The first quarter of 2005 saw two public tender offers with substantial transaction volumes in Austria: Siemens' offer for VA Tech had a total transaction volume of €955 million and Österreichische Volksbanken-AG (ÖVAG)'s offer for Investkredit Bank AG had a total transaction volume of €750 million. In Siemens/VA Tech, a new offer condition was introduced during the offer term against a simultaneous waiver of other conditions and in ÖVAG/ Investkredit a voluntary starting offer was converted into a mandatory offer.
Waiver of offer condition
The Austrian Takeover Act allows conditions to voluntary starting offers provided that the conditions are objectively justified and their fulfilment is not at the discretion of the bidder. The public tender offer on the 2003 GE/Jenbacher takeover is the lead case on offer conditions because it introduced a number of conditions, including a material adverse change condition.
A public tender offer can be changed during the offer term provided that the change qualifies as an improvement. The Takeover Commission has approved increases of offer price and extensions of offer terms because they qualify as improvements within the meaning of the Takeover Act. In the recent Dicom/Topcall and Siemens/VA Tech offers, the Commission allowed, as a novel feature, the possibility of a unilateral waiver of certain conditions by the bidder during the offer term, deeming the waiver to be an improvement of the offer under the Takeover Act.
Moreover, in Siemens/VA Tech, the Commission allowed the bidder to introduce a new 90% acceptance condition during the offer term against a substantial increase in the offer price (by 18%) and to waive another condition of the original public tender offer. But the Commission stressed the exceptional nature of admitting this change and invoked special circumstances in allowing this generally prohibited trade-off of an improvement against a deterioration of the terms of a public tender offer (that is, waiver of a condition against introduction of a new condition).
If a bidder acquires a controlling stake in a target, it must launch a mandatory offer (no conditions are permitted; no minimum acceptance level is required). As long as it has not acquired a controlling stake, a bidder can launch a voluntary starting offer that, if completed, could result in control of the target (conditions can be introduced provided they comply with the Takeover Act). More than 50% of the target's voting stock, however, must have been tendered into a voluntary starting offer before the offer term expires; otherwise the offer fails (the 50%-plus-acceptance condition). Bidders often choose voluntary starting offers if they launch a public tender offer parallel to a yet-to-be-completed off-market acquisition of a controlling stake in the target. Closing the off-market share acquisition is usually still subject to conditions, including merger control approvals.
A public tender offer must, among other things, be launched within 40 trading days after public announcement. Because merger control clearance has often not been received within this short term (and so a controlling stake triggering a mandatory offer has not yet been acquired), the statutory legal timelines of the Takeover Act often force bidders into voluntary starting offers. Consequently, a public tender offer could fail if the 50%-plus-acceptance condition could not be satisfied.
In ÖVAG/Investkredit, the Commission for the first time approved an offer structure that allows a voluntary starting offer to be converted into a mandatory offer during the offer term. The bidder, ÖVAG, had acquired 41.5% of Investkredit from three co-shareholders by an off-market transaction subject to, among other things, merger control clearance. ÖVAG was forced to announce the contemplated takeover but was not able to receive merger control clearance (and so not able to acquire a controlling stake triggering a mandatory offer) within the short statutory term to launch a public tender offer under the Takeover Act. So ÖVAG launched a voluntary starting offer subject to the 50%-plus-acceptance condition.
The public tender offer was aimed at the balance of 54.5% in the target, and two other core-shareholders owned almost the majority of target shares and a small free float. The two other core-shareholders had announced pre-transaction that they intended to stay shareholders in the target. Given those circumstances, the Commission allowed the bidder to convert the voluntary starting offer into a mandatory offer once the acquisition of the 41.5% controlling stake off-market was closed, provided it was closed during the original offer term of the voluntary starting offer. The conversion was based on the provision of the Takeover Act allowing a change of the offer during the offer term provided that the change qualifies as an improvement per analogiam. In the pertinent case the required improvement was that, after the conversion, the public tender offer became entirely unconditional. Also, after the conversion, the 50%-plus-acceptance condition for voluntary starting offers no longer applies. Given this implication, the Commission is likely to adopt a restrictive approach to conversions in the future and to allow similar public offer conversions in special (comparable) circumstances only.