EXTENDED REPORTING REQUIREMENTS FOR INVES-

Transcription

1 EXTENDED REPORTING REQUIREMENTS FOR INVES- TORS IN GERMAN LISTED COMPANIES ENTERED INTO FORCE ON MARCH 1, 2009 AND WILL ENTER INTO FORCE ON MAY 31, 2009, RESPECTIVELY Frankfurt, March 2009 The following partners in the German offices of Cleary Gottlieb would be happy to assist should you have any queries regarding the topics covered herein: Christof von Dryander: Dr. Klaus Riehmer: Dr. Gabriele Apfelbacher: Dr. Thomas Kopp: Dr. Werner Meier: Hanno Sperlich: Dr. Oliver Schröder: Cleary Gottlieb Steen & Hamilton LLP, All rights reserved. This memorandum was prepared as a service to clients and other friends of Cleary Gottlieb to report on recent developments that may be of interest to them. The information in it is therefore general, and should not be considered or relied on as legal advice.

2 I. OVERVIEW On March 1, 2009, extended reporting requirements relevant for investors in German listed companies took effect. Certain additional provisions will take effect on May 31, These rules were already laid out in the so called Risk Limitation Act ( Risikobegrenzungsgesetz or the Act ) of 2008 which brings about modifications to the German securities trading and takeover law concerning inter alia the following issues: extended attribution of voting rights relating to certain financial instruments (from March 1, 2009), aggravation of legal consequences in case of violations of reporting obligations (in force since 2008), new disclosure obligations regarding goals and intentions pursued with the acquisition of shares (from May 31, 2009), acting in concert extension of the scope of application (in force since 2008; see separate Alert Memorandum of August 2008). The majority of the provisions of the Act, including those relating to the new provisions concerning sanctions for violation of reporting obligations, came into force on August 19, II. EXTENDED ATTRIBUTION OF VOTING RIGHTS RELATING TO FINAN- CIAL INSTRUMENTS The Act brings about a further tightening of the reporting obligations relating to holdings of physically-settled financial instruments pursuant to Section 25 of the German Securities Trading Act. Until now voting rights attached to shares underlying certain financial instruments held by an investor and to shares directly held by such investor did not have to be aggregated to determine whether the relevant reporting thresholds are reached or exceeded. It was therefore possible for an investor to hold a combination of shares of up to 2.99% and financial instruments relating to shares, such as call options, of up to 4.99%, without being subject to any reporting obligation. However, pursuant to the Act, the voting rights relating to shares underlying certain financial instruments and to shares held by or attributable to the same shareholder will be added together and an obligation to notify the company will arise when the aggregated voting rights reach or exceed the threshold of 5%. This means that shareholders will reach initial reporting thresholds earlier and will be required to notify more often. Therefore, in the future it will not be possible to acquire voting rights of up to almost 8% (including up to 4.99% relating to shares underlying certain financial instruments) 2

3 without reaching a reporting threshold. Instead, in the future shareholders will generally only avoid a reporting obligation if their aggregate holding of voting rights does not reach 5%. However, a special exemption applies in case the shares or financial instruments in question are held in the investor s trading portfolio and do not relate to more than 5% of the voting rights of the company concerned. In order to avoid double reporting obligations arising from the aggregation of shares and financial instruments, a notification pursuant to Section 25 of the German Securities Trading Act will only be required when an aggregate holding reaches, exceeds or falls below a mandatory reporting threshold due to the addition of the financial instruments to the shares. Otherwise, a notification merely relating to the holding of voting shares pursuant to Section 21 of the German Securities Trading Act will suffice. Revised Section 25 of the German Securities Trading Act introduced by the Act entered into force as of March 1, However, an investor who held voting shares and financial instruments related to voting shares within the meaning of Section 25 of the German Securities Trading Act at the time the Act came into force on March 1, 2009 does not have to notify the company if the investor reached or exceeded any thresholds solely due to the amendment to the reporting provision. Transactions in financial instruments that are exclusively cash-settled (i.e., that do not give rise to a right or obligation to the delivery of voting shares, e.g., cash-settled equity swaps) do not fall under the definition of financial instruments within the meaning of the current version of Section 25 of the German Securities Trading Act, and therefore do not entail a reporting obligation pursuant to the German Securities Trading Act. This will remain unchanged under the Act. Cash-settled equity derivatives transactions, however, are currently the subject of an intense debate. Well-known examples of these types of transactions include the stake acquired in Volkswagen AG by Porsche and the stake in Continental AG acquired by the Schaeffler Group. In order to hedge their own risk arising from such derivative/swap transactions, the financial institutions acting as counterparty in the cashsettled derivative transactions typically purchase the underlying shares directly or financial instruments giving a right to the delivery of shares. Although the shares held as hedge for the cash-settled equity swaps may in principle be sold to a third party upon termination of the swap, these shares are often sold directly to the counterparty, in particular in case of substantial positions or illiquid markets that make it difficult as a practical matter for the financial institutions acting as swap counterparty to dispose of the shares on the stock exchange or in transactions with third parties. In principle, under current law financial instruments that are exclusively cashsettled can still be used to facilitate stake building without publicity. A debate is currently ongoing at a political level whether the mandatory reporting obligations should be extended to cover certain cash-settled equity derivatives structures follow- 3

4 ing the examples set by the British City Code on Takeovers and Mergers and the FSA and by the Swiss legislator. The German Federal Finance Ministry is currently considering a further reform and expansion of the notification requirements and it remains to be seen whether the legislator will undertake to expand the voting rights reporting obligations beyond the current scope in the area of cash-settled equity derivatives transactions. It seems currently more likely, however, that nothing will happen prior to the upcoming federal elections in September It should be further noted in this context that the Federal Financial Supervisory Authority (BaFin) has changed its classification with regard to securities lending and repo transactions. According to the draft revised version of the authority s interpretive guidelines on disclosure and insider trading (Emittentenleitfaden), which is available online on BaFin s website under the claim of the lender to retransfer the shares concerned triggers a disclosure obligation under Section 25 of the German Securities Trading Act, if relevant thresholds are affected. According to the BaFin, the same holds true for the repurchase arrangement concluded in the context of a repo transaction. In particular, a threshold may be affected once the relevant claim comes into existence, as well as in case of its expiry. III. ADDITIONAL DISCLOSURE ON GOALS AND INTENTIONS PURSUED WITH THE ACQUISITIONS OF SHARES Pursuant to the Act, investors whose shareholding in listed German companies and certain non-german companies listed in Germany reaches or exceeds 10%, 15%, 20%, 25%, 30%, 50% or 75% of the voting rights of such company must in the future disclose to the company certain information regarding the goals and intentions pursued with the shareholding and the source of the funds used in the acquisition within 20 trading days. The new disclosure provision was intended to reflect comparable obligations in the U.S. (Section 13d of the Securities Exchange Act) and in France (Article L233-7 of the Code de Commerce). It is still subject to discussion among commentators whether only shares directly held by, or attributed to, the investor or also voting rights attached to shares underlying financial instruments pursuant to Section 25 of the German Securities Trading Act have to be taken into account for purposes of determining the relevant disclosure thresholds. The interpretation of the new provision by the BaFin is expected to shed some light on this issue. As regards the specific content of the obligation, investors must disclose whether they are pursuing strategic goals or only intend to gain trading profits, whether they intend to acquire additional shares of the company in the next twelve months, whether they plan to modify the composition of the company s management or supervisory board, its capital structure or its dividend policy, as well as the source of the funds used for the acquisition (i.e., equity and/or debt). Similarly, any subsequent changes in the investors goals and in- 4

5 tentions have to be disclosed to the company. The company is then in each case required to publicly disclose the information received, or the fact that the investor in question did not make the required notification, as the case may be. The Act provides for several exemptions from this additional disclosure obligation, as well as for an opt-out-mechanism: No disclosure obligation exists if the relevant thresholds are reached or exceeded as the result of a public offer in accordance with the provisions of the German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz/WpÜG). The wording of the exemption should be construed broadly and also include the acquisition of shares effected in close connection with an offer. The new disclosure provision also does not apply to the acquisition of shares by the Financial Market Stabilization Fund (Finanzmarktstabilisierungsfonds) that was created in October 2008 by the German Act on the Stabilization of the Financial Market (Finanzmarkstabilisierungsgesetz) as a government vehicle to support banks during the financial market crisis. Further, certain mutual funds and other investment companies including, in certain cases, foreign management and investment companies in the sense of European Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), are excluded from the scope of application of the new provision. In addition, a company may in its articles of association or, in the case of a non- German company, in similar constituent documents, provide for an opt-out from the application of the new disclosure obligation. It should be noted that the new rule does not at least for the time being provide for any sanctions for the failure to comply with the disclosure obligation, except for the publication of such failure by the company concerned. In particular, the failure to comply with the disclosure requirements does not lead to the imposition of administrative fines or the forfeiture of rights arising from the shares held. The legislator has, however, indicated that sanctions may be the subject of future legislation after approximately two years of practical experience with the new disclosure regime. In the meantime, however, it cannot be excluded that certain cases of failure to disclose or misleading disclosure may qualify as market manipulation, and may as such result in severe sanctions. The additional disclosure provision will enter into force on May 31, Although no explicit exemption exists in this regard, there are strong arguments that investors who hold 10% or more of the shares in a listed company at the time the new provision enters into force will not have to notify their goals and intentions with regard to these shares, unless their participation reaches or exceeds a relevant threshold after the new disclosure obligation has entered into force. 5

6 IV. AGGRAVATED SANCTIONS FOR VIOLATIONS OF REPORTING OBLI- GATIONS For the sake of completeness, the Act, as of August 19, 2008, aggravated the consequences of non-compliance with the mandatory reporting obligations pursuant to Section 21 et seq. of the German Securities Trading Act. Failure to submit a notification in accordance with these provisions may result in the forfeiture of rights arising from the respective shares and lead to the imposition of administrative fines. Prior to the adoption of the Act, an investor could cure such forfeiture of rights with immediate effect by notifying the company and the BaFin at a later date. This will no longer be possible under the new regime. According to the Act, the intentional or grossly negligent violation of the notification obligations regarding the number of voting rights held by, or attributed to, an investor cannot be cured with immediate effect. Rather, the forfeiture of rights attached to the shares concerned will be extended for an additional period of six months following the late notification. However, no such extended forfeiture of rights occurs if an incorrect number of voting rights is reported which does not deviate from the actual number of voting rights held by more than 10%, and no reporting obligation was violated with regard to the reaching, exceeding or falling below one of the relevant reporting thresholds. CLEARY GOTTLIEB STEEN & HAMILTON LLP 6

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