CMS Expert Guide to Public Takeovers in Germany

Yes – the German Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz,"Act") governs public offers for securities of target companies with their registered office in Germany or another country of the European Economic Area that are admitted to trading on an organised market in Germany or, under certain circumstances, another EEA country. Compliance with the Act is overseen by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin").

The Act distinguishes between takeover offers, mandatory takeover offers and simple purchase offers: 

• Takeover offers are voluntary offers the aim of which is the acquisition of control, being defined as the holding of 30% or more of the voting rights of a target company; 
• Mandatory takeover offers are offers required by the Act if the 30% threshold is reached or exceeded by other means than a public takeover offer or in connection with a public takeover offer, either directly or by way of attribution of voting rights; 
• Purchase offers are voluntary offers where the offeror seeks to acquire less than 30% of the voting rights or to reinforce a controlling (30% or more) interest it already holds, e.g. following a previous takeover offer, or in preparation for a delisting which requires a prior purchase offer.  

All three types of public takeover offers are regulated by the Act. As voluntary takeover offers are less regulated – for example because the offer may be subject to more conditions – and hence more flexible, takeovers are usually structured as voluntary takeover offers.

There is no legal requirement for the offeror or the target company to appoint an external adviser or expert. In practice, however, both the boards of the offeror and the target company usually appoint legal and financial advisers. In particular, the target company board will usually seek advice on the offer from a financial adviser or investment bank, in the form of a "fairness opinion", in view of the target company’s statutory obligation under the Act to issue a "reasoned opinion" on the offer and in order to minimise the target company board’s risk of liability. If shares offered in an exchange offer are to be listed on a German stock exchange, the bidder must also have a sponsor. 

A mandatory takeover offer must be made if any person, directly or indirectly, acquires a controlling interest in a target company, i.e. the holding of 30% or more of the voting rights in the target company. How shares or voting rights have been acquired (e.g. acquisition by sale and purchase, inheritance, through capital increases, capital decreases, mergers, etc.) is irrelevant in determining whether a person has gained control (but may be relevant for exemptions, see next paragraph). There are comprehensive rules providing for the attribution to an offeror of voting rights attaching to shares which are held by third parties (e.g. subsidiaries, trustees, third parties with whom the offeror is acting in concert). 

An exemption from the mandatory takeover offer requirement is applicable only under particular circumstances (taking into account the purpose of the acquisition, the potential exercise of control by the offeror, the target company’s shareholder structure and the sale of shares to below the 30% threshold shortly after their acquisition). Subject to a respective motion, the BaFin may disregard certain voting rights (e.g. rights acquired by inheritance, change in legal form or restructuring within a group of companies). Also, BaFin has commonly applied the exemption in circumstances where the offeror restructures the target company for the sole purpose of avoiding insolvency.

A mandatory takeover offer must be made if any person, directly or indirectly, acquires a controlling interest in a target company, i.e. the holding of 30% or more of the voting rights in the target company. How shares or voting rights have been acquired (e.g. acquisition by sale and purchase, inheritance, through capital increases, capital decreases, mergers, etc.) is irrelevant in determining whether a person has gained control (but may be relevant for exemptions, see next paragraph). There are comprehensive rules providing for the attribution to an offeror of voting rights attaching to shares which are held by third parties (e.g. subsidiaries, trustees, third parties with whom the offeror is acting in concert). 

An exemption from the mandatory takeover offer requirement is applicable only under particular circumstances (taking into account the purpose of the acquisition, the potential exercise of control by the offeror, the target company’s shareholder structure and the sale of shares to below the 30% threshold shortly after their acquisition). Subject to a respective motion, the BaFin may disregard certain voting rights (e.g. rights acquired by inheritance, change in legal form or restructuring within a group of companies). Also, BaFin has commonly applied the exemption in circumstances where the offeror restructures the target company for the sole purpose of avoiding insolvency.

The offeror must publish its decision to make a public takeover offer without undue delay. Generally, a firm intention made by the offeror’s administrative bodies (such as its management board or supervisory board) to make a public takeover offer constitutes a "decision". Once an offeror has taken the decision to launch a takeover offer, it must immediately notify BaFin and the stock exchange(s), make a public announcement via an electronic distribution system and inform the management board of the target company. 

Except in the case of a hostile takeover offer, the offeror will usually contact the target company’s management board in advance of the announcement of the offer with a view to negotiating the recommendation of the offer by the target company board and entering into an investment agreement or business combination agreement. As public takeover offers usually have a substantial effect on the target company’s share price, the target company would generally be obliged to announce the offeror’s approach without undue delay, in a so-called ad hoc notification. However, the management board of the target company may keep the offeror’s approach confidential and delay its announcement, if the success of the offer is in the target company’s best interests and the premature publication of the offeror’s intention could jeopardise the transaction. Furthermore, any delay must not mislead the market and confidentiality must be ensured.

The offeror must publish its decision to launch a takeover offer without undue delay. The decision to publish the takeover offer must be unconditional. After the announcement of its decision, the offeror has four weeks in which it must submit the offer document to BaFin for review and approval. BaFin may extend this deadline by up to four weeks under very restricted circumstances (which is generally the case when an exchange offer is made due to the more onerous reporting requirements). In practice, offerors usually prepare substantial parts of the offer document during the preparation phase, allowing them to deliver the final offer document to BaFin shortly after the announcement of the offer. If an offer has been prohibited by BaFin, the offeror may generally not make a further offer to the shareholders of the target company or publish a decision to make such an offer before the expiry of one year. 

The consummation of purchase offers and voluntary takeover offers may be made subject to conditions, provided that such conditions are not solely at the discretion of the offeror and their satisfaction can be objectively ascertained. Delisting purchase offers, however, may not be made subject to any conditions. In the case of mandatory takeover offers, the only permissable conditions are regulatory approvals (e.g. merger control clearance).  

In addition to necessary regulatory approvals, the following offer conditions are permissible and common: 

• A minimum acceptance condition such as more than 50% or 75% of the voting rights; 
• A precisely defined Material Adverse Change (“MAC”) event not having occurred; 
• No defensive measures having been taken by the target company. 

In contrast, it would be inadmissible to impose conditions regarding financing of the offer or that the offeror's due diligence investigations are satisfactory

Prior to publication of the offer, the offeror must ensure that it has available the funds necessary to satisfy the consideration payable on full acceptance of the offer on the settlement date. In the case of a cash offer, the offeror must also provide a written statement from a bank prior to publication of the offer document which confirms that the offeror has taken the necessary measures to finance the offer. In the offer document, the offeror must provide detailed information on the financing of the offer and especially on the measures it has taken to ensure the availability of the required funds. The financing confirmation must be attached to the offer document.  

In the case of a share exchange offer, the offeror must ensure that the shares offered as consideration are available to it at the latest at the time of the settlement of the offer. 

The Act provides rules for the determination of the statutory minimum offer price that must be offered in voluntary and mandatory takeover offers. The statutory minimum offer price is the higher of:

• the weighted average stock market price calculated within a reference period of three months prior to the public disclosure of the offer decision (or the announcement of having gained control); and  
• the highest price paid or agreed to be paid to a shareholder within a period of six months prior to the disclosure of the offer document.  

Any price higher than the offer price that has been paid or agreed to during the acceptance period or (outside the stock exchange) within one year after the end of the acceptance period generally will affect the offer price, as it has to be offered to all shareholders. 

In addition to the usual cash consideration, offerors may also offer liquid shares admitted to trading on an organised market within the European Economic Area, a so-called share exchange offer. The shares offered in exchange for the target company shares do not necessarily have to be shares of the offeror, although this is most common.  

However, if the offeror acquires 5% or more of the target company’s share capital for cash within a period beginning six months prior to the announcement of the offer and ending with the end of the offer period, the offer consideration must be in cash.

No – according to the statutory principle of equal treatment of each shareholder, all shareholders must be offered the same deal. However, ordinary shareholders and preference shareholders may be offered a different deal as they are shareholders of different share classes. In such cases, there is no violation of the principle of equal treatment

Generally, the target company is under no obligation to provide information to a potential offeror for due diligence. However, the management board of the target company can approve the offeror undertaking a due diligence exercise, if it believes the offer is in the best interest of the target company and if its business secrets are protected. In most of the friendly takeover offers, the offeror is given the opportunity to carry out due diligence. Nevertheless, the management board of the target company is often reluctant to allow offerors to conduct extensive due diligence. There are no specific rules on what due diligence can be undertaken. The offeror will usually be keen to gain access to non-public information. As the management board of a stock corporation is bound by strict confidentiality rules, the due diligence must be subject to customary confidentiality undertakings of the offeror, stipulating specific rules on sensitive information (such as clean team access only, staggered disclosure, etc.). Typically, such due diligence is completed prior to the offer decision because the options to withdraw after announcing an offer are very limited. 

If the offeror becomes aware of inside information during the due diligence process, it may continue to pursue the offer without engaging in prohibited insider dealing, provided that, at the point of acceptance of the offer by the shareholders of the target company, any inside information has been made public or has otherwise ceased to constitute inside information. This exemption does not apply in the case of mere stakebuilding below the 30% threshold. In any case, the offeror should neither change the offer price nor make any parallel transactions once it has become aware of inside information.  

To ensure successful completion of a takeover offer, the offeror may ask the target company’s board to support its offer and to look for substantial shareholders in the target company who are willing to tender their shares if a public takeover offer is launched ("irrevocables"). 

Another challenge is to deal with hedge funds which frequently build substantial stakes subsequent to an announcement of a public takeover offer. Generally, it is not advisable to provide for a high minimum acceptance threshold (e.g. 75%) in the offer document as this may enable hedge funds to de facto block a transaction. Hence, if the offeror expects that hedge funds will become engaged, it is advisable to either abstain from a minimum acceptance threshold or to not set it above 50.1%. 

If the offeror is not very concerned about a failed transaction but wants to make sure that certain events happen or do not happen, he may stipulate certain closing conditions, including: 

• Absence of defensive measures carried out by the management board of the target company (sale of significant assets, repurchase of own shares, etc.); 
• No capital measures during the offer period; and 
• No recommendation to shareholders not to accept the offer (it is disputed whether this condition is admissible).

Throughout a public takeover offer, the management board of the target has to act in the best interest of the target company. If the management board is of the view that the offer is not in the company’s best interests, it may refuse to talk with the offeror. Moreover, the management board may also refuse information or due diligence. However, after the offer announcement has been published, the management board of the target company must not take any actions which could frustrate the success of the offer. This does not apply to: 

• actions which a prudent and conscientious manager of a company which is not subject to a takeover offer would have taken; 
• the search for a competing offeror ("white knight"); 
• actions which the supervisory board of the target has approved (which, however, must strictly observe the company’s best interests); and  
• actions authorised by a shareholder resolution explicitly passed to prevent the success of takeover offers. 

Due to the restrictions under the stock corporation law, the target company may deploy the following defensive measures: 

• Issue of new shares from authorised capital to make the takeover more expensive for the offeror or to win an anchor-shareholder;  
• Acquisition of treasury shares to increase the voting power of friendly shareholders and to reduce the free float that could fall into the offeror’s hands;  
• Sale of treasury shares to an anchor-shareholder; 
• Disposal of material assets representing the “crown jewels” of the target company. 

The potential offeror may buy shares of the target company in the preparation phase, as long as the restrictions on insider dealing, i.e. dealing on the basis of inside information, are observed. In order to increase the prospects of success of the takeover offer, an offeror will commonly seek to stake build in advance of announcing an offer.

The irrevocable acceptance of the offer by a target shareholder is permitted. For this purpose, the offeror and the shareholders often enter into so-called "irrevocable undertakings", in which the main terms and conditions of the offer are determined. Irrevocable undertakings qualify as notifiable financial instruments under the German Securities Trading Act (Wertpapierhandelsgesetz) and therefore need to be aggregated with any shares held by the offeror, any persons acting in concert with it or their subsidiaries, and disclosed once the 5%-threshold is reached and at each threshold thereafter (10%, 15%, 20%, 25%, 30%, 50% or 75%). Hence, to maintain secrecy and to avoid any adverse effects of premature disclosures and market rumours, an offeror will usually conclude any irrevocable undertakings that exceed the notification thresholds immediately prior to announcement of the offer. 

The target company shareholders are also permitted to sell their shares to the potential offeror outside the offer process. In this case, however, it must be noted that this is a parallel acquisition, which may affect the amount of the minimum offer price.

There are no special disclosure obligations. However, under the German Securities Trading Act (Wertpapierhandelsgesetz), public disclosure obligations are triggered if a person’s holding of voting rights in the listed company’s shares reaches or exceeds, either directly or by way of attribution of the shareholdings of persons acting in concert, certain thresholds, i.e. 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%. Starting with the 5%-threshold, the same applies to financial or other instruments, e.g. call and put options, swaps (in particular cash settled equity swaps), futures and forwards with cash settlement, contracts for differences, or irrevocable undertakings. Voting rights in relation to shares and other financial instruments must be aggregated and disclosed once the 5%-threshold is reached. Anti-avoidance rules provide that voting rights of e.g. subsidiaries, trustees and parties acting in concert are attributed to the offeror. Therefore, it is now difficult for a offeror to build up a stake without disclosure ("creeping in") but there remain very limited possibilities to acquire large stakes without prior announcement. In addition, a holding of 10% or more of the voting rights in a German listed company requires the shareholder to publish its intentions for the investment and the sources of the acquisition funds. 

The announcement of the offer commences the strict statutory timetable for an offer, which is intended to limit the period of market uncertainty about the future of the target company: 

• Announcement of decision to make an offer; 
• Up to 4 weeks after the announcement of the offer: drafting of offer document and submission to BaFin; 
• Up to 15 working days after the submission of the offer document to BaFin: review of offer document and approval by BaFin; 
• After the approval by BaFin submission of the offer document to the target company without undue delay; 
• Normally between 4 week and up to 6 weeks (10 weeks max) acceptance period; 
• Joint reasoned opinion by the management board and the supervisory board of the target company up to 2 weeks after submission of the offer document to the target company;  
• With the expiration of the acceptance period publication of preliminary offer result and beginning of the two weeks extended acceptance period; 
• With the expiration of the extended acceptance period publication of final offer result and closing. 

• The announcement of the takeover offer and the offer document are the key documents. In the announcement, the offeror must identify the target company and the shares to which the takeover offer relates. The announcement of the takeover offer may indicate that the offer will be subject to certain terms and conditions (e.g. merger control clearance or a minimum acceptance threshold). It is customary to voluntarily specify the intended consideration in this announcement. The offer document must contain all information necessary for the shareholders to make an informed decision on accepting the offer. Depending on the complexity of the case, the offer document may be from approximately 30 to 100 pages. The following contents have become a uniform standard for the offer document:  
• Basic information on the offeror and the target company, in each case including information on any persons acting jointly with the offeror; 
• The terms and conditions of the offer (nature and amount of the consideration, including the valuation methods used to determine the consideration, acceptance period, details of how to accept the offer and on how the consideration will be satisfied by the offeror); 
• Conditions for completion of the offer;  
• Measures taken to ensure the offer’s financing and the expected effects of a successful offer on the financial position and results of operations of the offeror and the offeror’s group; 
• The offeror’s intentions with regard to the future business activities, the employees and their representatives as well as the composition of the boards of the target company, including cash benefits or other monetary benefits paid or promised by the offeror to board members in connection with the offer; 
• Number of voting rights held by and attributed to the offeror and any persons acting in concert with it, and details of any share purchases made during the six-month period preceding the offer announcement; 
• In the case of a share exchange offer, comprehensive information on the offeror and the consideration shares that corresponds to a securities prospectus in accordance with the European Prospectus Regulation

Competing bids are rare in practice but legally not restricted. Apart from a potential extension of the acceptance period, target company shareholders that have already tendered their shares have a statutory right of withdrawal in the event of the announcement of a competing bid.

No – the offeror is not entitled to withdraw the offer. Whether the offeror is entitled to withdraw the offer decision (i.e. the announcement to make a public takeover offer) is unclear. While there have been isolated cases where offerors published offers without submitting the necessary offer document to BaFin, failure to submit the offer document within the four-week period may result in fines or in the prevention of the offeror from completing the offer (as a result of the delay). Additionally, BaFin may prohibit the offeror from making a new offer for the same target company within a one-year period (blocking period). 

Generally, the offeror may only modify the offer by increasing the offer price, waiving offer conditions, offering an alternative (optional) consideration or reducing the minimum acceptance threshold. Additionally, the offeror may extend the acceptance period up to a period of ten weeks. 

The offeror may modify the offer price by increasing the cash price or the number of shares being offered as alternative consideration. Furthermore, the offeror may offer shares in addition to the already offered cash consideration.  

Yes – German law provides three different procedures to acquire the shares of the remaining minority shareholders, which are squeeze-outs under the stock corporation law, under the conversion law, and under the takeover law: 

• Under the stock corporation law the offeror can request the management board of the target company to convene a general meeting which shall pass a resolution to transfer the shares of the minority shareholders to the offeror if the offeror holds at least 95% of the shares of the target company. The minority shareholders have a claim to an adequate cash consideration which is usually determined based on an enterprise valuation and examined by an independent court-appointed expert and may generally not be less than the stock exchange price. 
• Under the conversion law the offeror can request the management board of the target company to convene a general meeting which shall pass a resolution on the squeeze-out if the offeror holds at least 90% of the shares of the target company. In this case, the squeeze-out must be combined with an upstream merger of the target company into the offeror which has to be a German stock corporation, a German partnership limited by shares or a European Stock Corporation (SE). 
• Under the takeover law the offeror can execute a squeeze-out if it owns at least 95% of the voting share capital of the target company as a result of the takeover offer. The squeeze-out does not require a resolution of the general meeting and the shareholders may not initiate appraisal proceedings. Subject to some additional requirements, the takeover offer price is deemed an adequate squeeze-out consideration, so that no costly valuation is required.  

Yes – if an offer fails because an acceptance condition is not fulfilled or because BaFin prohibits the offer, e.g. as a result of the offeror’s failure to comply with its various publication obligations under the Act, an offeror is prohibited from making another offer for the target company for a year. However, with the consent of the target company, BaFin may grant an exemption from this prohibition.

It is distinguished between the so-called regular de-listing and cold de-listing: 

• The regular de-listing requires a petition by the management board of the target company to the admission board of the stock exchange. According to the German Stock Exchange Act (Börsengesetz), a regular de-listing requires a prior public purchase offer to the remaining shareholders for an adequate cash compensation. The Act applies mutatis mutandis to such "delisting offer" which must be unconditional and offer a cash consideration. However, as long as there is no control agreement in place, the offeror may not instruct the management board of the target to apply for and execute a de-listing – under the German stock corporation law the decision on regular de-listing is made solely by the management board of the target company. 
• The cold de-listing is the effect of a structural measure under the stock corporation law or the conversion law, which is resolved by the target company’s general meeting. For example, after a squeeze-out under the conversion law has become effective, the listing of the target company will be revoked by the admission board due to the permanent discontinuation of stock exchange trading.