1. Please give a brief overview of the public M&A market in your jurisdiction. (Has it been active? What were the big deals over the past year?)
Since the Takeover Act 1999 (Takeover Act) came into force there have been 30 public offers, 13 mandatory and 17 voluntary (six of these were anticipated mandatory offers) (see Question 16).
In 2004, only four public offers were made (down from seven in 2003), of which one is mandatory (Mautner Markhof) and three are voluntary (bauMax, Topcall and VA Tech). Topcall and VA Tech are anticipated mandatory offers. The values of these offers are relatively small (between EUR4 million (about US$5.2 million) and EUR47 million (about US$61.3 million), except for the offer by Siemens for VA Tech, which exceeds EUR0.9 billion (about US$1.2 billion). When completed, this will be the second largest public offer ever in Austria.
In December 2004, ÖVAG announced the takeover of the speciality bank Investkredit, with a value exceeding EUR700 million (about US$912.5 million). This is likely to be completed in the first half of 2005.
The 2004 corporate tax reform, in effect from 1 January 2005, reduces corporate income tax from 34% to 25% and allows the tax efficient structuring of share acquisitions. This may increase the attraction of Austrian listed companies as targets and may lead to more takeover activity in 2005.
On 24 February 2005, the Takeover Commission (Übernahmekommission) (see box, The regulatory authority) issued a ruling on "control" relating to Böhler-Uddeholm AG (BU-AG). The TC held that a shareholder consortium holding about 26% of BU-AG had "passively" acquired control and, as a result, and in the absence of a required notification to the Takeover Commission on the change of control, had lost its voting rights in BU-AG. However, following the ruling, the consortium will regain all its shareholder rights and not be obliged to make a mandatory offer, provided it does not:
- Increase its shareholding until December 2006.
- Appoint the chairman of or be represented on the supervisory board of BU-AG by more than 50% of the representatives (including the chairman) in future.
2. What are the main means of obtaining control of a public company? (For example, public offer, legal merger, scheme of arrangement and so on.)
A public offer, whether voluntary, mandatory or anticipated mandatory (see Question 16), is the most direct and common way to obtain control of a public company.
A recommended offer can be carried out by a scheme of arrangement, which requires certain steps such as a demerger, or a merger (or both). These require the support of certain shareholder resolutions (see Question 17). A scheme of arrangement can involve a public bid or a mandatory public bid, particularly if it would otherwise deprive shareholders of opportunities to sell their shares under the Takeover Act.
In 2000, the Takeover Commission issued a landmark ruling on schemes of arrangement in the HypoVereinsbank and Bank Austria merger (Takeover Commission 12.09.2000 GZ 2000/1/4-171). The Takeover Commission applied a new controlling shareholder test, holding that the Takeover Act did not apply if the shareholders of the listed target, on completion of the transaction, did not confront the new controlling shareholder. While it has narrowed the application of the Takeover Act to schemes of arrangement, the Takeover Commission also held that it will consider applying the Takeover Act if the equal treatment of target shareholders is an issue.
3. Are hostile bids permitted? If so, are they common?
Hostile bids are permitted. However, they are not as common as in some other jurisdictions due to the:
- Two-tier board structure of Austrian stock corporations (Aktiengesellschaft (AG)) (that is, a stock corporation must have a management board (Vorstand) and a supervisory board (Aufsichtsrat)).
- Limited number of publicly held shares (free floats).
- Ability of companies to resist hostile bids (see Question 24).
4. How are public takeovers and mergers regulated and by
The Takeover Act and Regulations 1 and 2 of the Takeover Commission
These apply to public bids if either:
- The target is a stock corporation based in Austria.
- The target's shares are listed on the Vienna Stock Exchange (Stock Exchange) for official trading (amtlicher Handel) or regulated unofficial trading (geregelter Freiverkehr). If the company is also listed on foreign exchanges, only its shares listed on the Stock Exchange are subject to the Takeover Act.
Regulations 1 and 2 of the Takeover Commission were issued by the Takeover Commission, which supervises public bids. Regulation 1 (issued on 9 March 1999) defines key concepts such as "controlling shareholdings" (see Question 16), and specific action parameters for banks involved in the takeover transaction. Regulation 2 (issued on 21 February 2000) imposes certain
limits on stake-building (see Question 8).
The civil law penalties (section 34, Takeover Act) for non-compliance (for example, making a share acquisition without complying with the Takeover Act, or failing to make a mandatory bid or the required notifications) include suspending:
- The voting rights of shares held in the target by a non-compliant bidder.
- In cases of serious violation, additional shareholder rights, including financial rights such as the right to receive dividends from the target.
Within six months of publication of a Takeover Commission suspension order, sellers to a non-compliant bidder can rescind their contracts and require the return of their shares, in consideration for either:
- The sale price they received.
- The cash value of the shares at either the date the contract is rescinded or the date the shares are returned.
Other legislation relevant to public bids includes:
- Company law provisions, which must be observed, particularly relating to:
- voting requirements in relation to the supervisory board and shareholders' meetings;
- the equal treatment of shareholders (section 47a, Stock Corporation Act); and
- directors' statutory duties (sections 70 and 84, Stock Corporation Act).
- The Stock Exchange Act 1989 (Börsegesetz). Listed companies must observe this, particularly on insider information and disclosure (see Question 8).
- Merger control provisions. The Cartel Act 1988 (Kartellgesetz) applies to mergers not subject to EC merger control (see Question 26).
- Regulatory control in certain sectors. Acquisitions in the banking, insurance and gambling industries must pass "fit and proper" tests. These apply to large shareholders with certain shareholdings, such as 20%, 33% and 50% for banks. Changes of target ownership will therefore usually require advance notification to the relevant regulatory authority, which can prohibit the takeover.
5. What due diligence enquiries will a bidder generally make before making a public bid? (What information will be in the public domain?)
For a recommended bid, the bidder carries out due diligence using publicly available information and then asks the target for further information before proceeding with the bid. Due diligence can be extensive in takeovers of private companies, but is usually more limited when the target is listed. This is because the target's management board must carefully balance the need to disclose information to the bidder against more extensive legal and contractual secrecy obligations, and its fiduciary duties to its shareholders. If there are competing bidders, the target's boards are subject to a neutrality obligation (see Question 24), requiring them to provide the same information to all bidders or potential bidders acting in good faith.
For a hostile bid, the bidder is limited to obtaining publicly available information, as the target does not have to disclose unpublished information to the bidder.
Certain information is recorded in a computerised public company register (Firmenbuch), maintained by the district courts of first instance (Landesgerichte) with substantive jurisdiction for commercial matters. Company information can be inspected at the commercial court where the company is registered, particularly:
- Company documents, for example the articles of association (articles), regulations of shareholders' meetings and documents relating to reorganisations for mergers or demergers.
- Financial information, for example annual accounts and auditors' reports.
Information on company assets including real estate, patents and trade marks can also be obtained from the relevant public registers.
It is difficult to access shareholder information on a stock corporation, as company law allows nominee shareholdings and does not require them to be disclosed, other than in limited circumstances such as during litigation.
In addition, listed companies must:
- Publish a prospectus (if it is newly listed), which can be a source of useful information.
- Send shareholders a copy of the annual report, and publish significant changes in shareholdings or shareholder structure (Stock Exchange Act).
- Keep the Stock Exchange informed of major developments, including significant acquisitions and disposals, and material trading developments (Stock Exchange Act).
- Comply with the disclosure requirements of a foreign stock exchange, if it is listed on it.
- Submit information or documents published or provided to
- shareholders to the Austrian Securities Supervisory Authority (Bundeswertpapieraufsicht) (ASSA).
6. Are there any rules as to maintaining secrecy until the bid is made?
Secrecy must be maintained until a bid is announced, to avoid the creation of a false market, unfair disclosure of its bid (or plans which may cause a mandatory bid) and the abuse of insider information (section 5, Takeover Act). It must notify all persons involved in the bid of their secrecy obligations and the prohibition of the abuse of insider information.
If the bidder has negotiated with the target before making a bid, the target's management board (and, if involved, the target's supervisory board) must also maintain secrecy before the bid is announced.
If secrecy is not maintained before the bid is announced, the bid is prohibited and the bidder must notify the Takeover Commission of sales and purchases of shares and share options in the target by the bidder (alone or in concert).
7. Is it common to obtain a memorandum of understanding or
undertaking from key shareholders to sell their shares? If so,
are there any disclosure requirements or other restrictions on
the nature or terms of the agreement?
Before a public offer, there are no restrictions on a bidder from seeking irrevocable undertakings from the target's shareholders to accept its offer for their shares. However, shareholders may not want to give these in case a competing higher bid is made during a subsequent public offer.
A shareholder can revoke his acceptance of a public offer, if a higher competing bid is made (section 17, Takeover Act).
8. If the bidder decides to build a stake in the target before announcing the bid, what disclosure requirements, restrictions or timetables apply? Are there any circumstances in which shareholdings of associates could be aggregated for these purposes?
To increase its chances of success, a bidder can take an initial stake in the target. However, the following factors must be considered.
Regulations 1 and 2
Regulation 1's definitions of controlling shareholding must be complied with (see Question 16).
Regulation 2 requires controlling shareholders, who do not yet have a majority of voting rights, to make a mandatory bid if they acquire 2% or more of voting shares within 12 months (known as "creeping").
A key question is whether building a stake will breach the insider dealing rules. A bidder must comply with:
- The general rules on insider dealing (Stock Exchange Act). If and when due diligence enquiries with the target are started, the bidder is considered an insider, and if it purchases target shares in the market it will be committing an offence under the insider dealing rules.
- Compliance rules in the Banking Act (BGBl 1993/532, as amended).
- The notification and disclosure requirements of the Stock Exchange, the target and the ASSA.
Generally, shareholder approval is not required to transfer shares in listed companies, unless the articles state otherwise.
If the bidder acquires, directly or indirectly, listed target shares so that its voting rights reach, exceed or fall below 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75% or 90%, the shareholding must be notified to the ASSA, the Stock Exchange and the target (section 91, Stock Exchange Act). The target's articles may provide for other percentages triggering disclosure.
Acting in concert
The bidder's obligations extend to all parties acting in concert with it in relation to acquiring voting shares or the exercise of voting rights (see Question 16).
9. If the board of the target company recommends a bid, is it common to have a merger agreement between the bidder and target? If so, what are the main issues that are likely to be covered in the agreement?
It is not common for the bidder and target to enter into a merger agreement (even in recommended bids). This is because restructuring a stock corporation, to implement certain takeovers, requires the support of shareholder resolutions (see Question 17).
10. Is it common on a recommended bid for the target company to agree a break fee if the bid is not successful? If so, please explain the circumstances in which the fee is likely to be payable and any restrictions on the size of the payment.
Break fees are not common because:
- The payment of a break fee must be disclosed.
- The target could be giving unlawful financial assistance for the purchase of shares in itself. If a break fee is paid, the target pays an agreed amount to the bidder if specified events delay or prevent a successful public bid.
11. Is committed funding required before announcing an offer?
The bidder must appoint an independent expert to certify that the bidder can finance the intended public offer. The expert's certification and report must be submitted to the Takeover Commission before it decides whether the offer can proceed (see Question 13).
Announcing and Making the Offer
12. How must the bid be made? Are there any official requirements (for example, notice to the target board, press announcement, notification to the regulator, filing the offer document with the regulator and so on)?
Announcement of the intention to make a bid
The bidder must immediately inform the public and the target of its intention to make a bid if (section 5(3), Takeover Act):
- Its management and supervisory boards have passed a resolution to make a bid.
- Circumstances arise which trigger the obligation to make a mandatory bid (see Question 16).
- At an earlier stage, there is both:
- significant shift in the target's share price or there is speculation in the market of a potential offer by the bidder;
- reasonable grounds for concluding that either of these factors result from a bid being prepared, the bidder's intention to make a bid or the bidder purchasing shares.
The target faces similar obligations if it is given confidential information in a recommended bid (section 6(2), Takeover Act).
The announcement must be made either:
- By publication in a daily newspaper or information leaflet.
- Through an accessible electronic medium used throughout Austria (section 11(1), Takeover Act and section 78, Stock Exchange Act).
The target must in turn notify its works council (section 11(3), Takeover Act).
At the bidder's request, the Takeover Commission can suspend the requirement to make an announcement for a short period if this will help prevent damage to the bidder (or parties acting in concert with it) (section 5(4), Takeover Act).
No details of the intended offer need to be published with the announcement.
Restrictions on further dealings
When an intention to make a bid has been announced, the bidder (and parties acting in concert with it):
- Cannot sell target shares.
- Must improve the conditions of the entire public offer if they acquire target shares on more favourable terms outside the public offer (section 16, Takeover Act).
- Must notify the Takeover Commission of any purchase and sale of target shares and share options. This duty also applies to the target's board (including group companies as well as advisers and shareholders).
13. Please set out brief details of the offer timetable. (Consider both recommended and hostile bids.) Is the timetable altered if there is a competing bid?
Preparing and auditing the bid
After the offer has been announced, the bidder (and the target in a recommended offer) starts work on the offer document, which must contain the bidder's formal contractual offer to the target's shareholders.
The bidder must also appoint a qualified independent expert (an auditor or bank) (section 9, Takeover Act) to:
- Report on the offer document, confirming it is complete and complies with the law.
- Certify that the bidder can finance the offer.
The expert's report is filed with the Takeover Commission and the certification must be included in the offer document.
Notifying the bid
The bidder must notify its bid, together with the offer document, to the Takeover Commission within ten working days of announcing its intention to make a bid. The Takeover Commission can extend this to up to 40 working days at the bidder's request.
If notification is not made within 40 working days after the intention to bid is announced, the bidder cannot make another bid for the target for one year, starting 40 days from the announcement.
A foreign bidder must have its notification submitted by a bank, accountant or lawyer domiciled in Austria.
Publishing the offer document
On receipt of the offer document, the Takeover Commission has up to 15 days to do one of the following:
- Prohibit the offer if the legal requirements have not been met and require new bid documents.
- Request additional information or amendments to the documents.
- Allow this time period to pass. If this happens, the bidder sends a copy of the offer document to the target and then publishes it.
The bidder must publish the offer document no earlier than 12 to 15 days after notifying the Takeover Commission, unless the Takeover Commission has prohibited publication of the bid. A copy of the offer document must be sent to the target before it is published.
The Takeover Commission can postpone publication of the offer document or, following agreement with the bidder, shorten the period in which it must be published.
Publishing the offer document triggers the offer period. This must be set at a minimum of 20 days and a maximum of 50 days (section 19, Takeover Act), but can be extended by the Takeover Commission in certain circumstances (see below). The period for accepting the bid cannot expire less than 15 working days after the target's response is published.
The target's management board must:
- With supervisory board approval, appoint an independent expert, who can be an auditor or a bank, to report on the terms of the bid, particularly the consideration offered (section 13, Takeover Act).
- Make a recommendation to its shareholders on whether to accept the offer. If it is unable to do this, it must list the advantages and disadvantages of the bid and send this to its shareholders (section 14, Takeover Act).
Following this, the target's management board must:
- Notify its response to the bid to the Takeover Commission (section 14(3), Takeover Act), including the expert's report, within ten working days from publication of the offer document.
- Immediately publish its response and the expert's report following their notification to the Takeover Commission.
- Send details of the bid, its response and the expert's report to its works council.
If a competing bid is made during the offer period, the target's shareholders can rescind their acceptance of the first bid, regardless of whether they accept the second bid (section 15(2), Takeover Act). A competing bid automatically extends the offer period until at least the end of the competing bid period. The Takeover Commission can also extend the offer period if it considers it reasonable to do so.
During the offer period the bidder can improve its offer (in relation to consideration and other conditions) provided it is in the interests of the target's shareholders.
Regulation 1 defines the terms for making improved and counter offers.
Changes to the timetable
The bidder must publish the outcome of the bid immediately after the offer period expires. The offer period can be extended by ten working days if the bid is mandatory (see Question 16), or if it is conditional on acquiring a specified number of shares (see Question 14).
If the bid is subject to merger control, the need to apply to the competition authorities for clearance will delay the closing of the bid (see Question 26). The bidder's application will not usually be submitted before the end of the acceptance period. To obtain merger control and other government approvals, the Takeover Commission (GenRuling, Takeover Commission GZ 2001/V/1) allows the bidder, within limits, to control the timing and type of a public bid. For example, the bidder can pre-empt a subsequent mandatory offer by making an anticipated mandatory offer (section 22(11), Takeover Act) (see Question 16).
The period to obtain regulatory approvals can be extended on application by the bidder to the Takeover Commission beyond the maximum offer period of 50 Stock Exchange days by about 40 Stock Exchange days, making a total period for government approvals to be obtained of about 90 Stock Exchange days. In exceptional cases, this period can be longer. For example, in the Siemens AG offer for VA Tech, this period was 140 days.
Recommended and hostile bids
Generally, the same procedures apply to voluntary, mandatory and anticipated mandatory offers, regardless of whether they are hostile or recommended. The main difference is that in a recommended bid the target's shareholders and board are involved at an early stage and often make a joint announcement with the bidder. There is no additional prescribed structure for hostile bids, although the Takeover Commission usually imposes tight controls and intervenes more.
14. What conditions are usually attached to a takeover offer (in particular, is there a regulatory requirement that a certain percentage of target shares must be tendered)? Can an offer be made subject to the satisfaction of pre-conditions (and, if so, are there any restrictions on the content of these preconditions)?
Voluntary offers including anticipated mandatory offers can be subject to conditions and rights of withdrawal, provided they are objectively justified (section 8 and section 7(7), Takeover Act). Fulfilment of the condition and withdrawal cannot be at the bidder's discretion. Conditions and rights of withdrawal are part of the offer document (section 7(7), Takeover Act), which must be approved by the Takeover Commission (see Question 13). The Takeover Commission interprets conditions and withdrawal rights narrowly.
Allowed conditions include:
- Obtaining government or other regulatory authority approvals, including merger control (see Question 26).
- Acceptances reaching minimum or maximum shareholding levels.
- Events affecting the target company not occurring, including:
- changes caused by defence measures, including changes to the capital or capital structure of the target (see Question 24); and
- material adverse change events.
- Approval of the transaction by a shareholders' meeting of the bidder.
- Competing bids not occurring.
The Takeover Commission allows the bidder to include a condition defining a material adverse change in the target's economic condition if the following are met (GE/Jenbacher 2003):
- The material adverse change must be clearly defined in the moffer document, occur during the (extended) offer period and refer to objective, measurable criteria (for example, financial data such as accounts).
- The clause must not involve the bidder's discretion.
- The bidder and the target must agree procedures for the following before the bid is made:
- the supply and determination of financial data;
- a review of the financial data; and
- notification of the review results to the Takeover Commission.
- An independent third party (for example, the company's auditor) must determine whether the criteria for the material adverse change event have been met.
Whether such conditions have been met must be decided within the offer period.
In 2004, the Takeover Commission again had to deal with conditions in anticipated mandatory offers. Following the 2003 GE/Jenbacher offer, both the Siemens/VA Tech and the Dicom/Topcal offers contained several conditions. As a novel feature, the Takeover Commission, under its new chairman Peter Doralt, allowed for a unilateral waiver of certain conditions by the bidder during the offer period, deeming such waiver as an improvement of the offer under the Takeover Act.
In Siemens/VA Tech, the Takeover Commission even allowed the bidder to introduce a new 90% acceptance condition during the offer period against a substantial increase in the offer price (18%), and the waiver by the bidder of a condition of the original offer (which required the maximum voting right restriction under the articles to be lifted during the offer period).
However, in its related ruling, the Takeover Commission stressed the exceptional nature of allowing this change of offer. It also invoked special circumstances in allowing such a (generally prohibited) trade-off, of an improvement against a deterioration of the terms of the offer (that is, waiving one condition against
introducing a new one).
Mandatory offers must not include conditions, unless they are required by law. Allowed conditions include:
- Regulatory approvals, particularly merger control (section 42a, Cartel Act and Article 7, Council Regulation (EC) No. 139/2004 on the Control of concentrations between undertakings).
- Other government approvals, for example under banking and insurance regulations.
- Approval of the bid by the bidder's shareholders, if required by the bidder's articles or the law where it is incorporated (this is likely to be allowed by the Takeover Commission as a condition).
Anticipated mandatory offers may be conditional, particularly on acceptances reaching or exceeding certain key shareholdings, for example 75% and 90% (see Question 17).
15. What documents will target shareholders receive on a recommended and hostile bid? (Briefly describe the purpose, main terms and responsibility for each document.)
On a hostile bid, the bidder and the target typically issue a series of documents, including newspaper adverts, to persuade shareholders and counter each other's arguments. On a recommended bid, the main document the target's shareholders receive is the offer document.
The offer document
This is the formal legal document making the offer, and contains detailed information to allow the target's shareholders to decide whether they should sell their shares. It must include an expert's report (see Question 13) and contain information about (section 7, Takeover Act):
- The terms and conditions of the bid.
- The bidder.
- The securities the bidder is making an offer for.
- The consideration and the valuation method used.
- The conduct of the bid, particularly relating to the agents authorised to receive acceptances and pay the consideration.
- Maximum and minimum percentages of shares which the bidder undertakes to acquire (if applicable).
- The bidder's existing shareholdings in the target.
- Conditions for withdrawing the bid.
- The bidder's intentions in relation to the target's business and employees.
- The period for accepting the bid and paying the consideration.
- The financing of the bid.
As the offer document must contain information on the bidder's intentions, it will normally contain a responsibility statement from the bidder's directors.
The target's board must issue its response to the bid and an auditor's report (see Question 13). If it is opposing the bid, its response will be the equivalent of a defence document in other jurisdictions.
16. Is there a requirement to make a mandatory offer? If so, when does it arise?
A mandatory offer to the target's remaining shareholders is triggered if a person or legal entity acquires, by any means, a controlling shareholding in the target (section 22(1), Takeover Act). A controlling shareholding enables the bidder (alone or in concert (see below, Acting in concert)) to exercise a dominant influence on the target. A dominant influence is determined by:
- The number of voting shares acquired.
- The number of voting shares in public hands.
- The ability to appoint and remove directors.
- The voting pattern in previous shareholder meetings.
- The articles.
Control can be acquired directly, indirectly or contractually, for example by a shareholder agreement.
A rebuttable presumption of a controlling shareholding also arises in the following situation:
- Acquiring 30% of the voting shares (Regulation 1).
- Holding at least 20% but less than 50% of the voting rights. For a shareholding of at least 30% but less than 50%, the presumption can be rebutted by showing that another shareholder, alone or acting in concert, holds the same number or more of voting rights.
- Holding at least 20% but less than 30%, if the shareholder has cast a simple majority of the votes cast in the last three annual shareholder meetings of the target. This can be rebutted by showing that either:
- another shareholder holds, or shareholders acting in concert hold, at least 10% of the voting shares;
- at least three other shareholders, alone or acting in concert, each hold at least 5% of the voting shares.
A mandatory bid is not usually triggered by just purchasing shares on the Stock Exchange. It is more likely to be triggered by acquiring a large number of shares from a key shareholder outside the Stock Exchange. Therefore, bidders will usually carry out stake-building in the Stock Exchange by acquiring smaller numbers of shares.
Within three months of publishing the result of the bid, one or more shareholders holding at least 1% of the issued share capital or a shareholding of EUR70,000 (about US$91,000) can ask the Takeover Commission to review the price offered in a mandatory bid. The Takeover Commission determines whether the bid complies with the Takeover Act's minimum price requirements (see Question 19).
Anticipated mandatory offer
These are voluntary public offers that, if successful, may lead to acquiring control of a company listed on the Stock Exchange (section 22(11), Takeover Act). They have the following requirements:
- The bidder must not have a controlling interest when making the offer.
- The bidder must acquire more than 50% of the voting rights in the target when the bid is complete.
Acting in concert
A person or legal entity acting in concert with the bidder is defined as (Regulation 1):
- A legal entity in which the bidder or an associated enterprise holds a controlling interest.
- Another legal entity associated with the bidder, as defined by the Commercial Code 1897 (Handelsgesetzbuch).
- A legal entity with which the bidder has agreed to exercise voting rights jointly in relation to electing the supervisory board's directors, or other material issues.
- Directors of the management or supervisory board of the bidder, or the other legal entities specified above.
- Advisers to the bidder or the other legal entities specified above involved in the takeover or any circumstance triggering a mandatory bid.
If a mandatory bid relates to securities other than ordinary shares (preference shares or participation rights) and the bidder (alone or in concert) has acquired ordinary shares in the 12 months before the bid is made, the price offered for those securities must be proportionate to the consideration offered for the ordinary shares. Proportionality depends particularly on the specific rights involved.
17. Please state key shareholding thresholds. At what point is effective control deemed to occur?
Key shareholding thresholds are:
- 25% plus one share of voting shares can block actions requiring 75% shareholder approval (for example, amending the articles, capital restructuring measures and excluding share pre-emption rights).
- One-third of votes cast can appoint a representative to the supervisory board (section 87(1), Stock Corporation Act).
- 50% plus one share of voting shares usually gives effective control (except for authorising capital restructuring measures).
- 75% of voting shares gives nearly full control (including authorising mergers).
- 90% of voting shares gives full control, including authorizing disproportionate demergers and squeeze-out measures (see Question 21).
Low attendance at shareholders' meetings will usually allow core shareholders to achieve effective control, even though their shareholdings may be below 50%.
Control can also be achieved or retained through one of the following:
- Non-voting preference shares (up to one-third of the total share capital).
- Limiting the number of shares held by the free float.
- Voting syndicates, which are usually set up by shareholder agreements.
18. What form of consideration is commonly offered on a public takeover?
In a voluntary bid, the bidder can offer cash or securities, usually in companies owned or controlled by the bidder (or a mixture of cash and securities, but this is rare).
In a mandatory bid or an anticipated mandatory offer, the bidder must offer all the consideration in cash, payable no later than ten working days after the offer becomes unconditionally binding. The bidder can only offer securities (exchange offer) in addition to a cash offer. If the bidder offers securities as consideration:
- It is up to the shareholder whether to accept securities instead of cash.
- The securities must have at least the same value as the cash offered.
- The bidder must give the target's shareholders enough information (similar to that in an offer document) to enable them to form an opinion of the securities and the bidder.
The final choice of consideration may depend on whether the bid is voluntary or mandatory (including anticipatory mandatory), since exchange offers can only be made on mandatory bids in addition to a cash offer.
Cash offers tend to be accepted more than exchange offers, but require a well-financed bidder.
19. Are there any regulations that provide for a minimum level of consideration?
In a mandatory offer, the consideration must be at least both:
- The average quoted share price in the six months before the controlling holding is acquired.
- The highest price paid for target shares by the bidder in the 12 months before the controlling holding is acquired (less a discount of no more than 15%).
This discount assists a mandatory offer because the usual premium paid for a block of shares does not have to be paid. However, it might reduce the attraction of the target's shares. The target can therefore reduce or exclude the discount in its articles (opting in).
There are no minimum consideration or cash requirements on voluntary bids.
20. Are there any restrictions on the form of consideration that a foreign bidder can offer to shareholders in your jurisdiction? Please state any restrictions/filing requirements.
There are no specific restrictions on the form of consideration that a foreign bidder can offer to shareholders.
21. Can a bidder compulsorily purchase the shares of outstanding minority shareholders?
A majority shareholder with 90% of the issued share capital can exclude (squeeze out) minority shareholders either in a merging reconstruction (transformation) (section 2, Transformation Act (Umwandlungsgesetz)) or a cash box demerger. Both require a shareholder resolution passed by a majority of 90% of the issued share capital and minority shareholders must be adequately compensated.
The merging transformation provides slightly more protection for minority shareholders. For example, a shareholder can apply for judicial review of the compensation, even if he did not object to the transformation at the shareholders' meeting. However, it is faster than a cash box demerger, since the minority shareholders receive cash compensation during the transformation and there are fewer steps, which could make it more attractive to the bidder.
The cash box demerger is more favourable to the bidder if the remaining minority shareholders are hostile. However it takes longer, requiring a full liquidation of the cash box company to complete and provide the free float with the cash consideration. Certain provisions of the Demerger Act (particularly section 9(2)) relating to cash box demergers are currently being reviewed by the Austrian Constitutional Court, based on a shareholder complaint in 2004.
22. Are there any rules protecting the target from a further bid by the same bidder if the initial bid fails?
If an initial bid fails, the bidder (and parties acting in concert) cannot make a further bid for the target (or acquire shares triggering a mandatory bid) for one year from publication of the bid's failure (section 21, Takeover Act).
If the bidder has announced its intention to make a bid or stated publicly that it does not rule out a bid, and then fails to notify its bid to the Takeover Commission (see Question 13) (section 21(2-3), Takeover Act), the exclusion period will begin 40 days after the intention to make a bid was announced. If the bidder announces its intention not to proceed with a bid, or that it has
triggered an obligation to make a bid when it did not intend to do so, the exclusion period starts from the date of this announcement.
The Takeover Commission can reduce the length of the exclusion period, provided it is not detrimental to the interests of the target and its shareholders.
23. What action is required to de-list a company?
There is no particular de-listing procedure. However, a listing stops if the listing requirements are no longer met. One key requirement is that at least 10,000 shares must be held by the public (free float). A bidder can de-list a target by acquiring target shares so that less than 10,000 of them are held by the public.
24. What actions can a target's board take to defend a hostile bid (pre- and post-bid)?
When a public bid has been announced, the target's management and supervisory boards must:
- Respond to the bid (section 14, Takeover Act) (see Question 13).
- Maintain confidentiality (section 6(2), Takeover Act).
- Protect the interests of shareholders, employees, creditors and the public.
- Maintain neutrality (section 12, Takeover Act). If they breach this, the target directors could face administrative fines (section 35, Takeover Act) of up to EUR36,000 (about US$47,000) and damages (sections 70 and 84, Stock Corporation Act and section 12, Takeover Act).
In addition, they must not take measures that could deprive their shareholders of the opportunity to make a free and informed decision on the bid (section 12, Takeover Act), or any action likely to frustrate the bid, unless they are either:
- Based on previous obligations of the boards.
- Approved by shareholder resolutions adopted after the bidder's intention to make a bid has been announced.
Defences to a hostile bid
As there have been few hostile public offers, defence strategies have rarely been tested and the Takeover Act does not specifically define what defences are allowed.
In line with international practice, the defences available can be grouped into measures affecting the target's:
- Organisational structure. The two-tier board structure and the limitations of section 75 and section 87 of the Stock Corporation Act affect takeovers. Staggered terms of office for directors can delay the bidder establishing effective control, but do not hinder takeovers.
- Capital structure. Possible defences (and the limitations to them) that affect the capital structure of the target include:
- self tenders, where the target's boards offer to buy shares back from its shareholders, although these are subject to strict requirements (up to 10% of the issued share capital) which can limit this defence;
- employee stock ownership plans, although listed companies have only recently started to introduce these widely, and they are limited to up to 10% of the issued share capital;
- maximum voting rights (section 114, Stock Corporation Act), although these are rare in listed companies;
- registered shares combined with board approval being required for share transfers in the bye-laws, although it is rare to have registered shares in listed companies;
- different types of shares, for example non-voting preference shares (up to one-third of the issued share capital), as a pre-bid measure;
- certain US-type poison pills, for example the flip-over, although these may not work in Austria because all shareholders must be treated equally (section 47a, Stock Corporation Act); and
- the management board using pre-authorised capital (with the approval of the supervisory board) to increase capital, although this may conflict with the boards' requirement to remain neutral (section 12, Takeover Act). Capital increases are generally allowed but may not be effective due to strict rules on excluding share pre-emption rights.
- Assets. The sale of strategic assets (the crown-jewels) may be effective. It will normally only require supervisory board (and not shareholder) approval. However, the background to section 12 of the Takeover Act gives examples of defence measures that may breach it, including the sale of strategic assets.
The target can also try:
- To acquire a direct competitor of the bidder. This could lead to merger control problems for the bidder.
- Soliciting a better offer from a friendly third party (white knight).
25. Are any transfer duties payable on the sale of shares in a company that is incorporated and/or listed in your jurisdiction? Is there any way in which payment of transfer duties can be avoided?
Acquiring shares in a stock corporation is not subject to transfer tax.
Real estate transfer tax at 3.5% applies to a single shareholder who acquires 100% of a company owning real estate. A nominal share in the company can be held by a trustee to prevent a single shareholder acquiring 100% of the shares, to avoid this tax.
Other Regulatory Restrictions
26. Please give a brief overview of anti-trust regulation relating to the acquisition of a company in your jurisdiction. In particular:
- What are the thresholds for investigation?
- Is notification mandatory or voluntary?
- What is the substantive test?
- What is the time limit for a decision and is there an obligation to suspend?
National merger control rules (including specific rules on media mergers) are set out in the Cartel Act, as amended. Agreements subject to merger control include:
- Direct and indirect acquisitions of an enterprise, its assets or its shares, if a participating interest of 25% or 50% is acquired or exceeded;
- Agreements between enterprises;
- A certain number of the directors of the management and supervisory boards of two or more companies being the same;
- Other affiliations between enterprises which cause a controlling influence over another enterprise; and
- Concentrative joint ventures (co-operative joint ventures are subject to the general regime on market domination).
National merger control does not apply if the transaction is subject to European merger control regulation.
- Thresholds for investigation. Pre-merger notification is required if, in the financial year before the merger:
- the combined aggregate worldwide turnover of the enterprises concerned was at least EUR300 million (about US$391 million);
- the combined aggregate turnover of the enterprises concerned was at least EUR15 million (about US$19.5 million) on the Austrian market; and
- at least two of the enterprises concerned had worldwide turnovers of at least EUR2 million (about US$2.6 million) each.
The turnover of all connected enterprises must be included when calculating turnover. Direct or indirect shareholdings of at least 25% result in enterprises being connected. Special rules apply to calculating the turnover of banks, insurance companies and to media mergers.
- Notification. Notification is mandatory to the Cartel Court. There is no specific form of notification. The decision of the Cartel Court can be appealed to the Cartel Court of Appeals (Supreme Court).
- Substantive test. The substantive test is whether the merger creates or strengthens a dominant position in the relevant market.
- Time limits and obligation to suspend. A first stage decision (that is, a decision not requiring a stage 2 detailed investigation) must be made by the Cartel Court within four weeks of receipt of notification. The Cartel Court can clear the merger, clear it subject to conditions or prohibit it. The whole process usually takes five to six weeks.
The time limit for a final decision is five months from notification. If a decision is not given by then, the merger is deemed cleared. The closing of the transaction must be suspended until the Cartel Court has made its decision.
27. Are there restrictions on foreign ownership of shares (generally and/or in specific sectors)? If yes, what approvals are required for foreign ownership and from whom are they obtained?
Austrian law requires Austrian airlines to be controlled by European Economic Area (EEA) or EU entities. If other entities gain control, the airline's operating licence can be revoked.
Non-EEA nationals or companies acquiring real estate (including certain long-term leases) or control of companies owning Austrian real estate is subject to notification or approval. The Real Estate Commission in the province where the real estate is located will usually grant approval, especially if the property is used for commercial rather than residential purposes.
28. Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?
There are no restrictions on repatriation of profits or exchange control rules for foreign companies.
29. Are there any proposals for the reform of takeover regulation in your jurisdiction?
The Ministry of Justice is currently reforming the Takeover Act to, among other things, implement the Parliament and Council Directive (EC) No. 25/2004 on Takeover bids into the Takeover Act. The Takeover Commission has made proposals connected with this, including:
- Measures improving the protection of shareholders' rights to secure equal treatment, particularly abolishing the 15% permitted price discount in mandatory public offers (see Question 19).
- Introducing exchange offers for mandatory public offers.
- Amending the Takeover Act to regulate schemes of arrangement in relation to control changes, to protect shareholders against avoidance measures.
Some of the Takeover Commission's proposals are likely to be included in the reform of the Takeover Act.
Further regulations are to be issued by the Takeover Commission, particularly on mandatory notification duties under section 25(1-4) of the Takeover Act.
The association of industrialists has requested that the complex definitions of control triggering a mandatory bid in the Takeover Act and Regulation 1 be replaced by a fixed 30% threshold to trigger a mandatory bid (see Question 16).
The debate on specific reform issues has just begun and may be influenced by the government's plans to further privatise Telekom Austria.
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.