The acquisition of a controlling interest in an Austrian publicly listed stock corporation (the target) triggers the acquirer's duty to make a mandatory public takeover offer to all shareholders of the target. Depending on the acquisition's structure, the Austrian Takeover Act contains several options for a public takeover offer. Past practice has shown that most offers following the acquisition of a controlling interest follow the rules for mandatory public takeover offers (mandatory offers) whereas only a few are structured as anticipatory mandatory public takeover offers (anticipatory offers). Mandatory offers and anticipatory offers are regulated by the same pricing provisions and in both the acquirer is obliged to offer cash compensation or paper. Anticipatory offers, unlike mandatory offers, can be made under conditions other than those provided by law, such as merger control clearance, in particular under the condition of a certain acceptance level by the target's shareholders. These conditions, however, have to be fulfilled within a specific timeframe set out by the Austrian Takeover Commission (ATC) in each individual case. Only offers that cannot confer a controlling interest to the acquirer qualify as voluntary public takeover offers within the meaning of the Takeover Act (voluntary offers).

The European Union Directive 2004/25/EC on Takeover Bids (the Takeover Directive) will have to be implemented throughout the member states by May 20 2006. Austria will extensively amend the Takeover Act, although the respective Takeover Amendment Act has not yet passed parliament. In particular, a new threshold for the acquisition of a controlling interest will be introduced at the level of 30% of the voting rights in a listed stock corporation, the so-called passive acquisition of control will be regulated and the threshold for the takeover blocking minority will be set at 26% of the voting rights. Also the 15% control discount in the offer price to all shareholders will disappear.

Mandatory offers

Controlling interest

Pursuant to the Takeover Act, the acquirer of a controlling interest in the target has to make a mandatory public takeover offer in accordance with the provisions of the Takeover Act for all securities of the target and has to notify the offer to the ATC. A controlling interest is acquired if the acquirer:

• obtains the majority of the voting rights in the target;
• is entitled to appoint or dismiss the majority of the members of the administrative, management or supervisory board of the target; or
• by any other means is entitled to exercise a dominating influence on the target.

A controlling interest will further be presumed if and as soon as the acquirer acquires at least 30% of the voting rights in the target. This presumption may be refuted if another shareholder holds at least the same number of voting rights in the target as the acquirer. The first decree to the Takeover Act contains certain further refutable presumptions for the acquisition of a controlling interest by acquiring more than 20% but less than 30% of the voting rights in the target.

Conditions

A controlling interest is not acquired within the meaning of the Takeover Act as long as conditions precedent contained in the acquisition agreement have not been fulfilled. Therefore, it is not the signing but the closing of the acquisition that triggers the obligation to make a mandatory offer. The mandatory offer itself cannot be made under conditions other than provided for by law. In particular, a condition based on a certain acceptance level by the target's shareholders cannot be included, whereas merger control clearance could form a valid condition.

Form of consideration

The offer must contain a cash offer. Alternatively, the acquirer may propose an exchange for other securities (paper).

Offer price

The price of a mandatory offer:

• must at least equal the average price quoted for the shares in the target over the six months before the acquisition of the controlling interest; and
• cannot be more than 15% below the highest consideration for the shares in the target paid or promised by the acquirer in the 12 months before the acquisition of the controlling interest. This also applies to the consideration for shares in the target that the offeror is entitled or obliged to acquire in future. The 15% discount may be excluded in the target's articles of association.

The Takeover Act not only refers to the highest consideration paid within the preceding 12 months, but also to the highest consideration promised by the offeror. Therefore, any consideration offered by the acquirer to the main shareholders of the target before the mandatory offer is made will form the basis for the offer price to the outstanding shareholders. The 15% discount, however, only applies to cash transactions. If the consideration is provided in a form other than cash or only partly in cash, the total value of the consideration forms the basis of the calculation of the offer price.

In determining the total value of the consideration, other payments effected or promised or other financial advantages promised or granted by the acquirer have to be taken into account if they bear a financial relation to the acquisition of the controlling interest. If shares or other securities of listed stock companies are offered, the total value of the consideration will have to be determined on the basis of their market price. The value of shares or other securities of non-listed companies will be determined based on the principles of ordinary valuation. In that respect, the acquirer has to disclose in the offer document all matters relevant to determining the appropriateness of the price. A fairness opinion by a bank or an accounting firm has to support the valuation.

In certain circumstances, the mandatory offer price is not strictly linked to the average share price or a higher consideration paid. Among others, the price of the mandatory offer could be determined to be in compliance with the underlying principle of equal treatment of shareholders, if:

• the controlling interest is acquired indirectly by an acquisition of an entity controlling the target; or
• the consideration paid or promised by the acquirer within the 12-month period was based on special circumstances; or
• circumstances have changed during the 12 months.

General movements in the stock market do not constitute special circumstances. A significant change of circumstances refers to a material change in the share price. Ordinary share price fluctuations do not qualify as significantly changed circumstances. The volatility of the shares has to form the basis for the price determination rather than the general market development. Changes in the performance figures of the target or its line of business could qualify as a significant change.

Timeframe

The mandatory offer has to be made within 20 trading days after the controlling interest in the target is acquired. The acceptance period has to range between 20 and 50 trading days.

Anticipatory mandatory offer

Controlling interest as a result

Except for the prohibition to include other than ex-lege conditions in the offer, the provisions of the Takeover Act on mandatory offers apply mutatis mutandis to anticipatory offers that, once completed, could result in the acquirer obtaining a controlling interest in the target. So public takeover offers qualify as anticipatory offers if the acquirer when making the offer does not hold a controlling interest in the target but, due to a full acceptance of the offer, could result in owning a controlling interest. The instrument of the anticipatory offer opens the possibility for the acquirer to structure the takeover according to its aims, for example, restructurings, delisting or general business development of the target.

Conditions, squeeze-out, delisting

The main difference between anticipatory offers and mandatory offers lies in the fact that anticipatory offers may be conditional. In particular, anticipatory offers can be made under conditions other than provided for by law such as merger control clearance, in particular conditional upon the acceptance by shareholders representing a certain percentage of the share capital of the target.

The basic legal motivation to include such a condition in the offer is to facilitate taking the target private once the takeover is complete. Austrian law does not provide specific rules for a squeeze-out of minority shareholders. So the squeeze-out has to be structured as a re-organization of the target by means of a disproportionate merger or a disproportionate spin-off. Both the merger and the spin-off require a 90% majority of all votes in the shareholders meeting.

Further, the Austrian Stock Exchange Act does not provide for a formal application for delisting publicly listed companies. The Vienna Stock Exchange may only delist securities if a minimum free float required by law is no longer represented. The minimum free float required is at least 10,000 non-par value shares or shares in the nominal amount of €725,000. A de-listing can really only be achieved by means of a disproportionate merger or a disproportionate spin-off and by subsequent notification to the Stock Exchange that the minimum free float required by law is no longer represented.

Past practice has shown that, pursuant to the above considerations, the 90% voting rights threshold is a key issue in the structuring of the takeover. By structuring the takeover as a mandatory offer the acquirer cannot ensure it would reach this acceptance level.

50% legal condition

Anticipatory offers are ex-lege conditional on the acquirer obtaining more than 50% of the voting rights carried by ordinary shares.

Form of consideration

The offer must contain a cash offer. Alternatively, the acquirer may propose an exchange for other securities (paper).

Offer price

The rules on the minimum offer price, including any decrease based on a significant change of circumstances, also apply in an anticipatory offer.

Period of acceptance

Conditions contained in the anticipatory offer according to a general statement of the ATC have to be fulfilled within the acceptance period. If the nature of the condition (in particular the condition of merger control clearance) justifies a prolongation of that period, the ATC may extend the period for the fulfilment of the condition beyond the expiry of the acceptance period. In view of the general principles of the Takeover Act, the ATC holds the opinion that this period should not exceed 90 trading days after publication of the offer. The exact period has to be negotiated with the ATC. If the conditions are not fulfilled within that period, the offer is deemed to have failed and the acquirer is barred from any further offers for one year. The ATC may shorten that period.

Voluntary offer

As long as the acquirer does not obtain a controlling interest in the target, the rules for voluntary offers apply. Contrary to mandatory offers and anticipatory offers, a voluntary offer can be a cash offer, a mixed offer or a paper offer and can be conditional as long as the conditions are objectively justified, in particular, if they result from legal obligations, or if they do not depend entirely on the acquirer's discretion. It is not, however, possible for an acquirer to start a voluntary offer to decrease the free float of the target in spite of having reached agreement with certain shareholders on the transfer of a controlling interest in the target after completion of the offer. Such voluntary offer would be qualified as a two-tier offer and be held illegal by the ATC. The obligation of the acquirer to issue a mandatory offer would consequently be held by the ATC.

Takeover Amendment Act

The Takeover Directive has to be implemented by the member states before May 20 2006. In Austria, the Takeover Amendment Act (TAA) has reached its final draft and is expected to pass parliament soon.

The TAA will provide for a safe harbour regulation. The acquisition of up to 30% of the voting rights of a listed stock corporation will not trigger the obligation to make a mandatory offer. If a 26% voting rights threshold is exceeded, the voting rights exceeding the 26% threshold are sus-pended unless that suspension is explicitly lifted by the ATC. The ATC, upon application of the affected shareholder, may impose certain restrictions and conditions on that shareholder instead of suspending voting rights. However, the ATC is not entitled to lift voting rights suspensions for a shareholding exceeding the 30% threshold.

In the case of a passive acquisition of control (for example by way of termination of a shareholders agreement), the affected shareholder is under no obligation to make a mandatory offer, unless the passive acquisition of control at the time of acquiring the interest could have reasonably be expected by the shareholder. If the shareholder could have reasonably expected the acquisition of control, the shareholder is barred from exercising its voting rights exceeding the 26% voting rights threshold. The suspension of voting rights can be lifted by the ATC. The ATC, upon application of the affected shareholder, may impose certain restrictions and conditions on the shareholder instead of the suspension of the voting rights. However, the ATC is not entitled to lift voting rights suspensions for a shareholding exceeding the 30% threshold.

The 15% control discount on the offer price compared to the price paid to the majority shareholder in a transaction outside the takeover proceedings will be eliminated.

The articles of association of a stock corporation may provide that voting rights restrictions and transfer restrictions, as well as nomination rights into the supervisory board of the corporation, irrespective of whether being contractual or statutory, do not apply in takeover proceedings (break through). Unless contained in the articles, such restrictions and rights remain unaffected by takeover proceedings.

In the course of the implementation of the TAA, a new law on the squeeze out of minority shareholders (Gesellschafter-Ausschlussgesetz) will be enacted. A majority of shareholders holding at least 90% of the share capital of a stock corporation (or also a limited liability company that, however, cannot be listed on the stock exchange) may squeeze out the remaining shareholders at an equitable price. The right of the majority shareholder stands independent from takeover proceedings (in that respect the Austrian law exceeds the Directive). As in all cases of squeeze out of minority shareholders under Austrian law (the mechanics now used will survive in a slightly amended form) the minority shareholders are entitled to judicial review of the fairness of the compensation offered for their stake. If the squeeze-out follows takeover proceedings (a mandatory offer or a takeover offer as the two procedures for which the Takeover Act and the TAA contain mandatory pricing provisions) as a consequence of which the offeror has acquired or holds more than 90% of the share capital, the offer price is presumed to be fair.

The Takeover Act not only applies to Austrian stock corporations listed on the Vienna Stock Exchange but in certain circumstances certain parts of the Takeover Act also apply to Austrian stock corporations listed on another stock exchange as well as to foreign stock corporations listed on the Vienna stock exchange.

Author biography

Albert Birkner CHSH Cerha Hempel Spiegelfeld Hlawati Albert Birkner is a partner and member of the banking and corporate finance team at CHSH, Cerha Hempel Spiegelfeld Hlawati, one of the largest Austrian law firms. Founded in 1921, CHSH has developed a particular reputation for representing industrial and commercial enterprises. CHSH is the Austrian member firm of Lex Mundi, the world's leading association of independent law firms. The firm is proud of its strong banking and corporate finance department, which focuses on capital markets, banking, tax and M&A. CHSH is acknowledged as one of the top-tier firms in Austria. CHSH was awarded the IFLR Austrian Law Firm of the Years 2004 and 2005. Albert Birkner is the chairman of the M&A practice group of CHSH. He has been with the firm since 1995. His main areas of practice are mergers and acquisitions, in particular takeovers, private equity and corporate restructurings. Albert Birkner has represented numerous national and international clients in takeover proceedings and matters generally relating to M&A and takeover issues before the Austrian Takeover Panel. He regularly advises on venture capital transactions and company law issues, in particular transaction-related restructuring. Albert Birkner graduated from University of Vienna (Mag iur 1992, Dr iur 1995) and from University of Cambridge (LLM 1995). He worked as an academic assistant at the University of Vienna, Institute for Tax Law (1991/1992). Albert Birkner is the author of numerous publications in Austrian and international law journals in his areas of expertise. He also is an author and co-editor of a standard publication on commercial precedents under Austrian law and author of the Austrian Corporate Governance Handbook. Albert Birkner is a university lecturer.