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Buyback of Company Stock (AReG)

UIA Newsletter of the M&A Commission
1. Juni 2000
Mag. Vera Ziegelwanger, LL.M.
In July 1999, Austrian parliament passed the AReG amending the provisions of the Joint Stock Company Act (Aktiengesetz), the Stock Exchange Act (Börsegesetz) and the Commercial Code (Handelsgesetzbuch) making the tool of a share buyback available also to quoted Austrian joint stock companies (Aktiengesellschaften).

While formerly share buybacks were permissible only in very restricted situations (e.g., to prevent imminent and material damage to the company or to prepare a share offering to employees), the AReG now allows for a quoted Austrian joint stock company (hereafter "company") to acquire up to 10 per cent of its issued nominal capital. The share buyback is open only to companies which are quoted on a public security exchange or any other regulated security exchange open to the public either in Austria or in any other member state of the OECD (therefore, including all regulated markets according to Art 16 of the Investment Services Directive).

A share buyback can take place only on the basis of a resolution of the general meeting setting forth (i) the number of shares to be acquired;
(ii) the highest and the lowest purchase price and;
(iii) the period for which the share buyback is authorised (such a period must not exceed 18 months but may be prolonged by a further resolution of the general meeting).
Furthermore, the resolution needs to be published together with the details of the share buyback programme and its term.

The company may only repurchase shares which have been fully paid up. Furthermore, the company has to make a reserve for its own shares for accounting purposes. The acquisition of own shares is only permitted to the extent that such reserve can be made without the net assets falling below the aggregate of the nominal capital and a bound statutory reserve (if existing).

In the course of the acquisition of its own shares, the company has to make sure that all shareholders are treated equally. Therefore, a purchase offer has to be addressed to all shareholders. The buyback and the subsequent sale of the company´s own stock either through the Stock Exchange or by the means of a public offering, must meet the requirements of equal treatment. With respect to a share buyback programme by companies quoted in Austria by the means of a public offering, it is not clarified in the law whether such a public offering is subject to the procedure for a voluntary bid pursuant to the Take-over Act (in practical terms, this will have to be clarified by the Take-over Commission).

The company must not use its own stock for trading purposes (the term "trading" needs to be interpreted extensively), in particular in order to influence the share price. All shareholder rights resulting from acquired own stock are suspended in order to avoid any influence of the management on the company.

Companies quoted at the Vienna Stock Exchange need, in addition to the above mentioned, to publish the period of any share buyback programme as well as the period of a subsequent resale programme immediately before implementation (the respective local transparency provisions will apply to Austrian joint stock companies listed outside of Austria).

It is worth noting that the acquisition of own shares remains in effect in spite of the violation of the aforementioned conditions. In such case, the company will only be obliged to sell such stock within one year (three years as regards own stock exceeding the 10 per cent limit).

Instead of reselling acquired own stock, the company (by the means of a resolution of the general meeting by simple majority) may also decide to withdraw such stock (resulting in a reduction of the nominal capital; such funds have to be credited to a reserve).


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