In about four hours, Forbes changed its headline thrice for a story, thus: “˜Europeans Go Wild For Wind’, “˜Europe Embraces Winds Of Change’, and “˜Europe Is Gone With The Wind’. Parmy Olson scans the “˜windy’ market for clues. The report begins by narrating how Goldman Sachs recently “˜more than doubled its money by selling Horizon Wind Energy, a developer and operator of wind power generation, for at least $2.15 billion to Energias de Portugal’.
Another happening deal attracting a lot of attention in Europe, which is “˜the world’s biggest wind market, according to the Global Wind Energy Council’, is the one about German wind turbine manufacturer REpower Systems. Its market valuation more than tripled last year, to 150 euros ($200) a share, mentions Olson. REpower has received “˜takeover bids of around $1.7 billion from French nuclear power company Areva and India’s Suzlon Energy’.
Even as the smell of a bidding war fills the air, Business Line contacted Dr Michael I. Fischer, a Munich-based partner of Reed Smith Richards Butler LLP (www.reedsmith.com), an international law firm headquartered in London. “In the current ongoing “˜takeover’ battle between energy engineer Suzlon from India and Areva, one of the leading nuclear companies in the world, over Germany’s REpower wind generator group, it remains to be seen which of the two will win the “˜race’,” begins Dr Fischer. “According to REpower Systems AG chairman of the board Mr Fritz Vahrenholt, there is even the possibility that Areva and Suzlon will agree to share the ownership. The management and board of REpower, has only a persuasive function. The final decision remains in the hands of the shareholders.”
Dr Fischer’s practice encompasses all aspects of German corporate law, including M&A (mergers & acquisitions), venture capital transactions and partnership matters. He represents a globally operating group of companies in the energy, chemicals and utilities industry regarding all ongoing corporate law matters and corporate acquisitions.
Excerpts from an interview
First, on what has happened thus far, from a legal perspective
A public tender offer is a means of achieving a takeover. German law differentiates between mandatory tender offers and voluntary tender offers. In the case of REpower the voluntary public takeover offer was made. The acceptance period of this takeover offer expires on April 20, 2007, 24:00 CET, unless extended in accordance with the statutory provisions of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Ãœbernahmegesetz – WpÃœG).
What does the Act say?
The WpÃœG provides for mandatory offers to be made to all shareholders once a shareholder has obtained a control over a company i.e. 30 per cent of the voting rights in the target company. Once this threshold of 30 per cent has been crossed the bidder is obliged to issue a public offer to all holders of a class of shares to acquire a specific proportion of their shares for either a fixed cash consideration or in exchange for securities. These securities are then held open for a specified period of time.
Are there procedures that the acquirer has to follow?
On obtaining control of the company the buyer must publish this fact without undue delay, at the latest within seven calendar days. The announcement to make an offer has to be published in at least one nationwide mandatory exchange journal or via an electronically operated information system. Before publicly announcing its decision to launch an offer, the bidder must notify the German Financial Supervisory Authority (Bundesanstalt fÃ¼r Finanzdienstleistungsaufsicht ““ BaFin), the German stock exchanges on which its securities are listed and any other stock exchanges that may be relevant. The voluntary cash tender offer, which is made to all shareholders of REpower Systems AG, apparently has been made in accordance with German law. Both bidders have had persons/companies acting in concert with them. Persons acting in concert are persons who, pursuant to an agreement or understanding, actively cooperate.
What is likely to be the further scenario?
Should Suzlon or Areva take over REpower this will mean that one of the two will acquire a major interest in the targeted company, provided that REpower shareholders will accept their bid. One of the pivotal issues in this takeover will circulate around the question of what level of shareholding will have to be acquired in order to suffice to obtain control of the corporation.
Is there a stipulation on the level of majority?
The necessary level of majority depends upon the legal form of the target and its articles of association. REpower under German law is categorized as a corporation (Aktiengesellschaft), AG for short. The takeover for an AG generally has to result in the acquisition of a majority holding of at least 75 per cent of share capital. This majority has to be obtained in order to be allowed to carry out transactions that may become necessary after the takeover. Generally the attendance at shareholder’s meetings is very rarely the full 100 per cent (for AGs listed on a stock exchange it ranges between 50 and 80 per cent).
Therefore, it may suffice to acquire 50 per cent of all existing voting shares and hence result in the necessary 75 per cent majority being obtained at the shareholders’ meeting. A squeeze-out of the remaining minority shareholders requires a majority of 95 per cent of all shares. The acquisition of 75 per cent in an AG does not automatically result in management control.
When does that happen?
Management control can only be obtained if the purchaser chooses to replace the members of the managing board by its own people. In most cases this replacement is a lengthy and difficult process.
Any other difficulties?
The identification of shareholders is often a very difficult process. This is due to the fact that the vast majority of German AGs still issue bearer shares and that there is no share register in place which makes it possible to identify the owners of such shares. The situation is only different with regard to substantial shareholders. A person acquiring 5, 10, 25 or 75 per cent must notify the corporation which in turn is required to publish such notice. Hence a potential acquirer is able to ascertain the ownership structure and is also able to identity substantial shareholders, except for shareholders with interests below 5 per cent. This is not the case if registered shares have been issued. The only possible way to gain access to the so-called “small” shareholders is by means of the media and once a bid has been launched through depositary banks.
On the options before the REpower shareholders.
Owners of securities of the target company that have accepted an offer, have the possibility to withdraw from that agreement until the term of acceptance expiration date. This is only possible under the requisite that the competing offer has not yet been published.
The bottom line, therefore?
Once a bidder has announced to make an offer, it must proceed with it. Once launched, an offer can only be forfeited if a condition has not been met. It will, therefore, be interesting to see which of the two will eventually gain control over REpower.
By D. Murali
30 March 2007
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