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Reform of the Takeover Act

As of May 20 2006, the Austrian Takeover Amendment Act took effect, implementing the EU Takeover Directive and substantially changing Austrian takeover law, in particular as to mandatory offer requirements. As part of the reform, a new Minority Shareholders Squeeze Out Act has been implemented, allowing a shareholder who owns directly or indirectly 90% or more of the stated capital of the target a squeeze out of the minority. The main changes to the Takeover Act (TA) include:

Scope Application: The TA applies provided the target company is a joint stock company based in Austria and its shares are listed on the Vienna Stock Exchange (VSE).Certain parts of the TA will now apply to Austrian stock companies listed on other European Exchanges and to foreign stock companies listed on the VSE.

Control change/Mandatory offer: Under the revised regime, a controlling holding of voting stock exceeding 30% will trigger the obligation to launch a mandatory offer. A controlling holding of between 26% up to and including 30% must be notified to the Takeover Commission within 20 trading days; the voting stock exceeding 26% will be suspended but there is no obligation to launch a mandatory offer. There are exceptions to the 26% voting stock suspension which include that another shareholder (group) holds at least the same percentage of voting stock, that the articles provide for a maximum voting right of 26% or there is no change in the controlling shareholder (in case of intragroup transfers or dissolution of a syndicate without control change).

The Takeover Commission may upon request also lift a voting right suspension of between 26% up to and including 30%, but not above, against submission to and subsequent compliance by the controlling shareholder with restrictions and conditions as imposed by the Takeover Commission. The Act provides for various exceptions from the mandatory offer regime, including if the 30% threshold was exceeded temporarily or, in a subsequent squeeze out, if minimum price rules of the TA are complied with. A new exception from the mandatory offer requirement applies in case of a so-called passive control change. This is a control change which could not reasonably be expected to occur and happens without a contributory action by the majority shareholder. Although no obligation to launch a mandatory offer will be triggered, the voting rights exceeding 26% will be suspended. The TA contains new rules on mandatory offer requirements in case of first time syndication or changes in an already existing shareholder syndicate. In structuring transfers or acquisitions of controlling positions including by voluntary partial offers without triggering mandatory offers, the rules of the TA on concerted action and on shareholder syndicates must be complied with.

Other changes: The TA leaves it to the target companies whether to opt in by way of a provision in the articles of the target that restrictions on the transfer of securities and certain voting rights become unenforceable once a mandatory or anticipatory mandatory offer has been made public (breakthrough). The acceptance term has been changed to between two and 10 weeks, whereby the Takeover Commission can provide for a minimum term of three weeks. The rules on admissible defence measures available to the management board have been modified. As a rule, defensive actions will need (repeat) approval by the shareholders. Practically, as to defence measures the board will largely have to confine itself to negatively commenting on the offer in the board's statement and to potentially seeking a white knight.

Christian Herbst

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