Since the 1999 Austrian Takeover Act came into force there have been 31 public offers in Austria including 13 mandatory offers and 18 voluntary offers, seven of which were so-called anticipatory mandatory offers. Although the number of public tender offers launched in 2004 and the first quarter of 2005 was down to 6, these included 2 offers with substantial transaction volumes, namely Siemens’ offer for VA Tech with a transaction volume of USD 1.2 billion (EUR 0.95 billion) and ÖVAG’s offer for the speciality bank Investkredit with a total transaction volume of USD 0.9 billion (EUR 0.7 billion). These offers also included novel features, namely the introduction of a new offer condition during the offer term against simultaneous waiver of other conditions and the approval by the Takeover Commission of a conversion of an anticipatory mandatory offer into a mandatory offer. Moreover, in February 2005, the Takeover Commission issued a landmark ruling in the matter Böhler-Uddeholm on definitional issues of "control".
Waiver of offer conditions
The Takeover Act allows conditions to public tender offers provided they are objectively justified and their fulfilment is not in the discretion of the bidder. The public offer on the 2003 GE/Jenbacher takeover is the lead case on offer conditions since it introduced a large number of conditions including as a novelty a MAC (material adverse change) condition; this lead case defined the admissible scope of conditions for later offers.
Following the model of the 2003 GE/Jenbacher offer, both the recent Dicom/Topcall and Siemens/VA Tech offers provided for several conditions. As a novel feature, the Takeover Commission allowed for the possibility of a unilateral waiver of certain conditions by the bidder during the offer term, deeming such waiver as an improvement of the offer under the TA. Moreover in Siemens/VA Tech, the TC allowed the bidder to introduce a new 90% acceptance condition during the offer term against a substantial increase in the offer price (18%) and the waiver by the bidder of another condition of the original offer (which required the maximum voting right restriction under the Articles be lifted during the offer term). However, in its related ruling the TC stressed the exceptional nature of admitting this change of the offer and invoked special circumstances in allowing such generally prohibited tradeoff of an improvement against a deterioration of the terms of the offer (i.e., waiver of another condition against introduction of a new condition).
Anticipatory mandatory offers, ie voluntary public offers which if completed may result in control in the target, are often chosen by bidders if they launch a public offer parallel to a yet to be completed off-market acquisition of a controlling stake in the target.The closing of the off- market share acquisition is usually still subject to conditions including merger control approvals. Moreover, anticipatory mandatory offers are subject to the legal requirement that they fail unless upon expiry of the offer period the bidder holds 50%plus of the voting stock of the target. In certain fact situations, the mandatory legal timelines of the Takeover Act, the timelines required to obtain regulatory approvals and other legal requirements like the 50%plus threshold could force bidders into offer structures which are bound to fail since legal requirements are nearly impossible to meet.
In ÖVAG/Investkredit, the Takeover Commission for the first time approved an offer structure that provides for the possibility of a conversion of an anticipatory mandatory offer into a mandatory offer during the offer term, because of the particular facts of the transaction.In addition to its 4% stake, ÖVAG had acquired 41.5 percent of the target Investkredit bank, by an off market transaction from three co-shareholders subject to regulatory and EC merger control approval. The offer was aimed at the balance of 54.5 percent in the target with 2 other core-shareholders owning target shares in total of 46.5 percent and the free float owning less than 8 percent. The two remaining shareholders had announced pre-transaction that they intended to stay shareholders in the target. Given those circumstances, the TC allowed the bidder to convert the ongoing anticipatory mandatory offer into a mandatory offer upon closing of the acquisition of the 41,5 % stake acquired off-market, provided such closing occurred at least 8 trading days prior to expiration of the original offer period. The conversion was based on s15 TA per analogiam allowing the TC to approve a change in an offer provided it qualified as an improvement; in the pertinent case the improvement inter alia was constituted by the fact that following the conversion the offer became entirely unconditional. This includes that following the conversion, the statutorily required "50+1" mandatory minimum acceptance condition for anticipatory mandatory offers no longer applies. Given this implication, the TC is likely adopt a restrictive approach to conversions in the future and to allow similar offer conversions in special - comparable - fact circumstances only.
Landmark ruling on passive control change
On 24/2/05 the TC issued a ruling on "control" relating to Böhler-Uddeholm AG (BU-AG). The TC held that a shareholder consortium which held approx 26 percent of BU-AG had "passively" acquired control in BU-AG due to the exit of another large shareholder. As a consequence, and in absence of a required notification to the TC on the change of control, the consortium had lost its voting rights in BU-AG, but following the ruling will regain all its shareholder rights and not be obligated to launch a mandatory offer provided it complied with the following 2 conditions: (i) not to increase its shareholding until 12/2006 and (ii) not to appoint the chairman of the supervisory board or have representation in the supervisory board of BU-AG (including the chairman) by more than 50% of the representatives at any time in the future.
Austrian Tax Reform 2005 positively impacts M&A
The Austrian Tax Reform Act 2004 offers new and improved opportunities to structure acquisitions tax efficienty from 1 January 2005 onwards. These include a reduction of the corporate income tax rate from 34% to 25% with an effective corporate income tax burden of approximately 22% because of tax base adjustments. Financing costs, and thus interest on loans taken out to acquire domestic or foreign participations will generally be tax deductible from 2005 onwards. As a novel feature, goodwill can be depreciated not only in asset deals but also in share acquisitions provided certain conditions are met. As of 2005 the previously existing regulation for the creation of a fiscal unity has been substantially broadened by a modern and attractive system of group taxation. If two or more companies form a tax group, the taxable results (profits and losses) of group members will be attributed to their respective domestic parent company and will be taxed at the level of such group parent. Profits and losses are only attributed for tax purposes without a requirement for a statutory profit/loss takeover agreement. The new group taxation regime even provides for the cross-border use of losses by allowing the consolidation of losses of directly held foreign subsidiaries with profits generated in Austria.
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