A VIEW from germany

The ministerial draft of the Securities Purchase and Takeover Act, published earlier this month by the Federal Ministry of Finance, can be assessed positively. Many of the original provisions were disputed and discussed in both professional and political circles. On the back of this, the ministerial draft includes some considerable changes. One of them is that the new draft will cover all public offers, including those that are not aimed at acquiring control, as well as takeovers. All offers will be supervised by the Federal Office for Securities Trading.

The same set of provisions will be applied to three types of offers – acquisition, takeover and mandatory. But there are additional provisions for takeover and mandatory offers. By doing this, the scope of the act is now clearer and transparency in capital markets transactions is improved.

After the act comes into force, people who acquire control of a company – ie 30 per cent of the voting rights – have to launch an offer for all the shares of the target company. There are, however, exceptions. For example, some voting rights, such as those of a subsidiary or those held by a third party for the account of the offeror, are added to the voting rights of the offeror.

In contrast to the current voluntary Takeover Code of the Stock Exchange Expert Commission, the new act states that documentation must contain detailed information about offer financing. The availability of financing has to be confirmed by a securities service company. The act is thus in line with European standards. Offer documentation must be drafted in German, which is somewhat problematic. Globalisation of capital markets and the growing number of cross-border deals mean that the additional admission of English would have been desirable.

The consideration to be offered within takeover and mandatory offers is regulated. The offeror is, however, obliged to make a cash offer if they have acquired at least 5 per cent of the shares or the voting rights for cash during the three months prior to the offer announcement. The offeror is also obliged to make a cash offer if they acquire shares in the target during the acceptance period for cash. Generally, the consideration will be based on the weighted average share price of the voting shares of the target during the last three months before the offer announcement. If the offeror acquired target shares during the last three months, the consideration will be calculated on the highest price paid, or agreed, by the offeror.

Block discounts up to 15 per cent are admissible, although not when buying via the stock exchange. If the offeror acquires shares in the target for a higher price during the acceptance period, or within one year from the end of the acceptance period, it will have to make additional payments. These will be the difference between the consideration stated in the offer and the amount subsequently paid to other shareholders outside the offer.

The duty of neutrality remains critical and has not been changed in this draft despite extensive discussions. A company’s board will be obliged to observe neutrality and refrain from actions that could prevent the takeover. Especially prohibited is the issuance of shares, the acquisition of own shares by the target and the conclusion of any transaction that would result in a substantial change in the balance sheet.

Some defensive measures are permitted, however, including searching for a competing offer, adopting defensive measures on the basis of resolutions passed during the procedure and a capital increase which does not exclude subscription rights of shareholders. Although there is still ongoing debate about neutrality, it is anticipated that the final governmental draft, to be published this summer, will address these issues. Hopefully, the principle of neutrality will not be deleted or too many exceptions accepted. Indeed, the ministerial draft in its entirety will be subjected to more discussion, which will almost certainly lead to a reworked draft, though not a complete revision.

Daniela Weber-Rey is head of corporate at Clifford Chance Pünder