Austria's New Takeover Regulations

UNCLAS VIENNA 001961 SIPDIS SIPDIS STATE FOR EB/TTP/MTA/IPC STATE ALSO PASS USTR AND FTC/JOHN J. PARISI USDOC FOR ITA USDOC FOR 4212/MAC/EUR/OWE/PDACHER DOJ/RLARM E.O. 12958: N/A TAGS: ECIN EIND AU SUBJECT: Austria's New Takeover Regulations Summary -------------- ¶1. Austria's Parliament has passed two takeover laws to implement the EU's Takeover Directive and to rectify problems with Austria's previous Takeover Law. An Amendment to the Austrian Takeover Act of 1998 incorporates Article 9 of the EU's Takeover Directive prohibiting defensive action to frustrate bids. Austria opted out of Article 11 of the Directive's breakthrough regulations, but the Austrian legislation allows individual companies to address these in company bylaws. The amendment also introduces a 30% threshold for requiring a takeover bid for all shares and provides precise regulations for obtaining a controlling shareholding stake passively, such as when a large investor sells shares. The Shareholder Exclusion Act implements Article 15 of the EU's Takeover Directive, allowing a primary shareholder, with at least 90% of capital stock, to "squeeze out" minority shareholders. The new takeover regulations improve further the favorable investment climate for foreign firms in Austria. End Summary. New Takeover Regulations in Austria -------------- ¶2. Parliament's plenary has passed the GoA's bill to amend the Austrian Takeover Act of 1998, as well as a new Shareholder Exclusion Law. The takeover amendment implements the EU Takeover Directive 2004/25/EC. By introducing a "safe harbor" regulation, the amendment addresses Austrian Constitutional Court concerns resulting from a case, in which regulations forced a shareholder to make a takeover bid, even though he had not obtained additional shares. The new regulations have been effective since May 20. No Defensive Action or "Poison Pills" -------------- ¶3. The GoA did not opt out of Article 9 of the EU's Takeover Directive dealing with defensive action following a takeover bid. Paragraph 12 of Austria's Takeover Act prohibits the board of a target company from taking measures to frustrate a bid. It also requires shareholder approval for any defensive action, except for soliciting alternative bids. A general shareholders' meeting must approve any extraordinary decisions a company's board takes before it formally receives information about an intended bid, and if the decision could potentially frustrate a takeover bid. The general shareholders meeting must approve each specific measure. It is not possible to issue a blanket, "in reserve" approval in advance. Breakthrough Regulated in Corporations' Bylaws -------------- - ¶4. Austria opted out of Article 11 of the EU Directive, thereby not regulating breakthrough provisions in the law. However, Paragraph 27a of the Austrian Takeover Act allows corporations the option to address breakthrough provisions through company bylaws. Such bylaws may stipulate that, in the event the company becomes a takeover target, paragraph 27a, which otherwise conforms to Article 11 of the EU Directive, applies. Bylaws may also set a lower-than-normal threshold for a mandatory takeover bid, at below 30%. ¶5. The GoA deferred breakthrough regulations to the company level, because Austria has few obstacles to takeovers. Austria has no multiple-vote shares. By highlighting favorable company bylaws, a company can present itself as an attractive takeover candidate. All shareholders, with the right to delegate board members, have to approve such changes to bylaws. Companies must notify the Austrian Takeover Commission and the supervisory authorities of all member states where the shares are listed on the regulated market of such changes. Following a bid, an individual holding 75% or more of the shares with voting rights can call a general shareholders' meeting to push through his interest, such as amending the bylaws or removing or appointing board members. "Safe Harbor" Regulation - 30% Threshold for Bids -------------- -------------- ¶6. The revised Paragraph 22 of the Austrian Takeover Act stipulates a threshold of more than 30% in direct or indirect control of a company's voting shares for triggering the requirement to make a takeover bid for all shares. This replaces the flexibly interpreted controlling stake definition and provides a "safe harbor" for shareholders with less than 30% (particularly a 25% blocking minority) from a mandatory bid obligation. A shareholder obtaining a direct or indirect controlling stake of more than 30% has to notify the Takeover Commission immediately and make a bid in accordance with the provisions of the Takeover Act for all shares of that company within 20 trading days. ¶7. The new regulations provide precise guidelines on the formation or dissolution of a group of shareholders, or of changes to the group. For example, the formation of a group, particularly a syndicate contract, triggers an obligation to submit a takeover bid, if the group acts in concert and together holds a controlling 30% stake. ¶8. The law also includes new regulations for determining the price of a takeover bid. Pursuant to the EU Takeover Directive's requirement for equal treatment of all shareholders of a target company, the Austrian regulations cover both mandatory and voluntary takeover bids. The new legislation reduces the period for determining the minimum price from a twelve- to a six- month average. The new law eliminates a current provision allowing for a possible discount of up to 15% of this average price. Obtaining a Controlling Stake Passively -------------- ¶9. Special new regulations will apply to shareholders who passively obtain a controlling stake in a company. (This would occur not by buying additional shares, but because another large shareholder reduced his shareholding.) The new law does not require shareholders who obtain a controlling stake passively to submit a takeover bid. In such a scenario, the shareholder with an increased stake of at least 30% of the voting shares has three options: a) accept a restriction in voting rights to 26%, just above a 25% blocking minority; b) sell shares in excess of 26%; or c) make a takeover bid. If the controlling shareholder buys additional shares, the obligation to make a bid for all shares of the company automatically applies. The Takeover Commission may waive the restriction of voting rights to 26%, but not in excess of 30%, in exchange for other conditions providing an equivalent protection for other shareholders. "Squeeze Out" of Minority Shareholders -------------- ¶10. A new Austrian Shareholder Exclusion Act implements Article 15 of the EU's Takeover Directive and allows for a "squeezing out" of minority shareholders after a takeover. The primary shareholder, holding at least 90% of the capital stock including preferred non-voting shares, may call a general shareholders' meeting to require that minority shareholders transfer their shares in exchange for an appropriate cash value. Shares held by an affiliate company of the main shareholder for at least one year will count towards determining the 90% threshold. A company's bylaws may exclude the "squeeze out" provision or determine a threshold higher than 90%. All shareholders have to approve changes in such bylaw provisions, unless the bylaws otherwise state. MCCAW