TAKEOVERS IN ENGLISH AND GERMAN LAW 00 Prelims 1037 3/10/02 2:37 pm Page i 00 Prelims 1037 3/10/02 2:37 pm Page ii Takeovers in English and German Law Edited by JENNIFER PAYNE Travers Smith Braithwaite lecturer in Corporate Finance law, University of Oxford and Fellow of Merton College HART PUBLISHING OXFORD AND PORTLAND, OREGON 2002 00 Prelims 1037 3/10/02 2:37 pm Page iii Hart Publishing Oxford and Portland, Oregon Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 5804 NE Hassalo Street Portland, Oregon 97213-3644 USA Distributed in Netherlands, Belgium and Luxembourg by Intersentia, Churchillaan 108 B2900 Schoten Antwerpen Belgium © The contributors severally 2002 The contributors severally have asserted their right under the Copyright, Designs and Patents Act 1988, to be identified as the authors of this work. Hart Publishing is a specialist legal publisher based in Oxford, England. To order further copies of this book or to request a list of other publications please write to: Hart Publishing, Salters Boatyard, Folly Bridge, Abingdon Rd, Oxford, OX1 4LB Telephone: ϩ44(0)1865 245533 Fax: ϩ44(0)1865 794882 email: mail@hartpub.co.uk WEBSITE: http//:www.hartpub.co.uk British Library Cataloguing in Publication Data Data Available ISBN 1–84113–340–X (hardback) Typeset by J&L Composition, Filey, North Yorkshire Printed and bound in Great Britain by T J International, Padstow, Cornwall. 00 Prelims 1037 3/10/02 2:37 pm Page iv Table of Contents Foreword ix ROY GOODE 1 Introduction 1 JENNIFER PAYNE 2 The Notion of Equality in European Takeover Regulation 9 PAUL L DAVIES I The Potential Scope of Equality Rules in Takeover Regulation 9 II Rationales for Equality Rules 13 1 Undistorted Choice 14 2 Protection of Those Not Close to the Market 18 3 Protection of Non-Controlling Shareholders 20 III Conclusion 30 3 Takeovers, Secrecy and Conflicts of Interest: Problems for Boards and Banks 33 KLAUS J HOPT I The German Draft Act on Public Securities Offers and Takeovers of 11 July 2001 33 1 General Observation on the New Rules of the Draft Takeover Act and on their Relation to German Law of Groups of Companies 33 2 Special Problems concerning Secrecy and Conflicts of Interest 37 II Secrecy and Disclosure 38 1 Secrecy Before an Offer 38 2 Instant Disclosure of Takeover Plans 39 3 Mandatory Disclosure of Shareholdings 45 4 Selected Problems of Information and Liability of the Offeror and the Offeree 46 5 White Knights, Inside Information and Due Diligence 48 III Conflicts of Interest of Boards and Banks 50 1 Board Responsibility Beyond Shareholders’ Interests Under General Company Law 50 2 Inducement Fees, Views of the Board and Conflicts of Interest 52 3 Conflicts of Interest of Banks in Takeovers: A Special Problem for Continental European All-Purpose Banks 54 00 Prelims 1037 3/10/02 2:37 pm Page v 4 Possible Solutions: Preventing Future Conflicts or Solving Present Conflicts 56 5 Rule of Law and Self-Regulation: Differences in History, Corporate Governance and Financial Culture Between the UK and Germany 58 IV Summary 60 4 Regulatory Structures: The Relationship Between the Takeover Panel, the FSA and the Courts 65 PATRICK DRAYTON I Introduction 65 II Legislative Changes 66 III Market Abuse 67 1 The Substantive Overlap with Takeover Regulation 67 2 The FSA’s Powers 68 3 Safe Harbours 69 4 FSA’s Policies 70 5 Practical Implications 72 5 Regulatory Structures 75 THORSTEN PÖTZSCH I Introduction 75 II A Brief Look at the Economic Situation 76 III Prior Takeover Regulation in Germany: The ‘Soft Law’ Approach 76 IV Key Points of the Government Draft on Takeovers 78 1 General Aim 78 2 Scope of Application 79 3 General Principles 79 4 Timetable 80 5 The Offer Document 80 6 Consideration 81 7 Mandatory Bid 81 8 ‘Cooling Off’ Period 82 9 Duties of the Target’s Management 82 10 Sanctions 84 11 Supervisory Authority 84 12 Relationship Between the Supervisory Authority and the Courts 85 13 Ensuring Flexibility of the Regulations with the Use of Ordinances 86 V Outlook 86 vi Table of Contents 00 Prelims 1037 3/10/02 2:37 pm Page vi 6 Defence Tactics 87 WILLIAM UNDERHILL AND ANDREAS AUSTMANN I Introduction 87 1 Hostile Takeovers in the UK 87 2 Hostile Takeovers in Germany 87 II Legal and Regulatory Framework 90 1 Legal and Regulatory Framework in the UK 90 2 Legal and Regulatory Framework in Germany 94 III Defence Tactics—Before the Bid 98 1 Staggered Board 98 2 Board Designation Rights 99 3 Shark Repellents, Maximum Voting Rights and Enhanced Voting Rights 100 4 Cross Shareholdings 102 5 Restrictions on Share Transfers 103 6 Poison Pills 104 IV Defence Tactics—After the Bid 106 1 Sale of ‘Crown Jewels’ 106 2 Significant Acquisition 107 3 Pacman 108 4 Recapitalisation 109 5 Standstill Agreements 110 6 Golden Parachutes 111 7 White Squire 112 8 White Knight 114 9 Anti-trust 116 10 Litigation 117 11 ‘Winning the Argument’ 118 V Conclusion 121 7 Legal Issues On Cross-Border Mergers between UK Companies and German Companies 123 ULRICH BLECH AND ROBERT STERN I Introduction 123 II UK Holding Company Structure 124 1 German Implications of UK Holding Company Structure 124 2 UK Implications of UK Holding Company Structure 128 III German Holding Company Structure 130 1 UK Implications of German Holding Company Structure 131 2 German Implications of German Holding Company Structure 134 IV Index Considerations 137 Table of Contents vii 00 Prelims 1037 3/10/02 2:37 pm Page vii V Summary of the Advantages/Disadvantages of Various Single Holding Company Structures 138 VI Dual-Headed Structures 141 1 Introduction 141 2 The Joint Venture Structure 141 3 The Parallel Structure 145 4 Combining Joint Venture and Parallel Structures 148 5 Further Tax Considerations Relevant to Dual-Headed Structures 149 6 The Discount Problem 150 VII Conclusions 150 Appendix 1 The German Takeover Act 153 Appendix 2 A New Takeover Regime for Germany: German Act on Acquisition of Securities and Takeovers 173 viii Table of Contents 00 Prelims 1037 3/10/02 2:37 pm Page viii Foreword This volume represents the collected and edited papers of the second biennial Oxford Anglo-German law conference held at St. John’s College, Oxford, on 13–15 September 2001. The conference series, jointly organised by leading German and English law firms and the Oxford University Law Faculty and hosted by Oxford, was the brainchild of Nikolas Tarling, and its purpose is to provide a congenial forum for discussion of key issues in fields of mutual inter- est by comparisons and contrasts between English and German law in the con- text of international and European Community developments. The 2001 conference was attended by some 32 delegates and, as in 1999, was marked by a combination of intense work and convivial gatherings, the highlights being a dinner at Pembroke College, where we were warmly welcomed by the new Master, Giles Henderson, who by a happy coincidence was the previous man- aging partner of Slaughter and May and a dinner at Worcester College, whose Vice-Provost, Professor James Campbell, gave a witty account of the history of the college. The first volume in the series, Joint Ventures in English and German Law, edited by Dr Eva Michaeler and Professor Dan Prentice, was highly regarded, and I have no doubt that the same warm welcome will be extended to this new volume, skilfully collated and edited by Jennifer Payne. The subject of takeovers is of great topicality and importance. It was ironic that shortly before the con- ference the proposed EC Takeover Directive failed to be adopted by the nar- rowest of margins—273 votes for, 273 against!—but it is now being revised and this will allow appropriate account to be taken of the various comments made on the earlier text by the conference speakers. In England the takeover scene has been significantly affected by the regulatory regime introduced by the Financial Services and Markets Act 2000, with an all-powerful Financial Services Authority as the universal regulator, and the Human Rights Act 1998, which is beginning to have a pervasive effect on both the substance and the pro- cedure of regulation in a variety of forms. In Germany the Wertpapiererwerbs- und Übernahmegeset (WpÜG), the Act on Acquisition of Securities and Takeovers, came into force on 1 January 2002. The text is contained in Appendix 1 and a commentary will be found in Appendix 2. The nine contributors to Takeovers in English and German Law have com- bined analytical rigour with a profound practical knowledge of takeovers and cross-border mergers. This book is therefore informative not merely on the law but also on such practical issues as the management of conflicts of interest and defence tactics to a hostile takeover. 00 Prelims 1037 3/10/02 2:37 pm Page ix My first pleasurable task is to express the warm appreciation of the Oxford Law Faculty to Hengeller Mueller and Slaughter and May for their financial contribution to the conference. This helps to provide the resources needed to enhance the study of German law in Oxford, which has expanded significantly in recent years with the strong support of the German government and of gen- erous private benefactors. I should also like to thank Nick Tarling, who served as Conference Director, and to the steering group members of the two firms, Ulrich Blech of Hengeler Mueller and George Goulding of Slaughter and May. Especial words of appreciation are due to Slaughter and May’s conference organiser, Alison Hahn, who with the assistance of her colleagues Louise Stoker and Frances Jamieson, organised the 2001 conference with wonderful efficiency, supported at the Oxford end by Alison Beech, Domestic Manager of St. John’s College, other college staff, Arianna Pretto of Brasenose College and my own hardworking secretary, Pat Dibb. Finally, we are grateful to Richard Hart of Hart Publishing, who published the first volume, for undertaking the publica- tion of this attractively produced second book in the series, which should be required reading for all those who are involved or interested in takeovers. Oxford Law Faculty ROY GOODE 20 August 2002. x Foreword 00 Prelims 1037 3/10/02 2:37 pm Page x [...]... 1 Introduction JENNIFER PAYNE* T HIS BOOK ORIGINATED at a conference held in St John’s College, Oxford in September 2001 Takeovers are a topic of interest to lawyers, investment bankers and their corporate clients alike It is a topic which has recently taken on a new dimension in Europe and the timing of this conference, investigating the similarities and differences in the approaches adopted in English. .. Meanwhile, in England, difficulties have been raised for the existing structure of takeover regulation both by the potential impact of the Human Rights Act 1998 and by the impact of the Financial Services and Markets Act 2000 (FSMA) These are therefore interesting times for those concerned with takeovers, particularly in England and Germany The conference in Oxford proved an invaluable forum for discussing... 3/10/02 2:38 pm Page 3 Introduction 3 issue to be dealt with under general insider dealing principles rather than adopting takeover-specific rules This does not seem ideal, and Klaus Hopt points out the obvious conflict between insider dealing regulations and takeover law which can arise, arguing that the presently ambiguous situation surrounding the passing on of information in the context of a takeover... takeover law is an intensely practical topic and no review of English and German law on this topic would be complete without an analysis of some of the principal legal issues which arise in relation to takeovers involving listed companies in the two jurisdictions Ulrich Blech and Robert Stern undertake such an analysis, concentrating their attention on share-for-share offers They first consider ‘single-headed... are at risk in a takeover, and directors have an incentive to oppose takeovers which are beneficial from the shareholders’ point of view The approach in both England and Germany is to side-line the board in a bid process As William Underhill and Andreas Austmann’s detailed survey of defence tactics in both jurisdictions makes clear, there is little scope for the target’s management to engage in technical... requires an effective Chinese wall to be put in place and at present English law on this point is unclear, particularly in relation to single departments within a firm The Bolkiah decision suggests that Chinese 3 4 5 6 7 8 German Securities Trading Act (WpHG), s 15 Takeover Act, s 10 [1999] 1 All ER 517 [1999] 3 All ER 524 CP 57 paras 7.6–7.11 and CP 59 para 6.37 See Financial Services and Markets Act 2000,... from a supportive standpoint, see M Lipton and P Rowe, ‘Pills, Polls and Professors: A Reply to Professor Gilson’ New York University Center for Law and Business, Working Paper #CLB-01-006, 2001, available from 5 See n 11 below 6 Panel on Takeovers and Mergers, City Code on Takeovers and Mergers, 7th edn., May 2002 (hereafter ‘City Code’) General Principle 7 and rule 21 7 Since the non-frustration... reason, it is not surprising to observe that the mandatory bid rule goes hand -in- hand with controls over partial bids: indeed, to maintain a mandatory bid rule, whilst permitting offerors freely to launch partial bids, would be incoherent.52 A partial bid may be preferable to permitting the building up of a controlling stake through market purchases because it is more likely to involve equal treatment... could still be problems in practice In particular the Panel and the FSA are likely to seek to ensure that their decisions are secure in the face of potential legal challenge, and in the case of the FSA this will include any decision on its part not to intervene in a Panel decision The speed of decision-making in takeovers is likely to deteriorate as a 9 10 R v Panel on Takeovers and Mergers ex p Datafin... various changes on takeover law in the two jurisdictions This book, which has arisen directly out of the papers and discussions at that conference, demonstrates what a lot there is to be learned by comparing and contrasting the two systems * Travers Smith Braithwaite lecturer in Corporate Finance law, University of Oxford and fellow of Merton College 1 Common Standpoint, interinstitutional dossier 1995/0341 . TAKEOVERS IN ENGLISH AND GERMAN LAW 00 Prelims 1037 3/10/02 2:37 pm Page i 00 Prelims 1037 3/10/02 2:37 pm Page ii Takeovers in English and German Law Edited. jointly organised by leading German and English law firms and the Oxford University Law Faculty and hosted by Oxford, was the brainchild of Nikolas Tarling,