Tasks (Overview)

When a public bid for the acquisition of securities is made, shareholders need protection and the takeover procedure needs to be regulated in the interests of the target company and the securities markets. On the one hand, biased information and a takeover procedure not subject to any rules may deprive the shareholders from making an informed decision on the acceptance of the bid. On the other hand, shareholders' securities may lose value after the majority of the voting rights of a company has been taken over.

The Takeover Act has been designed to solve these and similar problems.

• First, minimum standards for public bids are set up. The Takeover Act introduces procedural rules, e.g. information to be contained in the offer documents or the period during which a bid has to be open as to acceptances. Additional rules are designed to prevent insider trading via disclosure rules. The management of the offeree company may not frustrate the bid and has to communicate to the shareholders its views on whether the bid is appropriate.

• Second, a so-called "mandatory bid" is introduced: If control in a listed company is transferred (e.g. by the sale of a block of shares by the former controlling body), the acquirer shall make a cash bid to all holders of shares in the offeree company. Shareholders may chose to "exit" by divestment and liquidate their holdings rather than remain in the company controlled by the acquirer. Exemptions may be granted, e.g. if a controlling holding is acquired for the purposes of reconstruction.

• Equal treatment of all shareholders
• Sufficient time and information for the adressees of a bid
• Neutrality of the board of an offeree company
• False markets in securities must not be created
• Takeover procedures shall be conducted quickly

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by Konrad Fuchs, Former Chairman of the Takeover Commission
(Source: The Austrian Financial Markets - A Survey of Austria`s Capital Markets, Revised Edition 1999)

Austria's Takeover Act addresses companies whose equities (both with and without voting rights) are listed on the Wiener Börse, and has been modeled after the British "City Code on Takeovers and Mergers", an exemplary piece of regulation that has withstood the test of time. The most important sections of the relevant proposal of a EU Directive on takeovers and mergers were also incorporated into this legislation. The act regulates both voluntary bids and mandatory bids in the context of changes in controlling interests in stock corporations.

The enforcement and surveillance of the law has been entrusted to an independent Takeover Commission consisting of twelve members. The members are appointed for a period of five years and are not bound by any type of obligation to follow instructions; they are recruited from among business people, judges, academia, lawyers and accountants. This independent regulatory authority fulfils both the function of arbitrator and court, as it has the task of issuing well-founded recommendations rapidly and of reaching formal decisions in its function as competent authority - including sanctions - regarding bidders, target companies and third parties. Recourse against formal decisions by any of the three committees of the Takeover Commission may only be lodged with the Constitutional Court, a measure aimed at ensuring that final decisions are reached rapidly.

This new set of regulations will benefit both private and institutional investors in economic terms and improve performance, as well as offer bidders and takeover targets more predictability and faster conclusion of takeover procedures. On a more general level, the Act is intended to enhance the appeal of Austrian stocks, especially for foreign investors, to improve the image and capital raised through IPOs and to help disseminate the idea of shareholder value in Austria's capital markets.

Fundamental tenets of the Austrian Takeover Act

Article 3 of the Takeover Act lays down the rules of action for all parties involved in the case of takeovers and serves as a starting point for the other 35 detailed provisions of the Act. The first main pillar is the principle of equal treatment of all shareholders, i.e., major shareholders and strategic shareholders must be treated the same as minority shareholders of freefloating stocks or institutional portfolio investors. The only exception granted refers to the case of mandatory bids that must be made when there is a change in controlling interests. In this case, a discount of a maximum of 15 % of the package price obtained by a major shareholder is allowed. Some countries have similar regulations, although neither the EU Directive nor the British Takeover Code contain such provisions, as both strive to ensure equal treatment of all shareholders. Stock corporations wishing to treat their shareholders equally may refrain from granting the discount by changing their by-laws. Analysts and investors will probably increasingly take this into account when evaluating stocks.

The goal of maintaining transparency is another important guiding principle. Stockholders should be given enough time and sufficient information to reach a carefully considered decision regarding the offer. The aim is to help shareholders decide whether or not to accept a voluntary offer or in the case of mandatory offers if changes in controlling interests are involved, to leave the company or remain affiliated. This must be promoted by making comprehensive information available that has been scrutinized by an independent expert for completeness and accuracy. Misleading and incomplete information or an offer that contains numerous items contingent on certain conditions shall not be permitted. The information must be disclosed in the from of a prospectus or through the media and follow clear rules regarding content. Evidence of the full financing of the takeover offer must be furnished. The target company also has an obligation to make an impartial statement to the public on the offer submitted by the bidder. The Takeover Commission has the right to examine the takeover prospectus and will exercise this right; in the event of serious errors in content, it will announce these to the public or even bar the bid from being made.

The principle of maintaining impartiality applies to the Management Board and Supervisory Board of the target company and effectively eliminates the preferential treatment of individual shareholders, such as majority stakeholders, but also the opportunity of members of the management to act in their own interest. The bodies of the target company must act in the interests of all shareholders, a decision to accept or reject a takeover bid must be left to the shareholders. Takeover defense measures after a bid has been made are only possible to a limited extent and by new resolution of the general shareholders' meeting.

A further goal pursued is the avoidance of market distortion and insider dealings. If the secrecy of preparatory measures is no longer guaranteed at the bidding or target company, as for example in the case of friendly takeovers, or rumors and speculations have already spread throughout the market, then the bidder must make a public announcement on the takeover bid. This type of ad hoc reporting is intended to ensure equal treatment regarding information and prevent insider dealings, which are subject to supervision by the Austrian Securities Authority.

The goal of completing takeovers rapidly means regulating the various minimum and maximum periods, including the period for the placement of competing bids. This has the purpose of preventing procedures from taking too long, which is damaging to capital markets, and especially to the targeted companies. Blocking times are designed to keep one bidder from making several offers within a short period of time and in this manner causing excessive disturbances within the target company.

The Takeover Commission may also issue decrees based on specific provisions of the Takeover Act to serve as a basis for regulating the actions of bidders, target companies and the commission itself. An important aspect is the reporting of changes in shareholdings that exceed or fall below specific thresholds in the case of mandatory offers. This is required in cases in which a shareholder or a group of shareholders acting in concert with persons making the bid would hold the absolute majority of voting rights in the target company. Practice has shown (and almost all takeover legislation takes this into account) that very often a controlling influence may be exerted on a company with much smaller stakes, as this depends on the structure of the shareholders and their presence at shareholders' meetings, e.g. plus/minus 30 %. These aspects are regulated by way of decree containing concrete assumptions regarding controlling interests that are open to repudiation. These issues will probably often be dealt with and decided by the Takeover Commission based on the guidance given by the Takeover Act, its principles, official notices and the concrete case being examined. A series of special cases also exists, parallel to international practice, for which the law and individual decisions by the Takeover Commission contain exceptions from the mandatory bid. There are also special regulations for routine securities transactions conducted by banks and brokers.

Mention must be made of the fact that listed companies can opt out of this regulation until 31 December 1999 by passing a shareholders' resolution with the stipulated qualified majority. This means for companies at which a change in controlling interests occurs, the new majority shareholder does not have to make a mandatory bid to other shareholders. This company would effectively be relinquishing the equal treatment of all shareholders. It is assumed that only a few companies will make use of this option, because by taking this measure the exchange would have to transfer the companies' shares from the main segment of the exchange to the third segment, which would make them less attractive to investors.

The on-going process of adapting practices in Austria's capital markets to high international standards

This brief overview, of course, does not give us a complete picture of the Takeover Act that took effect on 1 January 1999. The Takeover Commission will gladly provide general information to all interested parties and market participants regardless of whether they are bidders, investors or service providers such as investment banks, auditors and lawyers. In mid-1999, the Takeover Commission will also launch its Web site which will contain detailed information regarding legislation, official notices, decisions and data on companies that have decided to opt-in or opt-out.

The new Takeover Act is another measure in the reform series of Austria's capital markets and aims at making it more competitive and compatible with international systems and practices.

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