The 'fair' squeeze-out compensation
Die angemessene Barabfindung für Minderheitsgesellschafter in einem Squeeze-Out
©2006
Diplomarbeit
74 Seiten
Zusammenfassung
Inhaltsangabe:Abstract:
This diploma thesis analyses squeeze-outs a deal where a controlling shareholder has the right to buy out minority shareholders at a fair compensation. As expected, the term fair can have very different meanings depending on who you ask. On the one hand, minority shareholders often argue perceiving the squeeze-out as a legal expropriation and accordingly demand a significant squeeze-out premium. On the other hand, controlling shareholders have the clear and simple intention to pay as little as possible when acquiring the remaining stake in the company. Even law, often seen as the last resort, leaves out a clear and definite description of the expression fair why the squeeze-out compensation turned out to be the crucial point in almost all past squeeze-out processes.
Squeeze-outs, in the US called freeze-outs, usually follow a public tender offer where a shareholder has acquired the necessary shareholding (e.g. 90 percent) and consequently obtained the right to exclude the remaining minority shareholders by paying an adequate compensation. In this context the squeeze-out rule, providing the legal framework, has the intention to make public takeovers more attractive. However, in the recent years, more and more minority shareholders executed their own right to challenge the proposed fair squeeze-out compensation in court with the objective to improve the value of the initial squeeze-out offer.
For example, minority shareholders of the German Hamburg-Mannheimer AG that protested against the squeeze-out resolution and requested a judicial appraisal of majority shareholders initially proposed fair squeeze-out compensation in June 2002 could, after a costly lawsuit that lasted two years, finally more than double the amount offered under the terms of majority shareholders original squeeze-out proposal. Hence, squeeze-outs under prevailing German as well as Austrian law are often seen as a free call option with exercise price equal to majority shareholders initially proposed fair squeeze-out compensation. This option is almost for free since the court costs due to the appraisal are covered by the majority shareholder and minority shareholders only have to pay for their own lawyer. Moreover, prevailing opinion assumes that the judicial appraisal cant result in a decrease of majority shareholders initially proposed fair squeeze-out compensation.
Motivated by these lucrative facts, the objective of this paper is […]
This diploma thesis analyses squeeze-outs a deal where a controlling shareholder has the right to buy out minority shareholders at a fair compensation. As expected, the term fair can have very different meanings depending on who you ask. On the one hand, minority shareholders often argue perceiving the squeeze-out as a legal expropriation and accordingly demand a significant squeeze-out premium. On the other hand, controlling shareholders have the clear and simple intention to pay as little as possible when acquiring the remaining stake in the company. Even law, often seen as the last resort, leaves out a clear and definite description of the expression fair why the squeeze-out compensation turned out to be the crucial point in almost all past squeeze-out processes.
Squeeze-outs, in the US called freeze-outs, usually follow a public tender offer where a shareholder has acquired the necessary shareholding (e.g. 90 percent) and consequently obtained the right to exclude the remaining minority shareholders by paying an adequate compensation. In this context the squeeze-out rule, providing the legal framework, has the intention to make public takeovers more attractive. However, in the recent years, more and more minority shareholders executed their own right to challenge the proposed fair squeeze-out compensation in court with the objective to improve the value of the initial squeeze-out offer.
For example, minority shareholders of the German Hamburg-Mannheimer AG that protested against the squeeze-out resolution and requested a judicial appraisal of majority shareholders initially proposed fair squeeze-out compensation in June 2002 could, after a costly lawsuit that lasted two years, finally more than double the amount offered under the terms of majority shareholders original squeeze-out proposal. Hence, squeeze-outs under prevailing German as well as Austrian law are often seen as a free call option with exercise price equal to majority shareholders initially proposed fair squeeze-out compensation. This option is almost for free since the court costs due to the appraisal are covered by the majority shareholder and minority shareholders only have to pay for their own lawyer. Moreover, prevailing opinion assumes that the judicial appraisal cant result in a decrease of majority shareholders initially proposed fair squeeze-out compensation.
Motivated by these lucrative facts, the objective of this paper is […]
Leseprobe
Inhaltsverzeichnis
Markus Dollinger
The 'fair' squeeze-out compensation - die angemessene Barabfindung für
Minderheitsgesellschafter in einem Squeeze-Out
ISBN: 978-3-8366-0150-4
Druck Diplomica® GmbH, Hamburg, 2007
Zugl. Universität Wien, Wien, Österreich, Diplomarbeit, 2006
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2
Table of Contents
Definitions and abbreviations...4
List of tables ...5
1
Introduction...6
1.1
Economic background of squeeze-outs ...7
1.2
Tax issues ...8
1.3
Squeeze-out - The expropriation...8
1.4
Delisting as a consequence of the squeeze-out ...8
2
The legal framework of "squeeze-outs"...9
2.1
The road to "squeeze-out" under prevailing Austrian Law...9
2.1.1 Transformation Act...10
2.1.2 Demerger Act...11
2.1.3 The "fair" squeeze-out compensation ...12
2.2
German squeeze-out law...14
2.2.1 Squeeze-Outs under German Stock Corporation Act ...14
2.2.2 Squeeze-outs through a domination agreement ...16
2.2.3 Minimum price rule under German case law...16
2.3
Changes of the legal squeeze-out process due to the new EC Directive ...17
3
Approaches to determine the "fair" value of the squeeze-out compensation ...19
3.1
Squeeze-out compensation and the free-rider problem...19
3.2
Consideration of market share prices when determining the "fair" squeeze-out
compensation ("market share price approach") ...22
3.2.1 Liquidity matters...23
3.2.2 Conservatism and market share prices ...25
3.2.3 Lemons effect due to information asymmetry ...25
3.2.4 Rumours and market share prices ...27
3.2.5 Representativeness heuristic and market share prices ...28
3.3
Advanced valuation models to determine the "fair" squeeze-out compensation ...29
3.3.1 Valuation models and the degree of control ...29
3.3.2 Enterprise Discounted Cash Flow (DCF) Approach ...31
3
3.3.3 Net Asset Value approach...36
3.3.4 Valuation Multiples (relative valuation approach) ...37
3.3.5 Dividend Discount Model (DDM) ...40
3.3.6 Discounted Earnings approach according to the German IDW S1 principles
(similar to the Austrian KFS BW 1 principles) ...42
3.3.7 Summarising ideas about the theoretical valuation models ...46
4
Austrian and German practical squeeze-out market ...46
4.1
Austrian squeeze-out market ...47
4.1.1 Used valuation models in practice ...48
4.1.2 Squeeze-out premiums ...49
4.1.3 Free-rider problem and squeeze-outs...52
4.1.4 Evidence of "nuisance" shareholders ...54
4.2
German squeeze-out market ...56
4.2.1 Squeeze-out premiums ...56
4.2.2 Deviations from the classical "front-loaded" two tier offer ...57
4.3
Summarising the empirical findings of the Austrian and German practical
squeeze-out market ...58
5
Conclusion ...59
Appendix ...62
Empirical results ...62
Excerpt from the German IDW S1 valuation principles ...66
German WpÜG-Offer Ordinance ...67
References ...68
4
Definitions and abbreviations
·
AktG
Austrian Joint Stock Corporation Act ("Aktiengesetz" including BGBl. I
Nr. 120/2005)
·
Alpha
·
Beta
·
CAPM
Capital Asset Pricing Model
·
dAktG
German Joint Stock Corporation Act ("Aktiengesetz")
·
DCF
Discounted Cash Flow
·
D
Debt
·
E
Equity
·
Random error term
·
GesAusG
Austrian
"Gesellschafterausschlussgesetz" (BGBl. I Nr. 75/2006)
·
g
Growth Rate
·
IDW S1
Standard 1 of the Institute of German Certified Chartered Accountants to
value a company (as amended on October 18, 2005)
·
KFS-BW1
Company valuation principles of the Austrian "Fachsenats für
Betriebswirtschaft und Organisation des Instituts für Betriebswirtschaft,
Steuerrecht und Organisation der Kammer der Wirtschaftstreuhänder" (as
amended on February 27, 2006)
·
SpaltG
Austrian Demerger Act ("Spaltungsgesetz" including BGBl. I Nr.
120/2005)
·
R, r
Rate of return
·
SpruchG
German Award Proceedings Act ("Spruchstellengesetz")
·
t
Tax rate
·
UmwG
Austrian Corporate Transformation Act ("Umwandlungsgesetz"
including BGBl. I Nr. 120/2005)
·
ÜbG
Austrian Takeover Act ("Übernahmegesetz" including BGBl. I Nr.
92/2003)
·
WACC
Weighted Average Cost of Capital
·
WpÜG
German Securities Acquisition and Takeover Act ("Wertpapiererwerbs-
und Übernahmegesetz")
5
List of tables
Table 1: Set of analysed Austrian squeeze-outs between January 2002 and December 2005 ...62
Table 2: Used valuation models in practice ...62
Table 3: Squeeze-out premiums ...63
Table 4: Free-rider problem and squeeze-outs ...64
Table 5: Improvements of the initially proposed "fair" squeeze-out compensation...64
Table 6: Evidence of "nuisance" shareholders...65
Table 7: Speculations finally yielded fruit? ...65
6
1
Introduction
This diploma thesis analyses squeeze-outs a deal where a controlling shareholder has the right
to buy out minority shareholders at a fair compensation. As expected, the term "fair" can have
very different meanings depending on who you ask. On the one hand, minority shareholders often
argue perceiving the squeeze-out as a legal expropriation and accordingly demand a significant
squeeze-out premium. On the other hand, controlling shareholders have the clear and simple
intention to pay as little as possible when acquiring the remaining stake in the company. Even
law, often seen as the last resort, leaves out a clear and definite description of the expression
"fair" why the squeeze-out compensation turned out to be the crucial point in almost all past
squeeze-out processes.
Squeeze-outs, in the US called "freeze-outs", usually follow a public tender offer where a
shareholder has acquired the necessary shareholding (e.g. 90 percent) and consequently obtained
the right to exclude the remaining minority shareholders by paying an adequate compensation. In
this context the squeeze-out rule, providing the legal framework, has the intention to make public
takeovers more attractive. However, in the recent years, more and more minority shareholders
executed their own right to challenge the proposed "fair" squeeze-out compensation in court with
the objective to improve the value of the initial squeeze-out offer. For example, minority
shareholders of the German Hamburg-Mannheimer AG that protested against the squeeze-out
resolution and requested a judicial appraisal of majority shareholder's initially proposed "fair"
squeeze-out compensation in June 2002 could, after a costly lawsuit that lasted two years, finally
more than double the amount offered under the terms of majority shareholder's original squeeze-
out proposal. Hence, squeeze-outs under prevailing German as well as Austrian law are often
seen as a free call option with exercise price equal to majority shareholder's initially proposed
"fair" squeeze-out compensation.
1
This option is almost for free since the court costs due to the
appraisal are covered by the majority shareholder and minority shareholders only have to pay for
their own lawyer. Moreover, prevailing opinion assumes that the judicial appraisal can't result in
a decrease of majority shareholder's initially proposed "fair" squeeze-out compensation.
Motivated by these lucrative facts, the objective of this paper is to provide a deeper insight into
the legal framework as well as the financial, theoretical and practical, aspects of squeeze-outs in
Austria and Germany. In particular, I want to discuss different theoretical valuation approaches
1
"Prevailing" means as of March 2006.
7
used to determine or at least to justify majority shareholder's proposed "fair" squeeze-out
compensation. Moreover, I investigate minority shareholders' squeeze-out premiums realised in
squeeze-out transactions. In this context, I also want to examine the question whether it might
pay off for shareholders not to tender their shares in the tender offer stage of a two-tier offer but
to wait for the inevitable squeeze-out process, and so possibly receive an even higher premium.
2
Last but not least, I want to analyse whether some speculating investors intentionally seek to
acquire the shares of companies subject to a squeeze-out to maybe benefit from the free call
option embedded in the squeeze-out process as represented by the right to request a judicial
appraisal of majority shareholder's initially proposed "fair" squeeze-out compensation.
The paper is organized as follows. The next section, Section 2, discusses the prevailing and future
legal framework to execute squeeze-outs in Austria and Germany. Section 3 presents the most
important theoretical valuation approaches used to determine and justify majority shareholder's
proposed "fair" squeeze-out compensation. In Section 4 I empirically survey the practical
Austrian and German squeeze-out markets with respect to the "fair" squeeze-out compensation.
Finally, Section 5 draws conclusions and brings-up some of the main unsolved problems in
squeeze-out processes.
1.1
Economic background of squeeze-outs
The motives for squeezing-out minority shareholders can be very diverse. Nonetheless, mostly
they are driven by the same basic aspects as takeovers in general.
3
However, the main aim of a
squeeze-out rule is definitely to facilitate takeovers and to exclude blocking minority
shareholders that often pose costly litigation risks. Allowing the majority shareholder to become
the sole shareholder clearly has many benefits, because a wholly owned company is no longer
required to comply with burdensome rules to protect, inform and integrate minority shareholders
(e.g. expensive general shareholder meetings). In this context, a squeeze-out provides more
flexibility for the sole shareholder to restructure or merge the target company and finally unhide
any potential synergies.
2
I will refer to a two-tier offer where the first stage is the tender offer and the second stage is the actual squeeze-out
of the remaining minority shareholders.
3
Despite mostly similar motives between squeeze-outs and takeovers in general, squeeze-outs are definitely not
driven by the motive to replace poor managers since majority shareholders holding some 90 percent of the
outstanding share capital are already in the legal position to control the board and nominate the management.
8
1.2
Tax issues
Taxes definitely play an important role in corporate restructurings. In squeeze-outs financing
costs related to the acquisition of stock are tax deductible under the prevailing Austrian Tax Act.
Moreover, since a squeeze-out under prevailing law is only possible in combination with a
transformation or demerger, group taxation allows the transfer of taxable results (profits and
losses) to a group level. However, since tax issues are not the main objective of this paper, I will
exclude fiscal aspects regarding squeeze-outs.
1.3
Squeeze-out - The expropriation
The question whether it is lawful to exclude minority shareholder has often been discussed by
legal experts.
4
Many argue that a squeeze-out, seen as an expropriation, is antinomian.
Nevertheless, this paper will not challenge the legal argument of expropriation since this is not
the objective of this work.
1.4
Delisting as a consequence of the squeeze-out
The logical outcome of every squeeze-out is a concentration of all shares in one single
shareholder. Consequently, for listed stock corporations a squeeze-out inevitably results in a
delisting from the stock exchange since one key requirement of the Austrian Stock Exchange for
the prime market, for example, is that the free-float has a market value of at least 725.000 Euros.
Associated with the Going-Private process, the stock corporation no longer faces expensive
listing fees that can amount up to several thousand Euros a year.
5
Additionally, the stock
corporation does no longer have to operate the ad-hoc disclosure system to provide the public
with all market price-relevant corporate information (including quarterly and annual reports,
calendar of corporate events and even changes of strategic equity holdings).
Clearly, these financial savings are not negligible and can explain, to some extend, majority
shareholder's intention to immediately execute the squeeze-out right once the necessary
shareholding is reached to do so. However, compared to the financial outlays as represented by
the squeeze-out compensate, these savings are relatively small.
4
See resolution of the German Federal Constitutional Court (BVerfGE 14, 263 or BVerfGE 100, 283) from August
7, 1962, that unambiguously declared: "Eine Mehrheitsumwandlung und der damit verbundene Verlust der Position
als Aktionär ist nur dann mit dem Eigentumsgrundrecht vereinbar, wenn die zum Ausscheiden gezwungenen
Minderheitsaktionäre für den Verlust ihrer Rechtsstellung wirtschaftlich voll entschädigt werden."
5
See Vienna Stock Exchange at www.wienerboerse.at. Visited May 2006.
9
2
The legal framework of "squeeze-outs"
2.1
The road to "squeeze-out" under prevailing Austrian Law
6
As an introduction I would like to point out the most common steps to a squeeze-out.
As a legal basis I am going to use the Austrian Takeover Act and Austrian Stock Corporation
Law. The crucial threshold of 90 percent of the nominal capital, that legally makes a squeeze-out
possible, can be reached through different ways. In short, a public takeover offer is probably the
most direct and common way to obtain the necessary shareholding to exercise the squeeze-out
right. In this context, I am going to explain the different types of public takeover offers under the
Takeover Act to acquire the needed threshold of 90 percent.
Basically, Austrian Takeover Act distinguishes between voluntary offers, mandatory offers and
anticipated mandatory offers.
A mandatory offer
7
is necessary in the case of the acquisition of a controlling shareholding. A
controlling shareholding allows the bidder (alone or in concert) to exercise a dominant influence
on the target. In this context, a dominant influence is generally presumed (refutable presumption)
to arise through the acquisition of 30 percent of the voting shares.
Mandatory offers must not include conditions, are subject to a minimum takeover price and
require a cash offer or can have a security alternative in addition.
By law, the minimum compensation must be at least the average quoted market share price
during the six months before the controlling stake was acquired and the highest price paid for
target shares by the bidder during the last 12 months before the controlling stake was acquired
(less a possible discount of no more than 15%). In general, a mandatory bid can either be
triggered by a share acquisition on the stock exchange or by a large stake acquisition outside the
stock exchange.
A voluntary offer
8
has no restriction of pricing, the compensation may be paid in cash or
securities and the offer may be subject to justified conditions including maximum or minimum
percentages or quantities of shares the bidder undertakes to acquire. A common condition in a
6
"Prevailing" means as of March 1, 2006.
7
See Section 26 Austrian Takeover Act
8
See Section 8 Austrian Takeover Act
10
voluntary offer is the critical 90 percent threshold (a "90% condition"), that subsequently would
enable an immediate squeeze-out. In a voluntary offer the bidder must not have a controlling
shareholding.
Anticipated mandatory offers
9
are subject to the rules on mandatory bids, in particular to cash
offer and minimum takeover price, with, however, one exception. This offer can be conditional,
in particular, on reaching or exceeding a certain threshold of shareholding. An anticipated
mandatory offer is triggered when the bidder, that initially holds less than a controlling stake,
finally acquires more than 50 percent of the voting rights through the takeover offer.
Since the Austrian Takeover Act came into force on January 1, 1999, up to December 31, 2005
there have been 33 public takeover offers including 13 mandatory offers and 20 voluntary offers,
eight of which were so-called anticipatory mandatory offers.
10
Once reached the 90 percent threshold (90 percent of the issued share capital
),
the majority
shareholder has, legally spoken, two ways to squeeze-out the remaining minority shareholders;
either by performing a transformation under Section 2 and 5 of the Austrian Transformation Act,
or by performing a non-proportional spin-off under the Austrian Demerger Act.
2.1.1
Transformation Act
11
The Transformation Act provides the majority shareholder the possibility either to transform the
entire target company to its 90 percent shareholder (merging reconstruction) or to transform the
target company to a newly established limited or unlimited partnership (establishing
transformation). In both cases a shareholder resolution, passed by a majority of 90 percent of the
outstanding shares, is required to finally implement the transformation; minority shareholders
lose their shares in exchange for an adequate, "fair" cash compensation.
Prior to the resolution, a transformation plan must be established specifying the transaction and
the fair compensation paid to minority shareholders. The transformation plan, based on a balance
sheet not older than 9 month, must also nominate an independent certified public accountant as
9
See Section 22(11) Austrian Takeover Act.
10
See homepage of the Austrian Takeover Commission at www.takeover.at. Visited January 20, 2006
.
11
In the US it is called a "short-form" merger.
11
auditor to report, in particular, on the methods of determining the fair compensation proposed by
the majority shareholder, and the adequacy of these methods.
Despite auditor's report about the fairness of the squeeze-out compensation, under the Austrian
Transformation Act each minority shareholders has the right, regardless whether agreed to the
transformation resolution or not, to seek judicial review of the compensation within 1 month of
transformation's registration.
12
In such a case, the court itself rests its opinion upon a permanent committee whose members are
judges, certified public accountants and usually members of the Federal Employee's Chamber.
This committee then usually calculates the value of the fair squeeze-out compensation as the
intrinsic value of the company's anticipated earnings (Discounted Earnings approach).
2.1.2
Demerger Act
Under the Austrian Demerger Act, the 90 percent shareholder has to right to spin-off a so called
cash-box (legal entity), where the minority shareholders become the sole shareholders. Minority
shareholders lose their shares in the original stock corporation and the 90 percent shareholder
becomes the sole owner (non-proportional demerger). In return, minority shareholders are
entitled to receive a "fair" compensation that is fixed by the majority shareholder in the demerger
plan, which in turn has to be based on a balance sheet not older than 9 month. The necessary
demerger resolution to finally perform the squeeze-out has to be passed by a majority of 90% of
the issued share capital. Again, an independent certified public accountant must be appointed as
an auditor for the demerger to report the adequacy of the proposed compensation.
In the case of a spin-off, only those minority shareholders that filed a protest against the demerger
resolution are entitled to receive pure cash compensation. All others receive shares of the spun-
off cash-box corporation and usually a small cash adjustment. Furthermore, only those minority
shareholders that filed a protest against the demerger resolution during the shareholder meeting
have the right
to file a separate review of the cash compensation by court within 2 month of the
registration of the demerger.
13
Again, to determine the fair value of the squeeze-out compensation, the court will base its
opinion on the committee's valuation approach, as mentioned before.
12
See Section 2(3) Transformation Act.
13
See Section 9(1) Demerger Act
12
Clearly, under prevailing Austrian law, Transformation Act is seen as more shareholder
protective compared to the Demerger Act as it allows "every" minority shareholder to seek
judicial review of the proposed squeeze-out compensation.
2.1.3
The "fair" squeeze-out compensation
To analyse the fair cash compensation paid by the majority shareholder, I will first look at the
legal boundaries under Austrian Law and then focus on different theoretical and practical
valuation models to determine the fair squeeze-out compensation. Some of these valuation
approaches are really used by majority shareholders whereas others are obsolete or even
misleading.
As already mentioned above, basically, the majority shareholder fixes the squeeze-out
compensation at his own discretion with the only legal restriction that it must be "fair".
Nonetheless, the majority shareholder has to base the valuation approach to determine the fair
squeeze-out compensation on a balance sheet not older than 9 month. Despite minority
shareholder's claim for consideration of all price relevant information up to the actual squeeze-
out resolution date (shareholder meeting), unfortunately the valuation date is not fixed under
prevailing Austrian law. However, most practitioners as well as the court (judicial appraisal) set
the valuation date equal to the actual shareholder resolution date. Last but not least, the question
whether any potential synergistic gains of the de facto complete takeover shall be considered in
the squeeze-out compensation is left to court's discretion under prevailing Austrian and German
law.
2.1.3.1
Minimum squeeze-out compensation under Austrian Law
As already described above, neither prevailing Austrian Transformation nor Demerger law
specifies a minimum squeeze-out compensation. Hence, for a long time there was a discussion
among experts whether the existing minimum price restriction under section 26 Austrian
Takeover Act shall also be considered when determining the fair squeeze-out compensation;
particularly, given the fact that even German case law referred to a similar minimum price rule
when determining the fair squeeze-out compensation. Eventually, in its resolution from
September 28, 2002, Austrian Constitutional Court ("Verfassungsgerichtshof") explicitly
approved to consider average market share prices when determining the fair squeeze-out
13
compensation.
14
In other words, the average market share price is assumed to constitute the
minimum squeeze-out compensation paid to minority shareholders.
15
2.1.3.2
Upper boundary of the squeeze-out compensation
As expected, the legislator has not set an upper boundary of the fair squeeze-out compensation.
However, from past squeeze-outs we can see that the majority shareholder usually pays a
significant premium above the market share price to minority shareholders. In some cases a
premium of up to 90 percent above the average market share price within the previous six month
was paid.
16
In this context, I want to leave aside the question about the gainers and losers of such
acquisitions but rather touch on the concept of the "winner's curse".
Winner's curse in a squeeze-out
Generally, we talk about the "winner's curse" when a bidder has finally acquired a company or
the remaining stake of a company by paying more than all the other bidders. The term "winner's
curse" has its origin in the auction process where the winner of the auction has to ask himself
whether he has overpaid, paid more than its fair value. Because why else would he have won the
auction? Clearly, the underlying assumption of the winner's curse is asymmetric information
between the buyer and the seller. Buyers generally don't know the fair value of the commodity in
question but rather they have to estimate it.
If we now apply the concept of the winner's curse to squeeze-outs we will quickly realise that
competing bids in the form of voluntary offers are not promising in the squeeze-out process. As a
consequence, the majority shareholder feels no pressure from competitors and thus, has the
simple intention, of course, to pay as little as possible to minority shareholders. Additionally,
because the majority shareholder is commonly seen as an "insider" who has no lack of
information about the share's fair value, unsolicited overpayments become less likely.
14
See resolution of the Austrian Constitutional Court from September 28, 2002 VfGH G 286/01.
15
Also see Kalss, S., Bachner, T., Handkommentar zur Verschmelzung, Spaltung, Umwandlung, Manz Verlag, Wien,
1997, §2 UmwG Rz. 27; Tichy, G., "Zur aktuellen Diskussion über Unternehmenswert und Börsenkurswert", RWZ,
2000, 168-171; Schumer in Helbich, F., Wiesner, W., Bruckner, K., Handbuch der Umgründungen, LexisNexis,
Wien, 2002, Art II Umwandlung Handelsrecht, Rz. 43.
16
See Brau Union AG (2004), where a squeeze-out premium of 89.23% above the 6 month average market share
price was paid to minority shareholders.
14
Although there is no legal upper boundary of the squeeze-out compensation, game theory
(rational choice theory) provides an unambiguous upper limit. In short, because of the so-called
"free-rider problem" minority shareholders in a squeeze-out should receive a consideration not
higher than the compensation paid by the majority shareholder in a previous public tender offer.
2.2
German squeeze-out law
In January 1, 2002, a general rule to squeeze-out minority shareholder was introduced into
German Stock Corporation Law.
To facilitate takeovers, Germany has almost simultaneously
introduced a new Takeover Act providing a clear and binding set of rules for public tender offers.
Given this "general" Squeeze-Out rule, it is not necessary to transform or split the target
corporation, as required in Austria, to make a squeeze-out possible.
Besides the general squeeze-out rule, another way to perform a squeeze-out and de facto a
delisting from the stock exchange is by arranging a so-called domination agreement, which I will
discuss afterwards.
2.2.1
Squeeze-Outs under German Stock Corporation Act
17
In the beginning of 2002, a general squeeze-out rule was introduced into German Stock
Corporation Law whereby shareholders holding more than 95 percent of the share capital are
entitled to buy out minority shareholders at "full real value".
Basically, as in Austria, the majority shareholder has the discretion to choose the valuation model
and hence the squeeze-out compensation. The method used to perform the company valuation is
not specified in the squeeze-out rules. However, a court-appointed independent auditor will audit
majority shareholder's company valuation used to determine the "full real value" of the squeeze-
out compensation.
In a shareholder resolution, that has to be passed by a simple majority (see Section 133(1)
German Stock Corporation Act) of the voting rights, all specific terms of the squeeze-out
transaction including the fair compensation must be specified. Furthermore, German law requires
using the squeeze-out resolution date as the valuation date. It is quite obvious that the valuation
itself will be performed some days or weeks before the actual shareholder meeting. Nevertheless,
17
See Section 327a et seqq. German Stock Corporation Act
15
it has to be assured that all price relevant information up to the resolution date must be
incorporated in the valuation process.
Despite the review by the independent auditor, within three month of the registration of the
squeeze-out resolution every minority shareholder has the right to request a judicial appraisal of
majority shareholder's valuation process. This protest does not prevent the squeeze-out from
becoming effective, but the past has shown that the judicial appraisal usually leads to a
significant improvement of the initially proposed "fair" squeeze-out compensation. Moreover,
prevailing opinion states that a decrease of the squeeze-out compensation is not possible in the
judicial appraisal
18
.
Once challenged, the court will evaluate the fairness of the compensation usually by appointing
another auditor to come up with a separate valuation approach. Finally, court's ruling has a final
and binding effect for all minority shareholders (Erga-Omnes effect, see Section 13 SpruchG).
To determine the "full fair value" in a squeeze-out, German courts in most cases apply the so-
called IDW S1 principles, adopted by the German Institute of Certified Chartered Accountants.
Moreover, as in Austria, German courts generally use the Discounted Earnings approach to
review the fairness of majority shareholder's proposed squeeze-out compensation.
In this context, what we have seen in the past were big price discrepancies between the initially
proposed squeeze-out compensation by the majority shareholder and the reviewed compensation
by court (that applied IDW S1 principles). Apart from majority shareholder's intention to
perform a company valuation that yields a very low equity value and consequently a low
squeeze-out compensation, the reason definitely was the overvaluing IDW S1 valuation
principles.
19
That's why IDW S1 was lately modified (October 18, 2005). However, the counter-
argument that the court-appointed independent auditor will anyway prevent majority
shareholder's intention to undervalue the company diminishes due to the information asymmetry
and the limited time of the court-appointed auditor to perform an in-depth review.
18
See Grzimek (2002), p. 740 or Steinmeyer, Häger (2002), p. 682.
19
For a more detailed explanation see DVFA Methoden-Kommission Expertengruppe Valuation, "Stellungsnahme
zu den Grundsätzen zur Durchführung von Unternehmensbewertungen (IDW S1)", FinanzBetrieb, No. 9, 2005, 558-
560.
16
2.2.2
Squeeze-outs through a domination agreement
Another possibility to get rid of minority shareholders is offered by Section 305 of the German
Stock Corporation Act. Hence, a majority shareholder holding at least 75 percent of the
outstanding voting rights can file a so called domination and profit and loss transfer agreement.
In such a case, the majority shareholder is required to pay minority shareholder the "full real
value". The valuation model used by the majority shareholder is not further specified in the Act.
But again, a court-appointed auditor will supervise the valuation approach and in addition
minority shareholders have the right to ask for judicial appraisal within two month of the
enterprise agreement registration. However, this challenge
does not prevent the registration, and
therefore the squeeze-out itself from becoming effective.
If minority shareholders challenge court to review the compensation, an additional auditor is
called to perform a separate company valuation. Court's opinion, based on this new approach, has
a final and binding effect. Again, all shareholders regardless whether they filed a protest or not
are subject to court's ruling (Erga-omnes effect, Section 13 SpruchG).
2.2.3
Minimum price rule under German case law
As in Austria, no minimum price rule is fixed in German code law. Instead, German case law
explicitly suggests the market share price as the lower boundary for the fair squeeze-out
compensation. In its resolution from April 27, 1999, German Federal Constitutional Court
("Deutsche Bundesverfassungsgericht") explicitly regulates considering average market share
prices when determining the fair squeeze-out compensation.
20
Moreover, in its resolution from March 12, 2001 German Federal Court of Justice
("Bundesgerichtshof") specifically approved using the 3 month average market share price prior
to the deciding shareholder resolution (demerger resolution) as the minimum squeeze-out
compensation.
21
Furthermore, the resolution of the Federal Court of Justice also states that the 3
month average market share price must explicitly not be used as the minimum squeeze-out
compensation if stock exchange prices for the shares of the target company were fixed on less
20
See resolution of the German Constitutional Court from April 27, 1999 1 BvR 1613/94: "Das deutsche BVerfG
hat in seinem DAT/Altana-Beschluss vom 27.4.1999 entschieden, dass es mit Art. 14 Abs. 1 Grundgesetz
unvereinbar ist, bei der Bestimmung der Abfindung oder des Ausgleichs für außenstehende oder ausgeschiedene
Aktionäre nach den § 304, 305 bzw. § 320b dAktG den Börsenkurs der Aktien der abhängigen Gesellschaft außer
Betracht zu lassen."
Also see Section 5 (1) WpÜG-Offer Ordinance. An excerpt is provided in the appendix.
21
See resolution of the German Federal Court of Justice from March 12, 2001 II ZB 15/00.
Also see Section 5 (4) WpÜG-Offer Ordinance. An excerpt is provided in the appendix.
Details
- Seiten
- Erscheinungsform
- Originalausgabe
- Jahr
- 2006
- ISBN (eBook)
- 9783956361807
- ISBN (Paperback)
- 9783836601504
- Dateigröße
- 748 KB
- Sprache
- Englisch
- Institution / Hochschule
- Universität Wien – Wirtschaftswissenschaften, Finanzwirtschaft
- Erscheinungsdatum
- 2007 (Februar)
- Note
- 1,0
- Schlagworte
- abfindung baranfindung anteilseigner gesellschafter squeeze-out
