Key questions in connection with the takeover squeeze-out clarified

In its decision of 27 May 2024, the Takeover Senate of the Higher Regional Court (OLG) of Frankfurt clarified several key questions in connection with the takeover-law squeeze-out under section 39a WpÜG.

Background

Pursuant to Section 39a WpÜG, a bidder who, after a takeover offer, holds at least 95% of the shares in the target company can apply to have the remaining shares transferred to him by court order against payment of an adequate compensation. The compensation offered as part of the takeover bid is to be regarded as adequate if the bidder has acquired at least 90% of the shares in the target company as a result of the offer.

In the case of the Higher Regional Court of Frankfurt, the bidder had agreed to acquire almost 90% of the shares in the target company and announced a takeover offer for the target company on the same day. As a result of the block trade and the acceptance rate of the takeover offer, the bidder acquired a total of approximately 95.5% of the shares in the target company. Before the takeover offer was closed (which was delayed due to required regulatory approvals), the bidder filed an application with the Frankfurt Regional Court to squeeze-out the minority shareholders against a cash payment equal to the offer consideration.

Key points of the ruling

Acquisitions made prior to the takeover offer are included in the 95% threshold: The Higher Regional Court of Frankfurt clarified that acquisitions, such as block trades from major shareholders which are agreed before the takeover offer is published, are to be included in the calculation of the 95% threshold of Section 39a (1) WpÜG. This is in line with the government’s explanatory statement to the law, which explicitly allows the required thresholds to be reached through transactions in close temporal connection with the offer.

It is possible to file an application before closing of the offer: The court confirmed that a bidder can file an application for the squeeze-out of minority shareholders as soon as it is certain that the required 95% threshold will be reached once the takeover offer is closed (Section 39a (4) sentence 2 WpÜG). This is relevant if the closing of the takeover offer is delayed due to regulatory approvals.

Strict causality for the presumption of adequacy under Section 39a (3) sentence 3 WpÜG: The Higher Regional Court of Frankfurt takes the view that a strict causal link between the takeover offer and reaching the 90% threshold is required for the application of the presumption of adequacy under Section 39a (3) sentence 3 WpÜG. It follows from this narrow interpretation that only those share acquisitions are covered that take place under the terms of the offer after publication of the offer document. While tender commitments are to be taken into account, this does not apply to acquisitions made prior to that date (including trades made on the day the offer is announced).

Determining the adequate compensation: Although the takeover offer did not pass the "market test" , the court deemed the compensation determined on the basis of the stock market price and the price of previous acquisitions to be adequate. The court did not consider it necessary to consult an expert witness which is in line with more recent case law which emphasises the importance of the share price for the compensation.

Practical implications

The ruling of the Higher Regional Court of Frankfurt increases legal certainty in the context of squeeze-outs under takeover law and clarifies several previously controversial issues. In particular, that acquisitions prior to the takeover offer are to be taken into account when determining the 95% threshold and the strict causality requirement for the presumption of adequacy under Section 39a (3) sentence 3 of the German WpÜG are relevant. Despite the clarifications, the takeover squeeze-out remains a rare measure due to the high requirements for the 95% threshold and the potential complexity of the proceedings. Nevertheless, the judgment provides valuable guidance for structuring takeover processes and squeezing-out minority shareholders.