Contributed By CHSH Cerha Hempel Spiegelfeld Hlawati
In the case of extended circumstances, the realisation of the transaction and of each intermediate step is, in each case, in and of itself subject to the principles of ad hoc disclosure in accordance with Article 17 of the Market Abuse Regulation (Regulation (EU) 596/2014). The existence of inside information can be assumed if either:
a) sufficiently likely;
b) price-specific; and
c) price-relevant, or
a) has already occurred or its occurrence is sufficiently likely;
b) is price-specific; and
c) is price-relevant.
Intermediate steps that derive their price relevance from the final result are to be regarded as price-relevant if the occurrence of the final result can actually be expected.
Generally, the information is not precise enough to constitute inside information at the time at which the target is first approached or the negotiations commence. If a non-binding letter is signed, the question of whether there exists an obligation to issue an ad hoc notification comes down to the price specificity and price relevance of such a step. If these questions can be answered in the affirmative, the intermediate step itself is subject to an ad hoc reporting obligation. The question of how likely it is that the final result will occur plays a crucial role in this respect because on the one hand not every intermediate step is specific enough to enable a conclusion to be drawn on the effect it will have on the share price and, on the other hand, a reasonable investor does not buy or sell because, for instance, a non-binding letter is signed, but because these steps contain information relating to the final result. Generally, the signing of definitive agreements triggers an obligation to issue an ad hoc notification.
The issuer is required to publish inside information without undue delay. Therefore, the market practice on the timing of disclosure regularly does not and should not differ from legal requirements in order to avoid any consequences of the violation of the disclosure obligations.
In the course of takeovers, due diligence is rather the exception than the rule. In such cases, the scope of due diligence can be limited to only the publicly available information of the target. Pursuant to the Austrian Stock Corporation Act, Section 84 para 1a, a member of the management board of a stock corporation is said to be exercising the diligence of a responsible and conscientious corporate executive when taking business decisions if he or she does not allow him or herself to be guided by extraneous interests and if it may be reasonably assumed on the basis of adequate information that he or she is acting in the best interests of the company (Business Judgement Rule).
Defining the scope of the due diligence to be carried out is in particular a commercial decision based primarily on the Business Judgement Rule, knowledge of the relevant market and the target. When determining the scope of the due diligence, it always comes down to the relevance of the transaction, with the transaction volume playing a significant role. Due diligence can be conducted in a two-step process: in the first step, due diligence is carried out with certain restrictions. In the second step, comprehensive and unrestricted due diligence may be performed.
Generally, exclusivity is not very often required in the course of public transactions while standstill obligations are the rule. Standstills provide an incentive to successfully conclude the envisaged transaction on the first attempt. Therefore, standstills prohibiting interested parties from acquiring or selling securities in the target company or the bidder from making another offer for a certain period of time even after a takeover has failed are regularly requested and, in most cases, they are also a legal consequence of the prohibition of insider dealing.
Exclusivity arrangements vary depending on the structure of the takeover and the underlying transaction. In general, exclusivity arrangements tend to be made in connection with negotiated deals as opposed to auction sales. Exclusivity arrangements restricting the future scope of discretion of the management are not allowed in general.
The bidder can unilaterally specify in its offer document the terms and conditions of the agreement, which it may only change under certain circumstances. It is not possible for individual recipients of the offer to negotiate or change the terms and conditions of the tender offer. The bidder makes a tender offer to all shareholders concerning the conclusion of an agreement regarding the target company. The terms of a tender offer are adequately defined so that by means of a corresponding declaration given by the shareholder, a purchase or exchange agreement comes into effect. The Austrian Takeover Act assumes that a contract will only be concluded in respect of the offer aimed at the shareholders of the target company by means of the publication of the offer document if a declaration of acceptance is received. Essentially, a takeover offer fulfils the key requirements of a contract offer due to the fact that its terms are adequately defined and it expresses the willingness of the applicant to enter into an agreement. Therefore, the terms and conditions of the tender offer are documented according to the described procedure.