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