The buyer's choice in Austrian takeovers

Author: | Published: 24 May 2005
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The acquisition of a controlling interest in an Austrian publicly listed stock corporation (target) triggers the duty of the acquirer to make a mandatory public takeover offer to all shareholders of the target. Depending on the structure of the acquisition of the controlling interest the Austrian Takeover Act contains several alternatives for a public takeover offer. Past practice has shown that most offers after 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). The same regulations on pricing, and the obligation for the acquirer to offer primarily cash compensation, apply to both mandatory offers and anticipatory offers. As a difference, anticipatory offers unlike mandatory offers can be made under conditions other than provided for by law such as merger control clearance, in particular under the condition of a certain acceptance level by the shareholders of the target. These conditions, however, have to be fulfilled within a specific timeframe set by the Austrian Takeover Commission in each individual case. Only offers that cannot confer a controlling interest on the acquirer qualify as voluntary public takeover offers in the meaning of the Takeover Act (voluntary offers).

Mandatory offers

Controlling interest
Under 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 Act for all securities of the target and has to notify the offer to the Takeover Commission. A controlling interest is acquired if the acquirer

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

A controlling interest will 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 or more in the target. 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 as long as conditions precedent contained in the acquisition agreement have not been fulfilled. Therefore, it is not signing but 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 of a certain acceptance level of a mandatory offer by the shareholders of the target cannot be included whereas merger control clearance may form a valid condition.

Consideration
The offer must contain a cash offer. Only as an alternative can the acquirer propose an exchange for other securities (paper).

Offer price
The price of a mandatory offer:

  1. 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
  2. must not be more than 15% below the highest consideration for the shares in the target paid or promised by the acquirer within the 12 months preceding 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 Act does not only refer 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 on the basis of the principles of ordinary valuation. In that respect, the acquirer has to disclose in the offer document all matters relevant to the determination of the appropriateness of the price. A fairness opinion by a bank or an accounting firm has to support the valuation.

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

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

General movements the stock market do not fall within the meaning 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 fundamental key performance figures of the target or its line of business may qualify as a significant change.

Timeframe
The mandatory offer has to be made within 20 trading days after the acquisition of the controlling interest in the target. The acceptance period has to range between 20 to 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. Public takeover offers therefore qualify as anticipatory offers if the acquirer at the time making the anticipatory offer does not hold a controlling interest in the target but due to a full acceptance of the offer could result in acquiring a controlling interest. Thus, the instrument of the anticipatory offer opens the possibility for the acquirer of the target to structure the takeover according to its aims, for example the restructuring, a de-listing or general business development of the target.

Conditions, squeeze-out and de-listing
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 the taking private of the target after the completion of the takeover. Austrian law does not provide for specific rules for a squeeze-out of minority shareholders. Therefore, the squeeze-out has to be structured as a reorganization 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 the de-listing of publicly listed companies. The Vienna Stock Exchange may only de-list securities, if a minimum free float required by law is not longer represented. The minimum free float required by law is at least 10,000 non-par value shares or shares in the nominal amount of €725.000. Therefore, a de-listing can practically 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 not longer represented.

Past practice has shown that 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 be sure to reach such an acceptance level.

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

Consideration
The offer must contain a cash offer. Only as an alternative may the acquirer 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 Takeover Commission have to be fulfilled within the acceptance period. Only in cases where the nature of the condition (in particular the condition of merger control clearance) justifies an extention of that period, the Commission may extend the period for fulfilment of that condition beyond the expiry of the acceptance period. In view of the general principles of the Takeover Act the Commission holds the opinion that such a period should not exceed 90 trading days after publication of the offer. The exact period has to be negotiated with the Commission. 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 Commission 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, however, not 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 a voluntary offer would be qualified as a two-tier offer and be held illegal by the Commission. The obligation of the acquirer to issue a mandatory offer would consequently be held by the Commission.

Summary

The acquisition of a controlling interest in a publicly listed company in Austria leads to the obligation of the acquirer to make a mandatory offer to all shareholders of the target. 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 which once completed could result in the acquirer obtaining a controlling interest in the target. Anticipatory mandatory 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 conditions in the offer is to facilitate the taking private of the target. A squeeze-out of minority shareholders and a de-listing of the target must be structured as a reorganization of the target requiring a 90% majority of all votes in the shareholders meeting. The conditions have to be fulfilled within a period not exceeding 90 trading days after publication of the offer.