and its parent entity (and their spouses and close relatives) must notify the target (which in turn publishes the information on its webpage) and BaFin of any personal acquisitions and disposals of target shares exceeding a de minimis threshold of EUR5,000 per annum.
Stock Exchange Act (Börsengesetz) and Stock Exchange Ordinances (Börsenordnungen). The rules relating to the stock exchanges affect the target’s liability for public offerings via a prospectus and also contain rules on a regular de-listing (without shareholder vote).
Furthermore, following a public-to-private transaction, the investor may seek to publicly re-offer the shares as an exit route which would then also be governed by various statutory provisions, including the Stock Exchange Act and the Securities Prospectus Act as well as the Stock Exchange Ordinances.
Merger control. See Antitrust regulations.
Insolvency Act (Insolvenzordnung) and Voidance Act (Anfechtungsgesetz). Any bidder intending to make a public offer for a target which is insolvent (or close to insolvency) for restructuring purposes should consider the Insolvency Act and the Voidance Act. The Insolvency Act allows the restructuring of a target through proceedings similar to those under the US chapter 11 rules. Under the Voidance Act, transfers of assets from the target to another entity to the detriment of the target’s creditors may be voidable.
Commercial Code (Handelsgesetzbuch) and Civil Code (Bürgerliches Gesetzbuch). The Civil Code governs any legal relationships between private individuals and entities. The Commercial Code adds rules specific to entities (corporations and partnerships) and the businesses of sole proprietors. The offer to buy or exchange shares and its acceptance, among other things, is governed by the Civil Code.