German and European Takeover Law
One of the current focal points of the legal-political discussion in Germany and Europe is the law regarding corporate takeovers. Public offers for the acquisition of securities undertaken with the aim of taking over the issuing company have, in recent years, also come to play an increasingly larger role in Germany. However, in contrast to other important financial markets, Germany lacked compulsory regulations or functional voluntary regulations for a considerable time. Regrettably the 1995 Takeover Code, as an instrument of self-regulation, never met with sufficient acceptance from the domestic companies listed on the German stock exchange; consequently, the legislature was called upon to create a dependable legal framework for regulating takeovers. In July 2001 following work on two preliminary drafts - an initial discussion draft from June 2000 and the April 2001 ministerial draft – the Federal Government presented its final draft for an act regulating public offers for the acquisition of securities and takeovers (the WpÜG) which, after some additional parliamentary revisions, came into force on 1 January 2002 along with four complementary ordinances. Shortly before this date, the 25 year long effort to adopt a directive on takeover bids at the European level ultimately died in a tied vote before the European Parliament – due in no small part to the unexpected flare up of renewed German opposition. Subsequently, in September 2001 the European Commission established a group of international experts whose work on a new directive proposal on takeover bids was intended to support further Commission efforts. The report delivered by this group in January 2002 paved the way for a new directive proposal that was presented by the Commission in October 2002 and took effect in May 2004 after substantial parliamentary amendment (see below). With the July 2006 Takeover Directive Implementation Act the German legislature conformed the WpÜG to the provisions of the Takeover Directive.These wholly dramatic developments at the European level are the subject-matter of an array of Institute studies, in part completed and in part still under way. Notably, Hopt, who was also appointed as member of the expert group, contributed critical commentary on the ongoing developments in numerous publications and promoted its scholarly consideration. In addition to examining the core question of whether preference should be given to self-regulation, as practiced in Great Britain, or statutory legislation regulating takeovers, as characterized by the majority of continental Europe’s legal systems, his analysis concentrated above all on the behavioural responsibilities of the managing board of a targeted company during and after a takeover. With regards to defensive measures, Hopt argued for deference in favour of the stockholders’ decision and a corresponding duty of neutrality from the managing board who are not allowed to impede a takeover. However, this does not mean that they are prohibited from engaging in activity of any kind; thus, for example, the search for an alternative offer (white knight) is undoubtedly permitted. Hopt delivers an admonishing reminder of the long overdue legal harmonisation inside of Europe in respect of defensive measures and other structural, institutional and legal constraints for takeover bids, a shortcoming also not fully remedied by the Takeover Directive on account of its compromise character. Hopt’s theoretical refurbishment of takeover law considerations was developed through his activities in the field initially as a member of the earlier German Takeover Commission and subsequently as a member of the Takeover Council in Germany’s Federal Financial Supervisory Authority (BaFin).
In 2005 Hopt, Mülbert and Kumpan completed a study detailing the amendments and adaptations in German takeover law necessary as a result of the Takeover Directive enacted in April 2004. The adopted version of the Takeover Directive resolved the negotiation’s pivotal points of contention – such as the duty of neutrality in the managing and supervisory organs of a corporation subject to a takeover bid, and the repeal of limitations on voting rights and transfer of securities in instances of a hostile takeover (the break-through rule) – with resort to flexible means. Instead of a uniform rule, solutions were created in the form of opt-out/opt-in regulations. Thus, as a basic rule management and supervisory organs are intended to be subject to a duty of neutrality and the break-through rule is intended to apply. Member-States however can opt-out of these regulations, although they then must allow companies to opt back in to the stricter structure. This solution allowed the Member-States in principle to retain their existing regulations in respect to these areas. Nevertheless, the Takeover Directive did yield the necessity of several amendments and adaptations in German takeover law. This included among others the introduction of the squeeze-out and sell-out procedure, the regulations on the duty of neutrality and break-through or, alternatively, their intended opt-in/opt-out resolutions, and additionally the complex provisions on the applicable law and the supervising agency. In their analysis Hopt, Mülbert and Kumpan highlighted the need for further additional amendments to German takeover law. These recommendations include, in particular, revising the supervisory process and deleting the minimum price regulations for voluntary takeover bids as well as the provision providing for exemptions from the duty to publish and submit a bid. The German legislature, however, limited themselves in the July 2006 Implementation Act to the requisite modifications demanded by the Takeover Directive. To date, they have yet to act on suggested changes offering further advancement.
In several published texts adopting a broader comparative law framework, Baum has critically examined takeover regulation models found in international practice and has developed recommendations for the refinement of several WpÜG regulations. In the current discussion, methodological questions have only played a relatively small role. However, as illustrated in the newer takeover regulations of foreign jurisdictions, structural ambiguity leads to sizable problems in practice and to unacceptable valuation discrepancies with regulatory solutions in adjoining legal areas. An array of current problems remain unsatisfactorily resolved and are not being addressed in a problem-oriented fashion. For a considerable time, for example, the applicability of the WpÜG to repurchase offers for treasury stock was extremely controversial. In contrast to the general position of BaFin, Baum has consistently advocated for the non-applicability of WpÜG in these cases and has argued for solving such questions with exclusive reference to company law. In the summer of 2006 BaFin changed its longstanding administrative practice and has subsequently no longer applied the WpÜG to repurchase offers. Another unresolved difficulty lies in the inadequate definition of the term “öffentliches Angebot” (tender offer) though it is one possible application requirement of the new regulation. In a comparative law analysis, Baum criticizes this missing definition and develops de lege ferenda a proposed solution. The unqualified inclusion of acquisition rights in the takeover law provisions represents yet another insufficiently clarified issue. Such rights, e.g., the various forms of option and conversion rights, play an ever increasing roll in financial practice such that over time a fundamental clarification seems indispensable. Baum argues in favour of their differentiated inclusion in the scope of the takeover law.
The fundamental European conflict of law questions were considered in 2001 by von Hein in an extensive academic paper. Still an insufficiently addressed legal area, particular difficulties result from the fact that takeover law comprises numerous company law aspects in addition to its considerable capital market law foundations. Von Hein doubts that the traditional unilateral conflict of laws approach – also the basis for the original version of the WpÜG – can constitute a sustainable model on account of the attendant conflicts of jurisdiction, negative and positive, as between various national takeover law regimes. Thus, he favours instead the hybrid approach of the Takeover Directive which sets out the connecting factors for jurisdiction and applicable law uniformly within Europe such that – in spite of its fundamental orientation on the unilateral model for conflict of laws in commercial matters – both a dearth and excess of standards can be avoided.
Since 2006, Kumpan has advised the Turkish Capital Market Board, the Turkish capital market supervisory agency, with regards to the implementation of the Takeover Directive into Turkish law. On account of their scheduled entrance into the EU, Turkey incorporated the EU directive into their national law. In the process the new capital market law regulations were prepared by the Capital Market Board and in part enacted. This endeavour is being supported within the scope of a German Twinning-Project – direction in this instance being the responsibility of the Federal Ministry of Finance.
In the 2000 summer semester on the University of Hamburg, Hopt and Baum conducted an intensive legal seminar for doctoral candidates titled “Übernahmerecht in vergleichender Perspektive” (Takeover Law from a Comparative Perspective). The emphasis of this comparative law colloquium was consideration of the legitimacy of defensive measures and the role of the target’s management in a takeover fight. Participating as a guest was Oberregierungsrat Dr. Thorsten Pötzsch, at that time senior government official from the Federal Ministry of Finance, who was the principal designer of the German takeover law distributed as a first draft for official discussion (Diskussionsentwurf) only