Austria Treasury Shares Guide IBA Corporate and M&A Law Committee 2014

Transcription

1 Austria Treasury Shares Guide IBA Corporate and M&A Law Committee 2014 Contact Christian Herbst Schönherr Attorneys at Law, Vienna

2 Contents Page INTRODUCTION 2 GENERAL OVERVIEW 2 REGULATORY FRAMEWORK 2 ACQUISTION OF TREASURY SHARES 3 UTILIZATION OF TREASURY SHARES 6 SALE OF TREASURY SHARES 6 TREASURY SHARES AND TAKEOVER LAW 8 Page 1

3 INTRODUCTION The following guide shall provide an overview of the Austrian legal framework on the acquisition and sale of treasury shares of Austrian stock corporations. This guide provides general information on treasury shares, on the legal requirements and restrictions of acquisitions and sales of such treasury shares and finally implications of treasury shares under Austrian takeover law. The information in this guide cannot substitute professional legal advice. Therefore, anyone involved and considering a buy-back program of shares should not solely rely on this guide alone and should seek specialist advice. GENERAL OVERVIEW Is the buyback of shares permitted in your jurisdiction? Yes. However, in Austria the repurchase of shares by an Austrian stock corporation is subject to significant restrictions under the Austrian Stock Corporation Act ("Aktiengesetz"- "AktG"). A stock corporation may repurchase shares only in the cases enumerated and subject to the conditions and restrictions provided for in Sec 65 AktG. What are the characteristics (maximum holdings, voting rights and other rights) of treasury shares? Treasury shares are non-voting and carry no dividend or subscription rights as long as they are held by the company. What are the main reasons to acquire treasury shares? The main reasons to acquire treasury shares are to create currency for employee stock option programs, to stabilize the stock price, to repay available funds to shareholders through large scale buy-back programs or to create an acquisition currency for M&A. Lower levels of stock prices of industrial companies post financial crisis combined with excess liquidity on balance sheets and high stock market volatility continue to be an attractive environment for share repurchases. REGULATORY FRAMEWORK Under Austrian law, only stock corporations (Aktiengesellschaft) are permitted to repurchase treasury shares. In general, the repurchase of treasury shares is governed by Sec 65 et seq. AktG which are based on the following European legislation, in particular: Directive 77/91/EC of 13 December 1976 (Second Company Law Directive) as amended by Directive 92/101/EC of 23 November 1992 and by Directive 2006/68/EC of 6 September 2006 (the latter to be implemented by 15 April 2008); Page 2

4 Directive 2003/6/EC of 28 January 2003 on insider dealing and market manipulation (market abuse) ( Market Abuse Directive ); Commission Regulation (EC) No 2273/2003 of 22 December 2003 as regards exemptions for buy-back programs and stabilization of financial instruments (the Regulation ). ACQUISTION OF TREASURY SHARES How can a company acquire treasury shares? Austrian stock corporations may acquire treasury shares by way of a share buy-back program only. The repurchase of shares can be effected (i) anonymously over the counter (i.e. on the stock market); (ii) by way of a public repurchase offer; (iii) by the issuance of put options; (iv) by way of negotiation and conclusion of a purchase agreement with an individual shareholder (over the counter; "negotiated purchase") however always subject to the principle of equal treatment of shareholders; or (v) by way of a public tender offer under the Austrian Takeover Act. Are there any restrictions in acquiring treasury shares? (e.g. purpose-wise; accountingwise?) In economic terms the acquisition of treasury shares is comparable to a reduction of the share capital. Thus the acquisition of own shares is permissible in limited circumstances, only. Sec 65 AktG enumerates the circumstances under which a stock corporation may repurchase treasury shares (see below). Such circumstances include: 1. Acquisition of own shares in order to avert significant, immediately pending damage from the company; 2. acquisition of own shares for no consideration or as agency trade by credit institutions; 3. universal succession by operation of law (e.g. in case of merger); 4. acquisition for employee stock option program; 5. compensation of minority shareholders (e.g. in case minority shareholders have a claim for compensation against returning their shares in case of certain demergers); 6. in connection with a reduction of share capital if the acquired shares are redeemed; 7. purchase of own shares for the trading book up to a maximum or 5% of the share capital (including market making, securities lending, hedging for options, option seller) - applicable only for credit institutions; 8. if the company is listed on a regulated market or a similar market in the OECD, purchase of treasury shares for no particular purpose (except for trading purposes) ( general authorization ). Since the general authorization for listed companies is the most important one in practice, the following comments will focus on the general authorization for listed companies. The following restrictions apply: Volume of repurchased shares: The number of shares repurchased by a stock corporation alone or together with (i) treasury shares already held by the company, (ii) shares held by third parties for the account of the company and (iii) shares pledged to the company, must not exceed 10% of the share capital, including any authorized or contingent capital (genehmigtes oder bedingtes Kapital). Page 3

5 In case shares are repurchased in excess of the 10%-cap, the company is obliged to re-sell such shares within 1 year from their repurchase. Balance Sheet: The repurchase of shares is only admissible if the company can set aside the required statutory reserve (in the amount of the acquisition costs) without its net assets falling below the stated share capital plus statutory ( free or appropriated) reserves. Paid-up Shares: The acquired shares by the corporation need to be fully paid up. Equal Treatment: Pursuant to Sec 47a AktG, shareholders of a stock corporation must be treated equally under the same circumstances. Sec 83 para 1 of the Austrian Stock Exchange Act and Sec 3 lit 1 of the Austrian Takeover Act provide for (additional) equal treatment obligations. By way of reference in Sec 65 para 1b AktG, the principle of equal treatment of shareholders applies to the repurchase and sale of (own) shares by a company. As a consequence, in case of the repurchase of shares by a company, shareholders are deemed to have a pro-rata right to sell their shares to the company similar to an "inverse subscription right" (Andienungsrecht). The requirements of the principle of equal treatment are deemed to be fulfilled in case of the repurchase and sale of shares / options on shares via the stock market or by public offer. Other forms of repurchase and sale of shares / granting of options on shares (in particular the repurchase from / granting of a put option to only (a) select shareholder(s)) can also be in compliance with the principle of equal treatment depending on the exact circumstances and provided that such repurchase is objectively justifiable (sachlich gerechtfertigt). Which authorization is needed? The general authorization for listed companies requires the prior authorization by the shareholders meeting by a resolution with a simple majority of votes cast. Furthermore, the respective shareholders resolution must determine (i) the maximum number of shares which may be repurchased (subject to the above mentioned 10%-cap); (ii) the period of time for which the authorization shall be valid (max. 30 months); and (iii) the maximum and minimum purchase price which may be paid by the company for the shares (linking the price to the stock market price is admissible and, in view of capital maintenance and equal treatment requirements, advisable). In case of the general authorization for listed companies, the shareholders resolution may impose further restrictions on the management board regarding the repurchase, e.g. regarding the purpose of the repurchase. Furthermore, the management board may also be authorized by way of the shareholders resolution to redeem treasury shares after their repurchase. Within the scope of the authorizations and restrictions provided for by the shareholders resolution, the management is free to take the necessary measures in order to repurchase shares in the name and for the account of the company (e.g. signing and closing of the respective transaction). The management board, however, is not obliged to make use of the authorizations and may instead choose to let the validity period of the authorization expire without repurchasing shares. Page 4

6 What are the publicity requirements in the event of acquisition of treasury shares? Listed companies are required to publish the respective shareholders resolution as well as the underlying repurchase program in the Austrian Official Gazette. Furthermore, under the Austrian Stock Exchange Rules the company must publish a repurchase program three trading days in advance (and even before then, if the stock price moves significantly or if rumors or speculations are disseminated) in a widely distributed newspaper or also only electronically on the webpage of the company. The publication needs to state, inter alia, the intended duration of the repurchase program, the intended volume of shares to be purchased (number of shares and percentage of share capital), the minimum and maximum price, and whether the transactions shall be made via the stock exchange or otherwise. Two trading days after a calendar week has ended, the actual trade volumes and prices of the preceding week have to be published by the company (i.e. volume of shares purchased, minimum and maximum price, weighted average price of the shares sold as well as aggregate value of the shares purchased). The management board must provide the shareholders meeting with updates regarding, inter alia, the number of shares, the acquisition or sale price for the treasury shares and the purpose of acquisition. Finally, the company would need to file and publish an offer document pursuant to the Austrian Takeover Act in case a repurchase program shall be concluded as a public tender offer. Put and call options do they count as acquisition of own shares? Put Options Granting put options on shares by a corporation to its shareholders is deemed to have the same effect and thus deemed equal to the actual repurchase of shares due to the corporation s lack of control over the exercise of the option. Therefore, put options on shares granted by a company to (one of) its shareholders are subject to the same restrictions applicable to the repurchase of treasury shares as described above. In particular, the principle of equal treatment applies, i.e. a sale via the stock exchange will meet the requirements of equal treatment. However, put option agreements with a shareholder are deemed admissible if such shareholder must, in order to comply with its obligations under such option agreement vis-à-vis the company, purchase shares on the stock market. In this case, the principle of equal treatment is complied with by way of the indirect repurchase on the stock market. Call Options The purchase of call options is permissible under company law without the restrictions pursuant to Sec 65 et seq. AktG, given the exercise of the call option is in the sole discretion of the company. The exercise of the call option, however, is an acquisition of own stock and permissible only subject to the rules and restrictions for the acquisition of own shares. Page 5

7 UTILIZATION OF TREASURY SHARES Are there any statutory obligations to resell or redeem treasury shares? In general, there is no statutory obligation to re-sell or redeem treasury shares, provided that a company holds no more than the permitted amount of treasury shares (i.e. shares corresponding to a participation in the company s share capital of max. 10%). As long as the 10%-cap is complied with, a listed corporation may thus choose to simply hold treasury shares. If the company wishes to dispose of treasury shares, the management board may then decide to either redeem the shares (see below) or to re-sell the shares subject to certain restrictions (see below). How are treasury shares redeemed? Under the shareholders resolution on the authorization of the repurchase of shares, the shareholders meeting may give advance authorization to the management board to redeem treasury shares without seeking further approval by the shareholders meeting. The redemption of treasury shares results in the decrease of the company s nominal capital. However, shares repurchased under the general authorization for listed companies are subject to a simplified procedure for redemption of shares pursuant to Sec 192 para 3 AktG and thereby exempt from the requirement to comply with the creditor protection procedures as applicable to an ordinary share capital decrease (Sec 175 et seq. AktG). The treasury shares cease to exist upon the redemption becoming effective (i.e. only after registration of the capital decrease in the companies register). SALE OF TREASURY SHARES How can the company sell treasury shares? As an alternative to the redemption of the treasury shares following their repurchase, the management board may also decide to re-sell treasury shares. The sale of shares can be effected (i) anonymously over the counter (i.e. on the stock market); (ii) by way of a public offer; or (iii) by way of negotiation and conclusion of a purchase agreement with an individual shareholder (over the counter; "negotiated purchase") however always subject to the principle of equal treatment of shareholders. Are there any restrictions for selling treasury shares? The principle of equal treatment of shareholders applies also to the re-sale of treasury shares (Sec 65 para 1b AktG). Consequently, shareholders are entitled to acquire treasury shares upon their re-sale by the company. As is the case for the repurchase of shares, the re-sale of treasury shares on the stock market or by way of a public offer is deemed to fulfil the requirements of the principle of equal treatment. Which authorization is needed for selling treasury shares? Generally, the sale of treasury shares is a management decision, i.e. the management board decides upon sale of the treasury shares. Page 6

8 Often, such management decision is made subject to the consent by the supervisory board (either by shareholders resolution authorizing the repurchase or in rules of procedure for the management board). In the event of a sale through other means than via the stock exchange or by public tender offer, the sale requires the authorization by the shareholders meeting with 75% super-majority of the votes cast. Can treasury shares be sold other than via the stock exchange or by public tender offer? Since a sale by means other than via the stock exchange or by public tender offer is similar to the exclusion of pre-emptive rights, the rules of the AktG on the exclusion of pre-emptive rights apply by analogy. In particular, there needs to be a legitimate and prevailing interest of the company for such different method of sale. Such legitimate interest of the company includes, inter alia: the use for a stock option plan for employees and executives; consideration of own shares in the course of an acquisition, i.e. in exchange for the acquisition of a participation in another company or for a business (similar to permissible exclusion of pre-emptive rights); use of treasury shares in order to fulfill conversion rights under a convertible bond (unless contingent share capital is used) (the principle of equal treatment observed, if shareholders were entitled to subscribe to the convertible bond); The sale by block trade or by accelerated bookbuilding (i.e. only certain institutional investors are invited to submit bids) do not meet the principle of equal treatment of shareholders and are more difficult to justify. Furthermore, in Austria there is no exemption from the rules on exclusion of pre-emptive rights similar to Germany which provides for an exemption if the transaction is made not significantly below the stock market price and does not exceed 10% of the share capital. In addition, and even if the management board has the authority to sell the shares other than via the stock exchange or by public tender offer, the management board must prepare a special report setting out the reasoning of the company s legitimate interest. What are the publicity requirements in the event of a sale of treasury shares? Like a repurchase program, the sale of treasury shares must be published by the company three trading days in advance (and even before then, if the stock price moves significantly or if rumors or speculations are disseminated) in the Austrian Official Gazette and in a widely distributed newspaper or also only electronically on the webpage of the company. The publication needs to state, inter alia, the intended duration of the sales program, the intended volume of shares to be sold (number of shares and percentage of share capital), the minimum and maximum price, and whether the transactions shall be made via the stock exchange or otherwise. Two trading days after a calendar week has ended, the actual trade volumes and prices of the preceding week have to be published by the company (i.e. volume of shares sold, minimum and maximum price, weighted average price of the shares sold as well as aggregate value of the shares sold). Page 7

9 What legal restrictions are there in order to avoid market abuse? The purchase and sale of treasury shares are not per se exempt from the prohibition of insider dealing and market manipulation (market abuse). Art 8 Market Abuse Directive (as implemented in Austria in Sec 48e para 6 of the Austrian Stock Exchange Act) provides a safe harbor given the prohibitions set out in the Directive shall not apply to trading in own shares in buy-back programs if carried out in accordance with the Regulation of 22 December However, the scope of the application of the safe harbour rule is narrow: It only applies to buyback programs to reduce the capital of the issuer or to meet obligations under convertible bonds or employee stock option plans (Art 3 of the Regulation). Therefore it is still advisable to follow certain rules of the Regulation also for normal repurchase programs. The following restrictions apply to the sale of treasury shares in order to avoid market abuse: Prohibition to carry out transactions or orders to trade which give, or are likely to give, false or misleading signals to the market (Art 1 para 2 Market Abuse Directive); no sale of treasury shares during a buy-back program (Art 6 para 1 lit a of the Commission Regulation (EC) no 2273/2003 of 22 December 2003 as regards exemptions for buy-back programmes and stabilisation of financial instruments); insider dealing, unless the company repurchases own shares according to a documented business strategy (i.e. the company would have repurchased its own shares irrespective of inside information known to it); no sale of treasury shares prior to the publication of financial information. Even though the Issuers Compliance Ordinance (Emittenten-Compliance-Verordnung) of the Austrian regulator (FMA) does not primarily deal with the company trading in its own stock, the black-out periods according to 8 ECV should be observed. Therefore, there should be no purchases or sales of own shares within three weeks prior to the planned publication of the (preliminary or final) quarterly results and within six weeks prior to the planned publication of the (preliminary of final) annual results. TREASURY SHARES AND TAKEOVER LAW What are the general implications of treasury shares under the applicable takeover law regime? The purchase and the holding of treasury shares by a listed company have significant takeover law implications with relevance for the listed company itself, its shareholder base and potential investors. Given that treasury shares are non-voting (Sec 65 para 5 AktG), treasury shares impact the share quota and voting power of all shareholders. Moreover, treasury shares are not included in the calculation of the total share capital for the purpose of determining the relevant control thresholds under Austrian takeover law, in particular whether a shareholder exceeds the relevant control threshold of 30% or the relevant creeping threshold of 2% within 12 months intervals. These thresholds are trigger thresholds for mandatory offers. Further, treasury shares are not included in the calculation of the relevant protected blocking majority of 26%. This threshold triggers a disclosure obligation. Any intended increase in treasury shares by a listed company would have to be reviewed as to whether the relevant share quota of any core-shareholder, ie a shareholder with substantial participation, or shareholders acting in concert would be elevated to above a critical threshold Page 8

10 and could thus trigger a mandatory offer ( MTO ) unless an exemption under the Takeover Act applied. In this context, the Austrian Takeover Commission ruled: In general, a shareholder must always expect a repurchase of treasury shares by a listed company. Further, if a core shareholder or any shareholders acting in concert vote on the authorization of a treasury share repurchase program in the shareholders meeting and the members of the supervisory board nominated by the core-shareholder vote in favor of the actual repurchase, these actions make it impossible to invoke the so-called "passive" acquisition of control exemption. If the coreshareholder exceeded the control threshold of 30% due to the company s purchase of treasury shares, a MTO would be triggered unless the core-shareholder qualified for another exemption under the Takeover Act. Given the impact of treasury shares on "control threshold" calculations under Austrian takeover law, any shareholder of or investor in a listed target needs to consider the relevance of treasury shares in stake building. Moreover, a listed company which does not want to force a core-shareholder into an MTO, may be practically restricted in purchasing treasury shares up to the maximum legal limit of 10% of the listed company s share capital. Treasury Shares as defense measures? The following requirements and limitations should to be taken into account when the board of a target company considers the use of treasury shares as a "defense" measure: As a preventive measure, treasury shares can be acquired under an authorization by the shareholders meeting. Due to the board neutrality rule under Austrian takeover law, once an intention of a bidder as to a possible takeover has become public, the board neutrality rule under Austrian takeover law applies. Thus a renewed authorization by the shareholders meeting will be necessary to allow the purchase of treasury shares by the target company in order to defend the hostile takeover bid, in addition to any earlier authorization. Moreover, treasury shares already held by the target company will eventually increase the relative voting power of the successful bidder given the non-voting treasury shares. Finally, the later placement of treasury shares must be made by observing the equal treatment of shareholders, for example by a sale on market. The placement of treasury shares with a "white knight" may thus not be a viable alternative and further compromises the use of treasury shares as an effective defense measure of target board. Page 9