GERMANY Law and Practice Contributed by: Gregor von Bonin, Natascha Doll, Andreas Ruthemeyer, Stefan Schröder and Mirko Masek, Freshfields
3.3 Spin-Off Followed by a Business Combination
a formal takeover offer. While this approach is often considered, it is not particularly common in practice. More frequently, bidders seek to enhance deal cer- tainty through irrevocable tender commitments from key shareholders or by entering into share purchase agreements that are conditional upon the success of the offer (see 4.12 Irrevocable Commitments ). Any stakebuilding must, however, be conducted in strict compliance with capital markets regulation. Acquirers are subject to insider dealing prohibitions under the EU Market Abuse Regulation (MAR) and may not use any non-public, price-sensitive informa- tion obtained during stakebuilding or otherwise when trading securities. Acquisitions of voting rights in listed companies trig- ger disclosure obligations under the German Securi- ties Trading Act (WpHG). A shareholder must notify both the issuer and the Federal Financial Supervisory Authority (BaFin) without undue delay (and no later than four trading days) upon reaching or crossing thresholds starting at 3% and 5%, then in 5% incre- ments up to 30%, as well as 50% and 75% of the voting rights. Similarly, acquiring financial instruments (such as total return swaps) can trigger such disclo- sure obligations as well. Once the 10% threshold is reached, the acquirer must also disclose its intentions regarding the investment (though this is typically a rel- atively generic disclosure). Reaching the 30% thresh- old (directly or indirectly) may also trigger a mandatory takeover offer (see 4.2 Mandatory Offer ). Unlike in jurisdictions such as the United Kingdom, German law does not impose a “put up or shut up” requirement. There is no general obligation to make an offer or to declare an intention not to do so within a specified period. It should be noted though that the price paid for a share in the target company acquired in the six months prior to launching a takeover offer or while it is ongoing will set a floor for the offer price (unless the three-month-volume-weighted average share price prior to announcement is higher, in which case this is the minimum price; see 4.2 Mandatory Offer ).
It is legally permissible and commercially well-estab- lished in Germany to structure a spin-off immediately followed by a business combination. Both the spin- off and the subsequent merger are governed by the German Reorganisation Act (UmwG), which sets out detailed procedural requirements. A crucial legal consideration in spin-mergers is the statutory liability regime. Under German law, all enti- ties involved in the spin-off, both the original company and the spun-off unit, remain jointly liable for pre-spin- off obligations. When a merger follows, these liabilities are inherited by the combined entity. This can create legal and financial risk unless adequately addressed. As a result, parties typically negotiate comprehen- sive cross-indemnity agreements and risk allocation provisions to manage legacy claims and unforeseen exposures. 3.4 Timing and Tax Authority Ruling The typical timing for a spin-off in Germany is variable, ranging from several months to over a year, depend- ing significantly on the transaction’s complexity, the specific regulatory requirements involved, and the intricacies of the companies. Key phases include an initial planning and preparation stage, involving strategic assessment, due diligence, and documentation, which can take several months. Seeking an advance tax ruling from the competent tax office is highly advisable, though not mandatory, as it clarifies the tax implications and helps ensure tax neutrality, thereby avoiding unexpected liabilities. The process for obtaining such a ruling can itself take several months, further influenced by the transaction’s complexity and the specific workload of the tax office. 4. Acquisitions of Public (Exchange- Listed) Energy and Infrastructure Companies 4.1 Stakebuilding In Germany, it is permissible for a prospective bidder to acquire a stake in a public company prior to making
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