GERMANY Law and Practice Contributed by: Gregor von Bonin, Natascha Doll, Andreas Ruthemeyer, Stefan Schröder and Mirko Masek, Freshfields
est price paid by the bidder for shares in the last six months prior to the launch of the offer. Regarding valuation uncertainty, mechanisms such as contingent value rights (CVRs) or earn-outs – com- mon in private M&A to bridge valuation gaps – are rarely used in public takeover transactions in Ger- many. The strict pricing rules and the preference for straightforward cash consideration limit the accept- ance and practicality of complex contingent payment structures. 4.5 Common Conditions for a Takeover Offer/ Tender Offer Takeover offers in Germany commonly include several conditions, which must strictly adhere to the WpÜG and are subject to close scrutiny by BaFin. The regu- latory framework aims to ensure transparency, fair- ness, and investor protection by restricting the types of conditions bidders may impose. Typical conditions include a minimum acceptance threshold, which usually is set to ensure that the bid- der reaches a specified minimum level of control – commonly a simple majority of 50% plus one share or higher thresholds for squeeze-out eligibility. This ensures the offer achieves the bidder’s intended level of influence over the target company (see 4.7 Mini- mum Acceptance Conditions ). Regulatory approval conditions are also standard – eg, required merger/FDI clearance. Such conditions are generally accepted, provided they are bona fide and appropriately disclosed. Additionally, many offers include conditions related to the absence of mate- rial adverse changes (MACs) affecting the target’s business or financial position and/or the absence of market MACs. However, BaFin carefully reviews these clauses to ensure they are objectively defined and not overly broad. BaFin prohibits conditions that are subjective, dependent solely on the bidder’s discre- tion, or lack clear, objective criteria. Conditions that could allow the bidder to withdraw the offer easily or undermine the certainty of the transaction are gener- ally rejected or require modification. In summary, while conditions are a common and nec- essary feature of takeover offers in Germany, their use
is tightly regulated to maintain the integrity of the offer process and protect minority shareholders. 4.6 Deal Documentation It has become customary in Germany for the bidder and target to enter into a transaction agreement, often referred to as an “investment agreement” (in the case of a financial investor as bidder) or “business combi- nation agreement” (in the case of a strategic bidder) in connection with a public takeover offer or business combination. While the primary offer document is regulated by the WpÜG, these separate transaction agreements outline further details of the deal between the bidder and the target company’s management or major shareholders. The target company can agree to certain obligations within these agreements provided they do not breach the management board’s fiduciary duties to act in the best interests of the company and all shareholders. Besides the management and supervisory boards’ agreement to recommend the offer, the target com- pany might agree to provide access to information for due diligence, confirm the accuracy of information provided, and commit to certain actions to facilitate the offer (eg, not soliciting competing offers, subject to fiduciary outs). A target will also typically try to obtain certain strategic commitments from the bidder, often to address concerns raised by other stakeholders (eg, employees, unions, local communities or regional or federal governments), such as to not close certain sites or reduce the workforce for a certain period of time, or to commit to future investments or to back- stop target financing with change of control provi- sions. It is customary for a public company to give limited representations and warranties in such agreements, primarily covering corporate existence, capacity, good standing, and the absence of certain undisclosed lia- bilities, as public companies are subject to continuous disclosure requirements. Overall, while detailed transaction agreements are not technically required, their use has become widespread as they provide clarity on the parties’ intentions and help to allocate risks in public company acquisitions.
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