Significant Restrictions on Delisting

With retroactive effect as of 7 September 2015, more stringent requirements now apply, to issuers wishing to delist from the regulated market revoked. A delisting must now always be preceded by a takeover bid, a development that will generally make it impossible for an issuer to delist acting solely on its own initiative.

Background

In the autumn of 2013, the German Federal Court of Justice (Bundesgerichtshof – “BGH”), in a high-profile decision (the “FroSta” decision of 8 October 2013, case reference: II ZB 26/12), ruled, by way of departure from its previous case law (the “Macrotron” judgment of 25 November 2002, case reference: II ZR 133/01), that a delisting from the regulated market required neither the approval of the company’s shareholders’ meeting, nor any offer of compensation. Until then, these requirements had been followed in practice and the amount of the compensation had been subject to judicial review by way of shareholder action. This was due to the fact that in 2002, the BGH had taken the view that a delisting would have such a grave impact on the rights of shareholders that the latter were in need of protection. However, the BGH revised this opinion in its FroSta decision in 2013, following the German Federal Constitutional Court’s (Bundesverfassungsgericht) overturning of the “Macrotron” judgment on 11 July 2012 (case reference: 1 BvR 3142/07).

After the FroSta decision, approximately 40 companies announced their delisting in 2014 alone.

The new legal situation

The German Bundestag has now decided that a delisting must always be preceded by a takeover bid, pursuant to which the shareholders will be entitled to cash consideration (Section 39(2) of the German Stock Exchange Act (Börsengesetz – “BörsG”). This does not apply if the shares continue to be listed on another regulated market in Germany or within the EU/EEA, where similarly strict conditions for delisting apply. The minimum price must correspond to the weighted six-month average share price. However, if the bidder directly or indirectly acquires the shares at a higher price within one year, or if the bidder pays a higher price on an over-the-counter basis within one year of the expiration of the takeover bid, this higher price will prevail. The calculation of the amount of the compensation on the basis of a valuation of the company is no longer required. However, such a valuation is required if the stock exchange price is adversely affected by a default of the issuer to issue an ad hoc notification, or by the latter’s issuance of an inaccurate ad hoc notification, or if the stock market price is inconclusive (see Section 5(4) of the Offer Ordinance of the German Securities Acquisition and Takeover Act (“WpÜG-Angebotsverordnung”)).

The takeover bid must relate to the acquisition of all of the issuer’s shares and may not be subject to any conditions. The new legal position therefore corresponds to mandatory bids pursuant to the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – “WpÜG”).

Comment

The legislature has reacted to the strong criticism expressed by shareholder activists and used its amendment of the German Stock Exchange Act to limit the possibilities for delisting. The new provisions will not only apply to full delistings but also to the switch from the regulated market to the over-the-counter market. However, they will not affect the switch from one segment to another within the regulated market (for example, from Prime Standard to General Standard). Ultimately, shareholders will be entitled to reasonable compensation in the event of a delisting, as was already the case prior to the FroSta decision. A resolution of the shareholders’ meeting to this effect will no longer be necessary. In addition, the new provisions mean that shareholders involved in a delisting will be unable to speculate on a different amount of compensation from that offered in the context of a takeover bid. While prior to the FroSta decision, varying amounts of compensation often had to be paid as a result of disputes with regard to the company valuations, an amount of consideration that has been approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”) will now suffice.

This will also affect any delistings already applied for as of 7 September 2015; it will be possible to subsequently submit a public takeover bid or withdraw an application.

No provision has been made for the delisting of an insolvent company. Prior to the FroSta decision, some applications for delisting were granted even where a corresponding resolution had not been passed or an offer of compensation had not been made, in particular in the case of the sale of a company’s business operations, low sales revenues and a stock exchange price in a cent amount. Now, it is unlikely that a delisting in the wake of an insolvency will be possible; rather, the listing will probably have to be maintained pending the liquidation of the company. It remains to be seen whether the BaFin, the courts or the legislator will find a pragmatic means of ensuring that insolvency administrators continue to be able to apply for delistings.

Altogether, the new legal position is well manageable, as the legislator reverted to the proven provisions of the WpÜG.