Germany prepares new takeover law

A proposed new law will take effect from 2002, when the German tax reform will also be introduced.

German finance minister Hans Eichel confirmed yesterday plans to create a new set of laws regulating corporate takeover bids in Germany. The finance ministry hopes the bill, which officials said was oriented towards a planned European Union law, will take effect from the beginning of 2002.

The German tax reform will take effect from 2002 and is expected to prompt a series of company restructurings, takeovers and spin-offs. This makes it all the more pertinent for the government to see that a more extensive takeover code is introduced by then.

It is believed that the new proposal would cover public offers for non-controlling stakes in companies and would therefore help protect minority shareholders. It would also provide clear guidelines on cash and share offers as well as other types of takeover offers such as those using convertible bonds and options. It will govern how takeover offers should be made, and would require companies to inform shareholders about these offers and how they are required to inform their own employees.

Hans Eichel, finance minister, described the proposed takeover legislation as “a significant contribution towards strengthening Germany as a financial centre.”

The German bill remains largely in line with the spirit of the directive proposed by the European commission, before the European Parliament added controversial amendments in December.

The draft includes an obligation on the management of a target company not to undertake activities that could scupper a takeover offer, such as buying its own shares.

In November last year, professional services organisation PriceWaterhouseCoopers conducted a study which confirmed that European Commission competition authorities are investigating more companies involved in mergers and acquisitions than ever before.

Tony Skrzypecki, transaction services partner at PriceWaterhouseCoopers, said at the time: “Regulatory scrutiny of mergers is an increasingly important factor in whether companies can create shareholder value from deals. Although very few deals are actually blocked, radical changes to merger plans as a result of regulatory intervention can significantly dilute the business case for the deal. Regulatory scrutiny whether from competition authorities or industry regulators will increase and needs to be proactively managed.”

To view the PriceWaterhouseCoopers feature on German tax law reform click here