GERMANY Law and Practice Contributed by: Marc Löbbe, Michaela Balke, Oliver Schröder and Martin Kolbinger, SZA Schilling, Zutt & Anschütz
Exclusivity agreements are generally permitted under German law and may be concluded with key shareholders in particular. However, in a public M&A context, the target company itself will usually be precluded from agreeing to exclu - sivity, except in exceptional circumstances, due to the applicability of the corporate benefit test. Recently, target management has also started to initiate auction processes for the company, a practice common in the USA, when approached by a potential purchaser. 5.5 Definitive Agreements In a private M&A context, definitive agreements can vary widely depending on the transaction structure, while certain market standards for “typical” share purchase agreements are firmly established. For public bids, the German Takeover Act, sup - plemented by the German Takeover Act Offer Ordinance, governs the legal requirements (see 2. Overview of Regulatory Field ). Both regula - tions mandate that the offer document contains very detailed information to provide target com - pany shareholders with sufficient information on which to base their decision to accept or reject the offer. The offer document must contain infor - mation on, inter alia: • the consideration; • the offer period; • the possible effects of a successful offer; and • the bidder’s intentions with regard to the target company. The offer document also determines the subse - quent content of the share purchase agreement and contains its terms and conditions. To sup - port the shareholders in their “take it or leave it situation” , both the management board and the supervisory board of the target company
are obliged to give a reasoned opinion on the assessment of the offer. Joint Ventures The legal documentation for a joint venture usu - ally consists of a business combination agree - ment covering the transaction aspect of the joint venture, and a shareholder agreement covering the co-operation side of the deal. Both compo - nents may be kept separate or combined in one document. The business combination agree - ment focuses on the establishment of the joint venture. Its content depends on the deal struc - ture and may vary from a share purchase agree - ment to an investment agreement setting out the entrance of the buyer into an existing legal entity or the establishment of a new legal entity by the joint venture partners, including the transfer of existing businesses to such entity. In the shareholder agreement, the joint venture partners usually agree on the corporate govern - ance and financing structure of the joint ven - ture entity, restrictions on the transferability of the shares and further covenants, such as non- compete obligations, as well as anticipated exit scenarios. The corporate governance is usually determined by way of pre-agreed articles of association for the joint venture entity as well as pre-agreed by-laws for its management, includ - ing lists of reserved matters, super majorities, quorums, minority shareholder protection and anti-dilution. For a future exit, the joint venture partners frequently agree on pre-emption rights and, depending on the specific situation, on tag- along, drag-along, call option or put option rights, exit waterfalls or even a (rather vague) framework for a potential future IPO.
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