Unsolicited takeover attempts are still rare in Germany. However, as liquidity and transparency of capital markets have developed and private investors and institutional investors increasingly encouraged stock corporations to focus on shareholder value, the general attitude has become less negative with regard to hostile transactions than it was in the past.
Nonetheless, the Takeover Act provides for the target company to defend itself against hostile transactions (see below). Germany has opted out of the stricter rules provided for in the European Takeover Directive, and there is no inclination of corporations to voluntarily opt in. Typically, however, while the target may make it difficult for the bidder or provoke a higher offer price, if an unsolicited offer is attractive, the target has only very rarely the means available to prevent the takeover once it was launched - and most of the time it is rather a PR battle than a legal one. Thus, it is not the defence mechanisms, but more the comparably low free float of many German stock corporations and the tightening of undisclosed stakebuilding (see question 6) that decreases the possibility of seeing too many hostile takeovers.
The largest unsolicited takeover offer since the introduction of the Takeover Act was Merck’s bid for Schering in 2006, which, however, failed owing to Bayer’s higher competing offer. It was followed by 2015’s hostile offer of Vonovia for Deutsche Wohnen, which lacked sufficient acceptance and Schaeffler’s bid for Continental, which as far as the tender offer is concerned, ended in a friendly mode. An interesting transaction was also the initially unsolicited bid for Techem in 2007, which ended being a joint bid by BC Partners and Macquarie - and failed because it did not exceed the required acceptance threshold. It is important for a bidder to realise that the ‘effective control’ threshold lies at 75 per cent of the voting rights, as this is the majority required at the shareholders’ general meeting for major structural changes to the target stock corporation. Macquarie launched another - successful - takeover offer after having acquired more than 75 per cent of the shares in Techem by several share purchases outside the stock exchange. The unsolicited takeover offer of ACS for Hochtief is one of the rare examples of an unsolicited offer that did not end in a friendly mode or failed owing to a higher competing offer. It was also, however, not a fully fledged takeover, but the offer was at a minimum price and only targeted to use the possibilities granted under the law to build a larger stake once the control threshold is crossed without being subject to the statutory minimum price rules. In recent years, there have been several hostile takeover attempts, which, however, did not trigger comparable discussions about the rules governing takeovers. Interestingly, though, in 2014 we saw for the first time a successful takeover defence when Weidmüller’s takeover attempt of R Stahl failed, and in 2015/2016 the first hostile ‘virtual’ offer by Potash for K+S, which was withdrawn, the failed takeover attempt by Vonovia for Deutsche Wohnen with a rather low premium, as well as Tocos’ hostile takeover of Hawesko notably initiated by an entity owned by a supervisory board member of the target. Further examples of takeovers that at least started as hostile include Standard Industries/Braas Monier (2016), Pfeiffer Vacuum/Busch (2017), Uniper/Fortum (2017) and Grammer/Hastor (2017).
As regards defence against hostile transactions, owing to the ‘duty of neutrality’, after the decision to launch an offer has been published, the management board must not take any action that could prevent the success of the takeover offer.
However, the following actions of the management board (including defensive measures) are permitted (without approval at the shareholders’ meeting):
- searches for a ‘white knight’;
- any action within the scope of the management board’s powers if approved by the supervisory board and if the law (for example, the Stock Corporation Act) does not set forth further requirements; and
- actions that would have reasonably been taken if no offer had been launched, for example, measures in the ordinary course of business, measures to execute contractual obligations entered into before the bid or measures executing the established strategy of the target company.
Furthermore, the shareholders may under certain restrictions authorise the management board to take actions within the scope of the powers of the shareholders’ meeting before and independent from any takeover offer.
These provisions seem to provide a wide scope to management. However, their impact is mitigated by the fact that pressure from institutional shareholders will prevent most listed companies from using the mechanisms available and because of the necessary compliance with other legal requirements (for example, under the Stock Corporation Act), in particular the duty to act in the best interest of the company. Also, the duty to treat all shareholders equally as set out in the Stock Corporation Act restricts the ability of the target to, for example, use a poison-pill defence (namely, ‘flip-in’ or ‘back-end’ provisions) as it is known in other countries.
The shareholders’ meeting may also, as provided under the EC Takeover Directive (Directive No. 2004/25/EC of 21 April 2004), impose a stricter ‘duty of neutrality’, which would then mean that only certain actions of the management board would be permitted. However, in practice, this is irrelevant because no company opts for such a stricter duty voluntarily.
Maximum or multiple voting rights, for example, such that each shareholder has only one vote or that certain shareholders’ shares count twice, are impermissible.
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