Last Updated April 16, 2019

Law and Practice

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CHSH Cerha Hempel Spiegelfeld Hlawati has 25 partners and 76 senior attorneys and associates in Austria; the firm also has offices in Belarus, Bulgaria, the Czech Republic, Hungary, Romania, and the Slovak Republic. The Corporate team is active for clients in the private M&A markets of Austria and CEE, representing strategic and private equity investors as well as their targets and/or management. It also advises on national and international cross-border mergers and reorganisations, specialising in developing and providing practical solutions to what can be extremely complex issues that often involve cross-border components. Due to the diversity of its clients, the team is particularly experienced in advising on public M&A, including takeover law and related disclosure requirements under stock exchange law.

In Austria, a private M&A acquisition is usually structured either as a purchase of shares in the target company (share deal) or of business assets (asset deal). In case of a share deal, the buyer directly acquires the shares in the target and (only) indirectly the target's business; the assets and liabilities pertaining to the business remain with the target. In an asset deal, the buyer acquires a business from a seller, which means that the assets and liabilities need to move from the seller to the buyer (subject to limitations, in particular with respect to liabilities, the parties may further define the details of the scope of the purchased assets). Whether the one or other method is applied, often depends on tax considerations, but also on the scope, shape and complexity of the business that shall be acquired, liability issues and results of due diligence, etc.

If the intention is to acquire shares in a stock corporation (Aktiengesellschaft) based in Austria, the shares of which are admitted to trading on the Vienna Stock Exchange (Wiener Börse) on a regulated market, with the aim to obtain or expand the control in such listed company, a strictly regulated procedure must be followed. This is governed by the Austrian Takeover Act (Übernahmegesetz). Since there are not many listed Austrian stock corporations, takeovers are not seen as often as in other jurisdictions.

In addition, alternative ways of acquisition are noteworthy, eg, statutory mergers, either by absorption (one company is merged into another) or by combination (two companies are merged into a newly established company). However, these techniques are typically employed within a group of companies rather than among unaffiliated entities, but may be employed as a preparatory step preceding a share deal with an unaffiliated entity to establish the envisaged target structure.

Merger Control

As regards merger control, the relevant authorities are the Federal Competition Authority (Bundeswettbewerbsbehörde), which is the recipient of Austrian merger control filings, the Federal Cartel Prosecutor (Bundeskartellanwalt) and the Cartel Court (Kartellgericht). Depending on the turnover thresholds, competence may pass to the European Commission, in which case the EU Merger Regulation exclusively applies without room for the Austrian merger control regime.

Dependent on Industry/Target Type

Depending on the industry of the target entity, regulators like the Financial Market Authority (Finanzmarktaufsicht) or E-Control, an authority monitoring the Austrian energy market, may supervise M&A activities and require additional notification obligations, approvals or 'fit and proper' tests. Typically, these restrictions are used to assess the identity, quality and fitness of the new acquirer and are limited to regulated industries (eg, banking, insurance, investment, pensions, telecoms, aviation, gambling, and in some respects gas and electricity). Furthermore, M&A activities within certain sensitive – mainly public order and safety-related – industries may require approval by the Austrian Ministry for Economic Affairs (for the latter, see 2.3 Restrictions on Foreign Investments and 2.6 National Security Review, below). Public takeovers of shares in Austrian listed entities falling within the Austrian Takeover Act are regulated and supervised by the Austrian Takeover Commission (Übernahmekommission).

Dependent on Asset Class

With regard to real estate, acquisitions may in limited circumstances be subject to notification or approval by regional land transfer authorities (Grundverkehrsbehörde) (see 2.3 Restrictions on Foreign Investments, below).

By and large, direct inward investments are usually freely available. Apart from restrictions that may be equally relevant for Austrian investors (eg, notification duties in cases of acquisition of certain share percentages in Austrian listed companies and approval/non-prohibition of the acquisition of certain qualified shareholdings in the financial sector), restrictions that may in particular also have relevance to foreign investors mainly relate to:

  • real estate: the acquisition of real estate assets by foreign (non-EEA) investors may be subject to notification or approval by regional land transfer authorities. Since each Austrian federal state regulates this matter individually, different provisions apply depending on the location of the real estate in question, the type of real estate and whether the acquisition may be triggered by an asset deal or also by a share deal, or even by an indirect change of control in a company that owns property;
  • sensitive industries: under the Foreign Trade Act 2011 (Außenwirtschaftsgesetz 2011) acquisitions of 25% or more of the voting rights in a domestic company by foreign (non-EU/EEA/Swiss) investors require advance approval by the Austrian Ministry for Economic Affairs, provided that the target belongs to a protected key industry. Such sensitive industries include sectors relating to the internal and external security of Austria, the public order and safety as well as procurement services and crisis prevention (among others defence, security, energy, water supply, telecommunications, healthcare and infrastructure) (see 2.6 National Security Review, below); or
  • money laundering and dealings with blacklisted states and individuals: further restrictions may stem from anti-money laundering legislation and KYC requirements, as well as in relation to intended transactions with blacklisted/sanctioned foreign states and/or individuals.

The relevant pieces of merger legislation are the Austrian Cartel Act 2005 (Kartellgesetz 2005) and the EU Merger Control Regulation (Regulation (EC) No 139/2004). Depending on turnover thresholds, transactions of a certain size become subject to the requirement of merger control clearance by either the Federal Competition Authority or the European Commission. The European Commission has exclusive jurisdiction if the transaction results in concentrations with an EU dimension. Where a transaction does not fall within the exclusive jurisdiction of the European Commission, it may require (pre-merger) notification to and clearance by the Federal Competition Authority.

The Austrian merger control regime catches several corporate transactions, such as the direct or indirect acquisition of shares, if a shareholding of 25% or 50% is attained or exceeded, any other combination (even below this threshold) enabling the buyer to exercise a controlling influence on the target or joint ventures. These concentrations have to be notified to the Federal Competition Authority if the following turnover thresholds are fulfilled cumulatively in the last business year immediately preceding the transaction in question:

  • the aggregate worldwide turnover of the undertakings concerned (eg, in case of 'mere' acquisitions: buyer and target groups) exceeds EUR300 million; and
  • the aggregate turnover on the Austrian market of the undertakings concerned exceeded EUR30 million; and
  • the worldwide turnover of each of at least two undertakings concerned exceed EUR5 million.

However, concentrations exceeding these turnover thresholds are exempt from mandatory notification if only one undertaking achieved a turnover in Austria of more than EUR5 million and the other undertaking(s) achieved an aggregate turnover of not more than EUR30 million worldwide.

Furthermore, an additional threshold has applied under Austrian merger control law since 1 November 2017. This additional threshold is linked not only to the turnover of the undertakings involved, but also to the transaction value. Specifically, concentrations meeting the following thresholds must in future be notified to the Federal Competition Authority:

  • a combined worldwide turnover of more than EUR300 million;
  • a combined turnover in Austria of more than EUR15 million;
  • where the value of the consideration exceeds EUR200 million; and
  • if the target company has significant business operations in Austria.

Within one month of receiving the complete notification, the Federal Competition Authority and the Federal Cartel Prosecutor conduct an initial assessment (Phase I) and, most commonly, following the transaction is cleared at the end of that period. In more critical cases, the Federal Competition Authority or the Federal Cartel Prosecutor initiates the main examination proceedings (Phase II). Here, the Cartel Court has five months to finalise the investigations, consider whether the transaction creates or strengthens a dominant market position and finally either clears the transaction (which may be subject to conditions and/or obligations) or prohibits it (which is quite rare in practice).

In particular, an acquirer has to consider the following rules:

  • Protection against dismissal: the Austrian employment law framework grants special status to certain groups of employees such as pregnant women or disabled persons, apprentices and members of the works council. These groups typically enjoy increased protection concerning the termination of their contracts. In addition, older employees enjoy some protection against dismissal, particularly when the dismissal results in social hardship or otherwise substantially violates their justified interests (eg, difficulties in finding a new job due to older age or age discrimination). Besides that, some employees could be entitled to the old severance payment scheme (granting such employees a multiple of their monthly salary which depends on, and increases with, their term of service). Under all these considerations, intended (post-closing) restructuring measures may become more difficult and/or costly to implement.
  • Co-determination: similar to German law (but different in many details), the Austrian Stock Corporation Act (Aktiengesetz) provides for a two-tier board structure composed of the management board and the supervisory board. In some instances this structure also applies to limited liability companies. The management board is responsible for the day-to-day business, while the supervisory board mainly monitors these activities and in particular resolves statutory as well as assigned matters. If a works council is established, the Austrian Labour Constitution Act (Arbeitsverfassungsgesetz) entitles employees to delegate representatives to the supervisory board pursuant to the principles of one-third parity (Drittelparität). The employees delegate one third of the supervisory board’s members and the shareholders elect the remaining two thirds. Thus, employee representatives may gain insights, are entitled to the same level of information as shareholder delegates and, most notably, actively take part in important business decisions.
  • Acquired rights: since the implementation of the European Acquired Rights/Transfer of Undertakings Directive, the Employment Contract Law Adaptation Act (Arbeitsvertragsrechts-Anpassungsgesetz) states that the acquisition of a business unit (eg, by way of an asset deal) involves a mandatory automatic transfer of all employment contracts that are part of the affected business unit. Therefore, a 'pick-and-choose' of employees is not possible and consequently the acquirer assumes the employment contracts, as they exist at the time of the transfer. This includes for example all benefits, unsettled claims, unconsumed vacation and severance pay entitlements. Only under certain limited circumstances employees may object to the transfer, eg, if any provision on protection against termination as set forth in a collective bargaining agreement applicable before the transfer or any pension commitment of the selling side are not taken over. Furthermore, employees are granted an extraordinary right to terminate their contract if working conditions worsen significantly. By contrast, terminations by the employer due to the acquisition of the business unit or transfer of the labour relations are null and void.

In accordance with the Foreign Trade Act 2011, Section 25a, Austrian companies operating in areas of internal and external security (the defence industry, security services, etc) or general public services, including social security (particularly healthcare, energy or water supply, telecommunication services, traffic or education) are protected against acquisitions by foreigners by the statutory requirement of an approval of the Austrian Ministry for Economic Affairs.

Generally, the requirement of ministerial approval applies to acquisitions of domestic listed and non-listed companies by foreign investors that are not residents or citizens of the EU, the EEA or Switzerland. In particular, the Foreign Trade Act 2011 involves three scenarios:

  • acquiring the target business;
  • purchasing a participation in the target conferring 25% or more of the voting rights in the target; or
  • obtaining a controlling influence (sole or joint control) over the target.

For the purpose of calculating the threshold triggering the approval requirement, shares of buyers acting in concert as well as persons having agreed to jointly exercise their voting rights have to be aggregated.

The request for approval has to be filed prior to signing of the respective acquisition documents. Within one month (in case of a more detailed assessment, within another two months) the Ministry for Economic Affairs decides on the request for approval, which is deemed cleared if no decree is issued within the aforementioned period. Where there is deemed to be a 'serious threat' to the interests of public security and order, the approval may be subject to conditions (which are not specified in further detail). Prior to the approval, an acquisition subject to the Foreign Trade Act 2011 must not be implemented.

CHSH Cerha Hempel Spiegelfeld Hlawati

Cerha Hempel Spiegelfeld Hlawati
Rechtsanwälte GmbH
Parkring 2
A-1010 Vienna

+43 1 514 35 0

+43 1 514 35 35

office@chsh.com www.chsh.com
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Authors



CHSH Cerha Hempel Spiegelfeld Hlawati has 25 partners and 76 senior attorneys and associates in Austria; the firm also has offices in Belarus, Bulgaria, the Czech Republic, Hungary, Romania, and the Slovak Republic. The Corporate team is active for clients in the private M&A markets of Austria and CEE, representing strategic and private equity investors as well as their targets and/or management. It also advises on national and international cross-border mergers and reorganisations, specialising in developing and providing practical solutions to what can be extremely complex issues that often involve cross-border components. Due to the diversity of its clients, the team is particularly experienced in advising on public M&A, including takeover law and related disclosure requirements under stock exchange law.

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