GERMANY Law and Practice Contributed by: Marc Löbbe, Michaela Balke, Oliver Schröder and Martin Kolbinger, SZA Schilling, Zutt & Anschütz
6.6 Requirement to Obtain Financing No regulations apply in this regard in private trans - actions, while satisfactory commitment letters are usually required by sellers in a leveraged transaction, and the balance sheet of the purchaser is assessed. Financing-outs may also be stipulated as closing con - ditions. Before issuing a public takeover offer, the bidder is required to ensure that it has the necessary financial resources to fulfil the obligations to the shareholders who accept the offer. For a cash offer, the bidder must prove that sufficient funds are available by obtaining confirmation from an investment service company (usually a bank). There - fore, the bidder cannot make a takeover offer that is subject to obtaining financing. 6.7 Types of Deal Security Measures In private M&A, deal security measures can be struc - tured freely (subject to the corporate benefit test). In both private and public contexts, the conclusion of business combination agreements in the preparation of a transaction may conflict with the very strict rules of the Stock Corporation Act on the constitution of a stock corporation. The permissibility and enforce - ability of such agreements are debated in legal litera - ture and depend heavily on the specific content of the agreement. Therefore, business combination agree - ments require particularly careful legal assessment and alignment with German corporate law principles. Subject always to applicable disclosure requirements (eg, a tender agreement or irrevocable commitment may qualify as a financial instrument) and potential most favoured treatment rules, public M&A deal secu - rity measures between the bidder and current share - holders are not subject to any specific restrictions and, in principle, are subject to negotiation as long as they are in line with general legal requirements (such as general antitrust law). Restrictions Restrictions apply if measures require the target com - pany’s co-operation, since the target’s management board is obliged to act in the company’s best interest
(which is not necessarily identical to the interest of key shareholders who intend to sell their shares). There - fore, the target company can only assume obligations in the context of deal security measures if these are in its best interest and comply with all requirements of applicable stock corporation law. This limits exclusiv - ity arrangements in particular (see 5.4 Standstills or Exclusivity ). As a consequence, break-up fees are rare if they concern the target. The admissibility of such arrange - ments can be questioned for a number of reasons, particularly regarding capital maintenance rules and under the corporate benefit test. 6.8 Additional Governance Rights Special investor rights depend on the legal form of the target and are permissible in many private companies. However, in German stock corporations, the options to implement special rights for certain shareholders are limited. The basic structure of the corporate gov - ernance of a stock corporation and the rights of the corporate bodies cannot be amended. In particular, the members of the management board and super - visory board cannot be bound to follow instructions from the shareholders. The shareholders generally have to be treated equal - ly, and their rights depend only on their respective participation rate; golden shares or multi-vote shares are impermissible. To obtain control over the most important decisions taken by the shareholders’ meet - ing, either 50% or, for some decisions, 75% of vot - ing rights is required (see 6.5 Minimum Acceptance Conditions ). If a shareholder wishes to obtain decision-making powers that they would not normally be entitled to with their participation rate, it is possible to enter into a pooling agreement and co-ordinate voting rights with other shareholders. However, this may constitute “acting in concert” and trigger notification duties and a mandatory takeover obligation. A shareholder may be granted a special right to appoint a member of the supervisory board, but this is quite rare in practice. In any case, a shareholder whose participation rate exceeds 50% of the shares
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