Appropriate consideration under stock takeover offer

In a dispute concerning the takeover price offered to the stockholders of a stock corporation (Aktiengesellschaft) the Frankfurt Higher Regional Court ruled in favour of the plaintiff stockholders in its judgment dated 19 January 2016 (file no. 5 U 2/15). The price offered in the amount of €23.50 per stock did not constitute an appropriate consideration within the meaning of Sections 31 Subsection. 1, 6 WpÜG in connection with Section. 4, 5 WpÜG Offer Regulation (Wertpapiererwerbs- und Übernahmegesetz-Angebotsverordnung, WpÜG-AngV).

Pursuant to Section. 31 Subsection. 1 WpÜG the bidder has to offer appropriate consideration to the stockholders of the target corporation taking into account the average exchange rate of the stocks in the target corporation and the acquisition of stocks in the target corporation by the bidder. In the absence of appropriate consideration the stockholders that have accepted the offer are entitled to receiving payment amounting to the difference between the consideration offered and the consideration due from the bidder. This entitlement results directly from Section. 31 Subsection. 1 WpÜG in connection with Sections 3 et seqq. WpÜG-AngVO.

In the matter decided upon the Frankfurt Higher Regional Court had to rule whether only purchase prices for stocks or also purchase prices to acquire convertible bonds that could be and were converted to stocks should have been taken into account when determining the appropriate consideration.

In this case the court decided in favour of the latter. Section. 4 Sent. 1 WpÜG-AngVO sets out that the price paid for shares in the target paid up to six months prior to the takeover needs to be taken into account when determining the appropriate consideration under a takeover offer (Vorerwerb). According to the court the term “acquisition” provided by Section. 4 Sent. 1 WpÜG-AngVO may only mean the acquisition of stocks in rem.

But as Section. 4 Sent. 2 WpÜG-AnVO refers to Section. 31 Subsec. 6 Sent. 1 WpÜG, which puts the acquisition of stocks on a par with agreements that may constitute the grounds for a conveyance of stocks being claimed, convertible bonds may also need to be taken into account, depending on the exact circumstances. The present case, where the convertible bonds acquired by the defendant in its position as a bidder were acquired and converted to stocks within the relevant period set forth in Section. 31 Subsection. 3 WpÜG, demands for a par with a stock acquisition in accordance with Section. 31 Subsection. 6 Sent. 1 WpÜG. Thus, the Higher Regional Court regarded the highest amount paid of €30.95 - relating to a stock - as relevant for the acquisition of convertible bonds, as these convertible bonds were acquired and converted within the period set forth in Section. 31 Subsection. 3 WpÜG.

As the deliberation on the appropriateness of Section. 31 Subsection. 6 Sent. 1 WpÜG to convertible bonds is fundamentally significant, the Higher Regional Court has allowed for an appeal.