The offer volume in the German market for public takeovers reached another peak last year. This development was driven by the exchange offer made to the Linde shareholders regarding the merger with Praxair, as law firm Noerr revels in its Public M&A Report.
Another important finding in the report is that management and supervisory boards of target companies are increasingly acting more cautiously. Their statements on takeover offers are increasingly accompanied by several fairness opinions. In addition, the number of “neutral statements” also increased compared to the previous year.
According to the statistics of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin), a total of 22 public offers pursuant to the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – WpÜG) were approved and published in 2017. These offers concerned target companies representing an aggregate market capitalisation at offer price (MCO) of EUR58.6 billion. In the preceding year, the aggregate MCO of all offers had been EUR32.8 billion – an increase of 78.76 per cent. This development is due alone to the exchange offer made to the shareholders of Linde AG regarding the merger with Praxair with an MCO of EUR34.5 billion which corresponds to a total market share of 59 per cent. However, the number of transactions remained the same compared to the preceding year and has only slightly increased compared over several years.
“However, a more dynamic development can be seen in the area of large-cap transactions,” says Noerr partner Dr Volker Land. “The number of transactions in this area increased from three (2014) to six transactions last year. The increase in the average offer volume (based on MCO) in this area was even more significant (from EUR3.3 billion to EUR9.2 billion).”
Compared over several years, the average premium offered in 2017 on the three-month VWAP of the target company shares at announcement of the offer was comparatively low. It amounted to 12.09 per cent on average. However, this indicator has been very inconsistent in recent years and it is therefore hardly possible to make any general statements.
And how do management and supervisory boards of target companies react to takeover offers?
“The picture resulting from our review is quite clear,” says Noerr partner Dr Stephan Schulz. “Both bodies are increasingly acting with greater caution and more often adding several fairness opinions to their statements.”
Both bodies are required to issue a reasoned statement on a public offer. Such a reasoned statement usually contains a recommendation to the shareholders to accept or reject the offer. The focus of the reasoned statement is the assessment of the appropriateness of the offer consideration. Usually, “fairness opinions” by external advisors are used for this. A comparison over several years shows that consistently around 75 per cent of statements are accompanied by at least one fairness opinion (2017: 77.27 per cent), whereas the number of statements accompanied by more than one fairness opinion has significantly increased. While no such cases were identified in the 2014 Noerr report, the number has steadily risen in the years that followed. In seven out of 17 cases in which fairness opinions were obtained in 2017, the statements were accompanied by more than one fairness opinion. That is equivalent to 41.2 per cent.
“This development mainly concerns the large-cap segment, but also transactions which are particularly complex or particularly controversial,” says Volker Land with regard to these figures. And there is also another indicator which causes company bodies to act with greater caution: Compared to the previous year, a higher number of neutral statements was published. Neutral statements are statements which do not contain a final recommendation for the shareholders. In 2017, five of the 22 statements reviewed did not contain any recommendations (22.7 per cent), while in 2016 there was only one neutral statement. “The review shows that neutral statements are no longer an exception. Management and supervisory boards can refrain from giving any opinion on the offer in cases of doubt and thereby also protect themselves to a higher degree,” says Volker Land.
