128	4  Corporate Acquisitions in Germany

of the target company must pass their statement on to the relevant works council without delay. If no works council exists, then the statement must be provided to the employees directly.24

4.5.4  Consideration: Cash Offers and Exchange Offers

(Share for Share)

4.5.4.1  Types of Consideration

Under the Public Takeover Act, the bidder is, in principle, free to choose whether it will offer cash or shares as consideration to the stockholders of the target company. In the case of shares, they must be traded in a liquid market and admitted to trading on an organized market within the European Economic Area.25 A cash offer is required, however, if, within the six month period prior to publication of the decision to launch a takeover bid, or the publication of the attainment of control, the bidder has acquired, in return for cash payment, at least 5% of the shares in the target or shares which represent at least 5% of the voting rights of the target.26 The vast majority of German public offers since 2002 have offered cash as consideration due to the fact that share-for-share offers are rather complicated under German law.

4.5.4.2  Determination of the Offer Price/Consideration

As already mentioned, the consideration offered must be adequate.27 When determining the amount of the consideration, the following two issues must be kept in mind: the average weighted stock exchange price of the target’s shares during the three months leading up to the announcement of the offer, and prior acquisitions of shares in the target company by the bidder within the six months before publication of the offer document. The Public Takeover Act and the Public Takeover Act Offer Ordinance also prescribe how to determine the price, taking the volatility of the market (if possible pre-offer acquisitions by the bidder) into consideration. The rules in the PublicTakeoverAct and the PublicTakeoverAct Offer Ordinance apply to both mandatory and voluntary offers (however, only if they are targeted at the acquisition of control, so-called ‘takeover bids’).

4.5.5  Duty of Neutrality and Defence Measures

The Public TakeoverAct establishes a general duty of neutrality on the part of both the management board and the supervisory board of the target company during the

24  See Sec. 27 para. 3 Public TakeoverAct. 25  See Sec. 31 para. 2 Public TakeoverAct. 26  See Sec. 31 para. 3 Public TakeoverAct. 27  See Sec. 31 para. 1 Public TakeoverAct.

4.5  Introduction to Public Takeovers	129

takeover bid process. However, certain defence measures are permitted. After the amendments to the Public Takeover Act by Germany’s implementation of the EU Takeover Directive, German law now provides for two different sets of defence measures:

On the one hand, the existing rules on frustrating a bid remain in place if the target company does not opt for the EU regulation on frustrating the bid. Under the relevant German takeover rules, as a general principle, the management board and the supervisory board of the target company are required to act in the best interests of the target company, and, after a decision to launch a bid has been published, the target company’s management board may not take actions which could prevent the success of the offer.28 However, this prohibition does not apply to actions which a prudent manager (not being subject to a public bid) would have taken. Nor does it apply to any search for a competing bid (looking for the ‘white knight’). Furthermore, this prohibition does not apply to any actions approved by the supervisory board of the target or to any actions subject to stockholders’approval.29 The stockholders’meeting of the target may authorize the management board to frustrate the offer.30 However, such authority will expire no later than eighteen months after the date of the stockholders’resolution.

On the other hand, if the target company’s articles of association specify that the above-mentioned rules do not apply, the target company will be considered to have automatically opted in to the following rules implementing Art. 9 of the EU Takeover Directive: Under these rules, after a decision to launch an offer has been published, the management board and the supervisory board of the target company are prohibited from taking any action which could prevent the success of the offer, with the exception of actions approved by the stockholders’ meeting after the decision to launch an offer has been published, actions within the normal business operations of the target company, other actions if they are intended to implement measures commenced before the publication of the decision to launch a bid and the search for an alternative bid.

Since these rules are more restrictive than the rules of German national law, German companies have so far been reluctant to rely on the EU rules in actions that might prevent a successful bid. To date, no major German-listed company has amended its articles to this effect.

4.5.6  Role of BaFin

Adherence to the rules of the Public Takeover Act is supervised by the Federal Financial Supervisory Authority BaFin. In the event that the bidder or any other

28  See Sec. 33 para. 1 sentence 1 Public TakeoverAct. 29  See Sec. 33 para. 1 sentence 2 Public TakeoverAct. 30  See Sec. 33 para. 2 Public TakeoverAct.