Contributed By CHSH Cerha Hempel Spiegelfeld Hlawati
In general, the timetable for M&A transactions may be subject to various drivers, which differ from case to case. The duration primarily depends on, inter alia, the target's size, complexity of the transaction structure, organisation and co-operativeness of the parties, the industry the target company operates in and regulatory aspects. Additionally, the chosen method for acquiring the target (share deal versus asset deal versus regulated takeover regime) may have an impact and affect the duration of the process, in particular the implementation/closing of the transaction.
Public takeovers, which are governed by a strict regulatory framework including prescribed steps in a prescribed timeframe, usually take a minimum of three and up to six months from the announcement of the offer to closing (hence, not including any time requirements for preparatory work). Private small- to medium-sized transactions structured as share or asset deals may typically be manageable from a minimum of three to six months onwards. In particular in the area of distressed M&A and small, simple transaction structures where no material due diligence of the target is performed, quite swift transactions, even below three months, are common. All of the foregoing assumes that no need for merger control clearance or other regulatory approval issues arise (if there are such issues, the timeframe may need to be extended substantially). For larger international M&A transactions, including a competitive tender process and usual regulatory approval requirements, time periods may extend up to approximately 12 or even 18 months from the first preparatory steps through to closing.
Essentially, the Takeover Act regulates public offers aiming at the gaining or expanding of control by acquiring shares issued by a stock corporation having its corporate seat in Austria and being listed on a regulated market on the Vienna Stock Exchange. Furthermore, the Takeover Act also applies (partially) where only the requirement of a corporate seat or the listing is fulfilled in Austria and the other requirement is fulfilled in another jurisdiction.
The Takeover Act distinguishes between three types of offers, namely mandatory offers, voluntary offers and voluntary offers aimed at obtaining control. Furthermore, as of 3 January 2018 a new section has been introduced to the Takeover Act that governs offers for delisting securities from the Official Market of the Vienna Stock Exchange. Such offers are subject to the provisions governing mandatory offers whereby certain modifications apply (see 3.2 Significant Changes to Takeover Law, above).
Generally, the obligation to launch a mandatory offer is triggered if a bidder (be it an individual or parties acting in concert) seeks to acquire a controlling shareholding, which is defined by statute as a direct or indirect controlling interest of more than 30% of the voting stock. A shareholding that gives the holder between 26% and 30% of the voting rights must, however, be notified to the Takeover Commission. An exception to this rule applies in certain cases in which an obligation to launch an offer would exist in principle due to the acquisition of a controlling interest. In the following cases, the Takeover Commission only needs to be notified:
The Takeover Act also catches the so-called 'creeping in' by shareholders: If a shareholder obtains a controlling interest which does not, however, provide them with the majority of the voting rights, and within 12 months obtains at least additional 2% of the voting rights, a mandatory offer must be launched.
Besides that, under the Austrian implementation of the European Transparency Directive notification requirements need to be observed if certain thresholds (starting with 4% of the voting rights) in Austrian listed entities will be reached or (upwards or downwards) crossed by a transaction (note that certain transactions in financial derivatives may also be relevant).
Based on experience, cash consideration is most common whereas offering shares (or the combinations of both) is rather rare. However, sellers not infrequently explore alternative ways such as the assumption of debt by a buyer, sometimes in combination with a cash payment.
As regards takeover transactions, mandatory offers always require cash consideration, but may have a paper alternative in addition. The same applies to voluntary takeover offers aimed at obtaining control. Only purely voluntary offers (not aimed at obtaining control) may be in cash or securities.
In general, mandatory offers may not be conditional on acceptance or any internal approvals by the bidder. It may solely be subject to obtaining regulatory clearance (eg, merger control).
With regard to purely voluntary offers (ie, not aimed at obtaining control) and voluntary takeover offers aimed at obtaining control, the completion may be subject to objectively justified conditions including minimum or maximum acceptance thresholds, clearance by merger control and other regulatory authorities or absence of a material adverse change. However, the fulfilment of a condition or a right to withdraw may not depend on the buyer's discretion. The Takeover Commission may declare an offer unlawful if conditions are unjustified, discretionary or not objectively determinable. As a result, the latter may prohibit its launch. Therefore, it is advisable to consult the competent authority prior to submitting an offer that includes conditions which are unusual, not precise enough or where their justification is not clearly evident.
A distinction must again be drawn between mandatory offers, voluntary offers aimed at obtaining control and purely voluntary offers:
a) 50% plus one vote enables a shareholder to take majority decisions in the general meeting, in particular electing members of the supervisory board, which in turn decides on the managing board's composition, distribution of dividends and similar;
b) 75% of the votes (a qualified majority) enable a shareholder to amend almost all provisions of the articles of association and to implement most types of corporate restructurings (mergers, transformation, spin-offs, etc); and
c) 90% of the shareholding enables a shareholder to initiate a squeeze-out of minority shareholders (see 6.10 Squeeze-out Mechanisms, below) with the aim of acquiring up to 100% ownership.
As regards private transactions, it is legally possible to make completion of a signed SPA/APA conditional upon the bidder obtaining financing (eg, by implementing a condition precedent stipulating (re)financing measures). However, such a contract structure is seldom accepted by the seller’s side and therefore rarely seen in practice (except in small private real estate transactions, for example).
In the case of public takeovers, financing must be ensured up-front, ie, a qualified independent expert has to certify in advance that the bidder is able to finance the offer.
The principle of freedom of contract granted by Austrian law enables transaction parties to seek any type of deal security measure as long as they do not violate moral principles (Sittenwidrigkeit). Needless to say, the question whether any (and what kind of) deal security may be part of a transaction, depends also on the bargaining positions of the parties involved. However, in situations where the Takeover Act) applies, further limitations need to be observed, eg:
If the shares in a company are not held by a single shareholder, but by two or more shareholders (whether this is a joint venture, private equity or other shareholder structure), it is very common to stipulate a governance structure among unaffiliated shareholders that goes beyond the protection and instruments afforded under statutory corporate law. Minority shareholders in particular will typically seek to improve their position towards majority shareholders by ensuring certain additional governance, financial and other rights of participation.
Typically governance documents include a shareholders' agreement, the articles of association themselves (stipulating rights in the articles of association may have some benefits from an enforcement perspective but at the same time means that they will be disclosed and available to the general public through the companies register) as well as by-laws for the management board (and the supervisory board and/or advisory board, if any).
In general, governance documents frequently contain rights to appoint and dismiss members of the supervisory and/or management board (and/or advisory board, if any), a catalogue of reserved matters with veto rights or qualified majorities, restrictions on dealings with shares (typically rights of first refusal, tag-/drag-along rights and/or a lock-up), profit distribution, anti-dilution, escalation/deadlock clauses, exit/termination rights (including also put and/or call option rights) as well as reporting and access to information rights, or any combination of the above. In addition, financing commitments between shareholders to provide the company with further equity and/or shareholder loans are sometimes agreed.
In Austria, shareholders may vote by proxy. However, certain formal requirements are applicable. As a rule, proxies should be issued in writing. A Power of Attorney in simple written form typically suffices as regards stock corporations. Proxies relating to limited liability companies will in certain cases (ie, when certain entries in the commercial register need to be applied for following a resolution) require notarised signatures and, if applicable, an apostille (or even super-legalisation, depending on the country of the shareholder). Depending on the subject of the voting/resolution, a general voting proxy may not always be sufficient; in a number of cases the proxy will be required to outline in very specific detail the subject matter of a resolution or commitment if it is to be covered by a proxy.
The Austrian Minority Shareholders Squeeze-Out Act allows a majority shareholder holding directly or indirectly at least 90% of the shares to squeeze out remaining minority shareholders. The consent of minority shareholders is not required and therefore the respective shareholders may not block the procedure. However, they are entitled to adequate cash compensation that is, on request, subject to a judicial review mechanism as to the adequate amount. Moreover, the articles of association may state an exclusion of the squeeze-out right (opting out) or introduce a higher threshold.
With regard to squeeze-outs effected within three months from the completion of a successful mandatory or voluntary takeover offer aimed at obtaining control, a special regime applies according to the Squeeze-Out Act, Section 7. It differs from the general regime particularly in the following ways:
The shareholder structure of Austrian listed companies is typically composed of one or a few core shareholders holding large share packages, whereas the percentage of free float shares is sometimes rather limited. Therefore, it is not uncommon to approach a core shareholder first – if it makes sense strategically – and to privately negotiate and seek an irrevocable commitment by the shareholder to sell these shares before launching a public offer. There are good arguments supporting the validity of such commitments even with a view of a public tender process and it might also be argued (although some grey area exists) that such irrevocable commitment, if already made prior to the launch of a public tender offer, should also remain binding in the case of a competing offer.
Contractual provisions providing a way out for the principal shareholder before a tender process is rather unusual, although such a clause would appear to be legally permissible. Within a tender process, the Takeover Act gives shareholders who have already accepted a public tender offer the mandatory right to withdraw their acceptance in the event that a competing tender offer is launched (but a contractual right of exit will make sense for those commitments which, as outlined above, would otherwise arguably remain binding in a subsequent tender process).