The Austrian Take-Over Act 2006

Dr. Andreas Zahradnik
2006, January 1

1. Background
On 30 April 2004 the European Directive 2004/25/EC on takeover bids ("Directive") entered into force; this is part of a process that will result in the harmonization of national takeover laws within the European Union. In Austria the Takeover Act 2006 is currently going through the legislative process. The draft law is scheduled to enter into force on 20 May 2006.

2. Current Takeover Act
The current Takeover Act (Übernahmegesetz – "ÜbG") applies to public offers for the acquisition of shares of an Austrian stock corporation being admitted to the official or semi-official market of a stock exchange in Austria ("target company"). A bidder or parties acting in concert acquiring a controlling interest (directly or indirectly) in a target company is obliged to launch an offer to all other shareholders to purchase their shares in the target company ("mandatory offer"). Further, the Takeover Commission (Übernahmekommission) must be notified within given time periods.

3. Takeover Act 2006
The definition of a "controlling interest" is now incorporated into the Takeover Act 2006. An interest is generally presumed (rebuttable presumption) to be controlling if 30 per cent of the voting stock of a target company is directly or indirectly held by an individual or a legal entity. The acquisition of voting rights not exceeding 30 per cent will in no case trigger a mandatory bid ("safe harbor"); however, voting rights exceeding a participation of 26 per cent are suspended unless explicitly lifted by the Takeover Commission. The Takeover Commission, upon application, may impose conditions on the bidder instead of suspending the voting rights.

In the case of a passive acquisition of control, a mandatory bid is not compulsory if the acquirer could not have reasonably expected the obtaining of control at the time of acquiring the participation. Nevertheless, the passive acquisition must be notified to the Takeover Commission.

The minimum price for shares in the target company in a mandatory or a voluntary offer aimed at the acquisition of a controlling interest shall be the higher of (i) the average share price traded on the stock exchange during the six months immediately preceding the acquisition of the controlling interest or (ii) the highest price paid by the bidder during the last 12 months ("minimum offer price"). Before Takeover Act 2006, this minimum offer price could be reduced by 15 per cent. Upon implementation of the Directive into Austrian law, such reductions are prohibited in order to accomplish the principle of equal treatment among shareholders.

From the time a bidder’s intention to submit a public bid becomes public, a target company may not undertake measures to jeopardize the offer; the management board and the supervisory board must act neutrally. However, the search for a more competitive takeover bid is permitted ("searching for the white knight"). In addition, the management board and the supervisory board have to issue a statement on the takeover bid immediately after publication of the offer documents. Such statement can also point out reasons for rejecting the offer.

Pursuant to Article 12 of the Directive the Member States have the option to provide for any restrictions regarding the transfer of shares stated in the articles of association becoming ineffective after publication of the takeover bid. Austria did not implement this option. However, Austrian companies still have the possibility to include restrictions on the transfer of shares in their articles of association. Furthermore, if provided for in the articles of association, following the announcement of a takeover bid where the bidder holds 75 per cent or more of the voting rights in the target company, the bidder is entitled to convene a general meeting of shareholders in which he is free to remove supervisory board members delegated by shareholders and appoint new members ("breakthrough-rule").

Upon request, the Takeover Commission issues an official notice stating whether the holder of interest in a target company is obliged to launch a takeover bid.

Under certain circumstances the Takeover Act 2006 might also be applicable (in parts) to Austrian target companies, which have their shares listed on a regulated market within the EEA other than the market where the target company has its registered office.

In the course of the implementation of the Directive, a new law on squeeze-out of minority shareholders (Gesellschafter-Ausschlussgesetz) will be enacted. Pursuant to the new law, a majority shareholder holding not less than 90 per cent of the share capital of the company may squeeze-out the remaining shareholders at an equitable (fair) price. The squeeze-out right will be general and not restricted by the need for a preceding takeover bid, as provided for in the Directive. The minority shareholders will not be entitled to block the squeeze-out, but will have the right to a separate judicial review of the accuracy of the compensation paid for their minority stake. In the event that a squeeze-out is followed by a takeover bid, the consideration offered in the takeover bid shall be presumed to be fair where, following the bid´s acceptance the bidder acquires shares representing not less than 90 per cent of the share capital of the target company.


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