Dusting off the Takeover Act - German Future Financing Act to bring useful changes to the takeover landscape

Today, the German Federal Ministry of Finance and the Federal Ministry of Justice published the draft for a so-called German Future Financing Act (Zukunftsfinanzierungsgesetz, the "Draft Act"). The overarching ambition of the Draft Act is to improve the attractiveness of the German capital market for emerging companies and start-ups by introducing various measures to this end. In this context, it also suggests a few changes to the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) as well as the corresponding Offer Regulation (WpÜG-Angebotsverordnung).

Since the takeover law, by nature, is not the focus area of the Draft Act, most of these proposals seem marginal in the overall context of the German Future Financing Act. They largely relate to technical aspects of a takeover process rather than bringing about fundamental changes. Nevertheless, it will be important for practitioners to be aware of these developments, know potential future pitfalls and prepare for them in advance.

In summary, one can expect that, in particular, those amendments affecting the communication of the bidder and the target with the German regulator (Federal Financial Supervisory Authority / Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin") will be relevant, as well as the updated framework when it comes to calculating certain deadlines under takeover law.

The following outline presents the key takeover law related amendments proposed by the Draft Act. It is unclear whether and when these suggestions will actually come into force. The legislative process is not expected to be completed until the end of the second quarter of 2023 at the earliest..

Going digital – introducing MVP as preferred way of communication

The Draft Act suggests that parties involved in a takeover must use BaFin's Reporting and Publishing Platform (Melde- und Veröffentlichungsplattform, "MVP") when they make applications or give notifications, declarations and make other submissions towards BaFin. Hence, these documents will no longer need to be submitted in original (signed) form. In practice, this means that bidders and advisers will have to register on MVP and make sure that BaFin activates their MVP account before a takeover process formally kicks off.

The introduction of MVP as a communication channel with BaFin is a very welcome idea. It currently is a somewhat strange feature of German takeover law that some steps require the physical submission of original documents at BaFin's headquarters in Frankfurt. This had oftentimes proven to be a logistical hurdle not only for advisers involved but also for a bidder (let alone that signatures had to be obtained for the offer document and assembled last minute before being couriered to BaFin). Running the communication with BaFin online instead by utilizing MVP seems appropriate for the 21st century and will facilitate the communication process with BaFin.

 It will be interesting to see how the registration process on the MVP will be handled prior to a takeover process. Timely registration will be vital because the Draft Act still requires that the decision to make a takeover offer (i.e., the so-called Section 10 Announcement which is the first official transaction announcement) must be submitted to BaFin without delay following its publication (unverzüglich). Parties will need to be already registered and approved for use on MVP by the time of the deal announcement to comply with this obligation. Hence, it will be advisable to initiate this process a few days before the formal start of a takeover process.

Counting down the days – practical changes for the calculation of deadlines

As a reminder: Currently, certain takeover law deadlines are based on working days (Werktage). According to BaFin's practice, this also includes Saturdays (although BaFin does of course not regularly operate on those days). As a result of this approach, there may always be some slippage in takeover timetables.

This is particularly relevant with regard to the period BaFin has to review an offer document. In the base case, this period currently lasts ten working days. Given that this also includes Saturdays (on which BaFin usually does not operate), this effectively leads to a shortening of available time and may result in bottlenecks on the part of both BaFin and a bidder.

When it comes to offer amendments the term “working day” is equally important: An offer amendment is possible up to one working day before the expiration of the (initial) acceptance period. Understandably bidders often prefer to amend their offer (e.g., by increasing the offer consideration or lowering the minimum acceptance threshold) at the very last moment. So, if the last possible amendment date was a Saturday, questions frequently arise as to how it can be ensured that such amendment also gets published without delay in the form required by law.

According to the Draft Act, going forward business days (Arbeitstage) will be relevant instead of working days (Werktage). This applies to both the Securities Acquisition and Takeover Act and the Offer Regulation. Under the now suggested definition, business days shall include all calendar days except for Saturdays, Sundays, and public holidays. This proposal is also to be welcomed. On the one hand, it will practically extend some takeover law deadlines (some of which are already rather tight). As a side effect, it would also no longer be necessary to craft transaction timelines in a way as to circumvent Saturdays.

Further proposed changes

• Deadline mechanism for offer prohibitions: Under German takeover law, commencing an offer by publishing the offer document is deemed to be permitted by BaFin provided BaFin has not issued a prohibition during the review period. If BaFin decides to prohibit an offer towards the end of the review period, the prohibition notice may not become effective by the end of the review period (and therefore the offer would be deemed to be permitted). The Draft Act suggests that the review period is automatically extended in these scenarios by five business days thereby ensuring that the prohibition will become effective in time.
• No advance launch notification towards BaFin: Currently, a bidder must notify BaFin shortly ahead of its publication to make an offer. This notification is of no relevance to BaFin, and the Draft Act suggests that it shall no longer be required in future. This is welcome, even though in practice these notifications are usually handled by a third-party provider anyway. However, the bidder’s obligation to submit the decision to make a takeover offer to BaFin without delay following its publication (unverzüglich), remains unaffected.

Conclusion

As one would expect in the context of the German Future Financing Act, it does not come as a surprise that the Draft Act does not suggest bringing about fundamental changes to the legal framework for German takeovers. Most of the proposed changes will (only) impact the technical execution of a takeover process.

However, this is nevertheless welcome because it will improve and facilitate the practical handling of that process: The suggested amendments will simplify the logistical implementation of a takeover and at the same time reduce the slightly burdensome formalistic approach currently in place. This will align the German takeover process with the standard already in place for example for capital market transactions.