Austria: Overview On M&A and Takeovers

This article appeared in the American Lawyer of October, 2010

During the first half of 2010 the number of M&A transactions increased by approximately 20%. Due also to the headline transactions announced during the summer months namely the bwin/Partygaming cross border merger and the acquisition by INTEL Corporation of Infineon´s WLS business, the record is improving also on a volume basis.

CROSS BORDER TRANSACTIONS

Private M&A : Cross border private M&A transactions during the first half of 2010 included the EUR 430 million acquisition by One Equity Partners of Constantia Packaging, the EUR 130m acquisition of Esso/Mobil Austria by AGIP/ENI Italy from Exxon, USA, and a large scale JV STRABAG/Lafarge in the construction/cement sector. During Q 3 2010, the most significant announced cross border transaction was the USD 1.4 billion acquisition by Intel Corporation, USA of the wireless solutions business from Infineon, Germany, a multi-jurisdiction transaction with an Austrian element.

2009 headline transactions included Volkswagen/Porsche Holding (EUR 3.5 billion) Renaissance Capital/OJSC Surgutneftegaz (EUR 1.2 billion) Sandoz/EBEWE (EUR 850 million), Raiffeisen/HPH/Basic Element/STRABAG (EUR 500m) and BC Partners/Futurelab (EUR 320 million). In December 2009, BayernLB exited HAA Banking Group, which had to be nationalised by the Austrian government.

Public M&A: During July 2010, Partygaming, a London Stock Exchange listed company, announced the merger with Vienna Stock Exchange listed internet gambling company bwin, which has a market cap of EUR 1.4 billion. The transaction, which is a reverse takeover of bwin will be carried out in the form of a cross border merger and result in the delisting of bwin. In July 2010, Conwert launched a public offer to acquire Eco Business, a mid market real estate company. On 20 April 2010 CA Immo Anlagen launched a public offer to take CA Immo International, its listed subsidiary, private. The offer successfully closed in May 2010. During the first quarter 2010 One Equity Partners, the private equity arm of JPMorgan, launched launched a EUR 425 m public takeover/PIPE deal on the acquisition to acquire an up to 75 percent in Constantia Packaging, which failed due to non-fulfilment of the offer conditions. However, One Equity Partners subsequently completed the acquisition by a private transaction to be followed by a squeeze out.

Already in 2009 Lufthansa, Germany, had launched a successful public offer for Austrian Airlines AG as part of the privatisation of Austrian Airlines. The offer was subject to various conditions, including competition clearances in the EU and the US and EU state aid clearance for EUR500 million (about US$681 million) state aid granted to the privatised entity via the Austrian state holding ÖIAG. In December 2009 the remaining free float was successfully squeezed out and subsequently Austrian Airlines was de-listed. The squeeze-out compensation per share was set at EUR0.5 (about US$0.7) per share (the offer had been at EUR4.49 (about US$6.1) per share). Rebel squeeze-out shareholders, including hedge funds trying to obtain higher compensation, brought court proceedings after the squeeze-out.

Also in late 2009 Barracuda Networks Inc, USA, completed a takeover of phion AG, a mid-market information technology company. The offer had a 75% acceptance condition and was successfully completed by the bidder securing 79.75% in December 2009.

GLV(Canada)/Eimco Water Technologies GmbH took over Christ Water Technology AG, a mid-market water technology company. The offer, launched in October 2009, had a 90% acceptance condition, which was subsequently lowered to 75%. The offer succeeded with an acceptance quota of 80.5%.

FINANCIAL INSTITUTIONS

Crisis and recession driven major bank recapitalisations, distressed bank sales and nationalisations in 2009/10 included: During the first half of 2010 ÖVAG, aided by Lazard commenced a strategic partner search including unsuccessful negotiations with Austrian BAWAG/owned by US Fund Cerberus, on a merger or tie up of ÖVAG with Austria´s fifth largest bank. To improve its balance sheet ÖVAG subsequently sold its real estate subsidiary Europolis to listed CA Immo for EUR 272 million. During Q 2 2010 RZB and listed Raiffeisen International, Austria´s third largest banking group announced and intra group merger with equity issue for approximately 1.5 billion to recapitalise the banking group which is invested throughout Central and Eastern Europe. In December 2009, majority owner BayernLB had to exit HAA Bank Group, a regional Austrian bank with exposure in the Balkans and HAA Bank Group was nationalised in a EUR 5.5 billion government bailout. Also in December 2009 Constantia Private Bank was sold to an Austrian consortium as a fall out of the Immofinanz crisis and ÖVAG, the fourth largest Austrian banking group sells affiliated retail banks within the group.

2010 TAX LAW CHANGE IMPACTING CROSS BORDER M&A

On 1 July 2010 the Tax Reform Act 2010 took effect. The changes include the introduction of a formal advance tax ruling procedure and a step up opportunity on certain conversions of a corporation into a partnership but eliminating at the same time a loophole in the international participation exemption. The advance tax ruling procedure will establish a reliable tax planning tool in connection with (cross border) corporate and tax reorganisations, group taxation and transfer pricing. The modified rules on cross border merger taxation and stricter rules on multi-parent tax groups should not have a substantial impact, since alternative tax planning strategies can be applied.

OUTLOOK

Despite M&A markets remaining volatile in particular for large volume transactions, mid size local and cross border transactions relating to the Austrian and CEE/CIS markets are expected to remain relatively stable. Transactions driven by the consolidation in the real estate, automotive, IT, pharmaceuticals and the financial sectors are set to continue. Austria´s overbanked sector is currently undergoing a consolidation wave on the national level involving the Raiffeisen Group, BAWAG, Volksbanken Group and the recently nationalised HAA Bank Group.

The hope, if not expectation, is that the economy may see a further recovery and thus further increased transactional and takeover activity during the second half 2010 and in particular during 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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