In August 1998, the Austrian Legislature adopted for the first time a Takeover Code. Changes have been made to the draft prepared by the ministry of justice (see International Financial Law Review, June 1997, page 60).
Structure and scope of the Code
The new Takeover Code is divided in four parts:
- part one provides definitions, the scope of the Code and a list of general principles.The Code applies to public tender offers to shareholders of an Austrian stock corporation (Aktiengesellschaft) listed on an Austrian stock exchange with the exception of shares that are traded in the over-the-counter market (sonstiger Wertpapierhandel). The general principles include equal treatment of shareholders, adequate information for shareholders, a code of conduct for the board of the target company and the prevention of the creation of a false market. These principles are intended to apply to all public bids;
- part two provides voluntary public tender offers and their terms;
- part three provides provisions dealing with mandatory public tender offers; and
- part four provides procedural rules and sanctions and organizational rules on the new Takeover Commission (bernahmekommission).
Voluntary public tender offers
An offeror will only make a public tender offer if it is convinced that it has sufficient funds to completely comply with the offer. The provisions on voluntary public tender offers cover most of the rules on the requirements and the process of public tender offers and also apply to mandatory public tender offers subject to specific rules. For example:
- secrecy and announcement — in the course of an offer and before public announcement, the offeror and the board of the target company must ensure secrecy. A public announcement must be made if the target company is subject to rumours or speculation or if an untoward movement of the share price is caused either by share purchases of the offeror or by the preparation of an offer. The offeror must immediately announce the offer if its managing and supervisory boards have approved it or if circumstances require it to make a mandatory offer;
- terms of the offer — within 10 days of announcement, the offeror must file an offer document with the Takeover Commission. The offer document should include information on the offeror, the securities subject to the offer, the consideration offered for the securities and the method of evaluation, the minimum or maximum amount or percentage of securities to be purchased, shareholdings of the offeror, plans of the offeror, the deadline for the acceptance of the offer and the conditions of financing the offer. If the consideration is in the form of shares, information on these shares identical to the information required under the Capital Markets Act (Kapitalmarktgesetz) and the Stock Exchange Act (Bˆrsegesetz) for the public offer of shares must be included;
- experts — within the complete course of an offer both the offeror and the target company must be advised by an expert. Under section 9 of the Code, only an accountant, an auditing company or a credit or finance institution may, subject to certain statutory restrictions, serve as an expert. The expert is required to issue a confirmation of the terms of the offer;
- publication of the offer — the terms of the offer must be published within 12 to 15 days of filing with the Takeover Commission. The offeror must provide the managing board and the chairman of the supervisory board of the target company with the information before publication. After the publication the managing board of the target company must issue a statement on the offer;
- restrictions on frustrating action — the managing and supervisory board of a target must not engage in action capable of thwarting the offer, except if it is obliged to or measures are based on a decision of the meeting of shareholders passed after the announcement of the offer;
- change of the offer — in the course of an offer the offeror may only improve the offer. The improvement will then apply retroactively to acceptances of the offer on less favorable terms;
- restrictions on dealings — after the announcement of an offer, the offeror and any person acting in concert must not give statements on the purchase or sale of shares in the target company except for an improvement of the offer. If a statement is made on more favourable terms than the tender offer, the tender offer is deemed to be improved in accordance with the content of the statement.
Mandatory public tender offers
Any person acquiring a controlling interest in the target company is under an obligation to extend an offer to holders of any class of equity securities. A shareholder is deemed to hold a controlling interest if he or she gains, directly or indirectly, a dominant influence in the target company. This is the case if the shareholder, alone or with persons acting in concert, gains the majority of voting rights, the right to nominate the majority of board members or another entitlement to exercise dominant influence. However, the Takeover Commission must issue directives to further specify the requirements for a controlling interest, which are likely to reduce the statutory threshold for control to or close to 30%, depending on the shareholder structure.
Some transactions (as set out in section 24 of the Code), such as the donation of shares to relatives, are exempt from the mandatory offer and under certain circumstances a notification of the acquisition of a controlling shareholding of the Takeover Commission is sufficient to comply with the Code.
A key provision of the Code is the price of the mandatory public tender offer. The price must be at least the average of the market price of the security during the preceding six months and the discount implied in the offer price relative to the purchase price of the control block paid within the preceding 12 months must not exceed 15%. If securities other than voting shares are subject to the offer, the offer price must be in a reasonable relation to the compensation paid for voting shares.
The Takeover Commission
The regulatory authority responsible for the enforcement of the Code, established at the Vienna Stock Exchange, will be the Takeover Commission consisting of 12 members (the chairman and two vice chairmen, three judges, three representatives of the Austrian Chamber of Commerce and three representatives of the Austrian Workers Chamber). In addition to the supervision of regulation of public offers and imposing sanctions, the Takeover Commission will have the task of issuing general directives dealing with issues related to the application of the Code, such as the definition of controlling interest.
The principal sanction for a violation of the Code is the suspension of voting rights (non-compliance with the offer proceeding or non-compliance with the obligation to issue a mandatory tender offer). In case of a severe violation of the Code sanctions can extend to a suspension of other shareholders rights, including the right to dividends. In addition a seller is entitled to request the rescission of a share sale within three years of the announcement by the Takeover Commission of a severe violation.
The Takeover Commission may also impose administrative fines of up to Sch500,000 (US$39,500).
Peter Huber and Werner Lober