Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: December 2015

ITALIAN UPDATE: The Italian M&A Boom – Where Did We Go Right?

Editors’ Note:  Alberto Saravalle is senior partner of the Executive Committee of BonelliErede and a member of XBMA’s Legal Roundtable.  Professor Saravalle is one of Italy’s leading practitioners in corporate law, capital markets, and M&A.

 

Executive Summary

  • Italy is experiencing an M&A boom that is bringing volumes closer to those of the golden years (2005, 2006 and 2007).
  • The acquisitions wave includes deals from both strategic investors and private equity. Infrastructural funds are now investing in Italy, where they find opportunities at prices more attractive than in Northern Europe, in a context that is regarded as politically safe.
  • There has also been considerable growth in the real-estate market.
  • There are many reasons that can explain this major shift: some are common to other European countries such as the quantitative easing, the low oil price, the favourable euro/dollar exchange, the solution of the Greek crisis, etc.
  • The country is finally pulling out of recession, its debt is finally due to begin decreasing next year, treasury bills pay negative real interest rates, and the government has finally begun implementing the privatisation
  • Foreign investors appreciate the relative stability brought by Prime Minister Renzi, after many years of political turmoil. The government has shown determination in addressing various issues that traditionally put foreign investors off.
  • Reforms include the Jobs Act that streamlined the Italian labour market by introducing clearer rules on hiring and firing, and the civil justice system that was traditionally considered one of the main reasons for limited investment, slow growth, and a difficult business environment.
  • Italy counts myriads of profitable small and medium-sized companies, still family-owned which often face the inevitable problem of generational change.
  • The country has always had a favourable attitude towards foreign investors. In particular, Chinese companies considered it one of the preferred entry points to the European market and a gateway to the Mediterranean area.

Main Article

Although we have been hearing much about the latest M&A wave around the world, it may come as a surprise to some that the boom has reached Italy. In the last year and a half, the country, which for a long time was labelled “the sick man in Europe”, has become one of the most attractive M&A markets to invest in. To quote a line from the famous Broadway musical “The Producers”, we are wondering “where did we go right?”. In other words, what are the reasons underlying this unexpected boom that is bringing M&A levels closer to those of the golden years (2005, 2006 and 2007), especially given that only a few years ago Italy seemed on the brink of a forced exit from the euro.

Gaining momentum

But before attempting any analysis, let’s review the data available. According to the 2014 KPMG Corporate Finance Annual M&A Report (the latest available), the Italian market went into a deep decline after its golden years, with M&A levels in 2013 sinking as low as those in 2004. More precisely, 2007’s exceptional EUR 148 billion result drastically decreased to EUR 56 billion in 2008, and continued to decrease in 2009 and 2010 (with a record low of EUR 20 billion) before stabilising at EUR 30 billion in the following three years. Things picked up in 2014, with volumes almost doubling to approximately EUR 50 billion and the number of transactions increasing by 43%.

No official data is yet available for 2015, but all the reports indicate further substantial growth. According to a Reuters’ report, after the first quarter, with deals for EUR 20 billion, Italy became the third most targeted country in Europe, accounting for 11.6% of European M&A. And according to Dealogic, compared to the first nine months of 2014, Italy’s volume for the same period in 2015 almost doubled (EUR 60.5 billion). Even without definitive numbers, deal-making in Italy is clearing gaining momentum.

The investors

Also from a qualitative point of view there has been a step up in pace this year, with major strategic investors clearly targeting the Italian market. To mention but a few deals announced or closed this year, it suffices to cite ChemChina’s acquisition of the tyre company Pirelli, Dufry’s acquisition of World Duty Free, Hitachi’s acquisition of Ansaldo STS and Ansaldo Breda from Finmeccanica, the merger of Yoox and Net-à-Porter, and Mitsubishi’s acquisition of DelClima.

The private equity funds did their part too. For instance, Mercury Italy S.r.l., a consortium owned indirectly by funds advised by Bain Capital, Advent International and Clessidra SGR  signed an agreement to acquire Istituto Centrale delle Banche Popolari (ICBPI), a leading player in the Italian financial services market with strong market positions in payment services, interbank clearing and securities services; Clessidra, an Italian private equity house, acquired a 90% shareholding in the well-known fashion house Roberto Cavalli; and BC Partners, that had previously abandoned the Italian market, came back to acquire a majority stake in Cigierre, a casual dining chain. Last but not least, it is worth noting that infrastructural funds are now investing in Italy, where they find opportunities at prices more attractive than in Northern Europe, in a context that is regarded as politically safe.

Going abroad

With but a few notable exceptions (e.g., Fiat Chrysler, Luxottica, Enel, and Unicredit), Italian entrepreneurs have been less than adventurous in the last few years in terms of investing abroad. This seems to be less the case now, partially because the European market is shrinking, thus making it necessary to have a presence in other promising markets, and partially to diversify risks and opportunities. In 2015, for instance, GTech, controlled by Lottomatica, completed its acquisition of US-based International Game Technology; Exxor (the Agnelli family holding company), following the sale of Cushman & Wakefield, acquired a 43% holding in The Economist and PartnerRe (a large reinsurance company); Ferrero completed its acquisition of Thorntons (a UK chocolate company); and Salini Impregilo announced its acquisition of Lane Industries (a leading US construction company).

The real-estate market

There has also been considerable growth in the real-estate market. The transaction volumes recorded in the first half of the year are double those recorded for the same period in 2014, with 80% involving foreign investors. Among the most notable acquisitions, it is worth noting a sizeable investment by the sovereign fund of Qatar in a large Milan project. And by the levels of investment at year end are expected to return to pre-crisis levels. Moreover, recent reforms of the REITs regulations, rendering them more advantageous also from a tax perspective, will likely lead to more IPOs of such vehicles.

The European context

There are certainly many reasons that can explain this major shift: some are common to other European countries, other are peculiar to Italy. To begin with, an important role has certainly been played by the concurrence of general factors such as the quantitative easing, the low oil price, and the favourable euro/dollar exchange. At European level, the risk of the Euro area breaking up seems, at least for the moment, behind us. Even the third (and most dramatic) Greek crisis has been overcome and the fears of Brexit, although serious, are still distant.

Privatisations are back

Returning specifically to Italy, the country is finally pulling out of recession (we expect GDP to grow by 0.8 or 0.9 % this year), although its debt is still huge, amounting to 132% of GDP (but it is finally due to begin decreasing next year). Treasury bills pay negative real interest rates, and the government has finally begun implementing the privatisation plan that had been requested for so long. The end of 2014 saw the IPO of Ray Way (the Italian public broadcaster’s subsidiary that owns the signal transmission and broadcasting network), followed by the sale earlier this year of around 40% of Poste Italiane (the Italian Post Office). According to the Privatization Barometer of the Mattei Foundation and KPMG, Italy came in at the third place, behind the United Kingdom and Sweden, for the privatisations carried out in the first eight months of this year. Next in line are Grandi Stazioni (which manages 13 of Italy’s largest railway stations), Enav (which provides air traffic control services) and Ferrovie dello Stato (the Italian state railway group). To be sure, it is not these IPOs that will enable Italy to cut its humongous public debt, but it is nevertheless a positive sign of the State’s commitment to reduce its presence in the market economy. And it goes without saying that their going public will contribute to a more dynamic and competitive market.

Political stability and reforms at last

Certainly the relative stability brought by Prime Minister Renzi, after many years of political turmoil, has been appreciated by foreign investors. As the next elections are not due until 2018, the government has more time to make good on its promise to reform the economy. And although only part has been delivered thus far, the Renzi government has shown determination in addressing various issues that traditionally put foreign investors off. For instance, the recent Jobs Act has streamlined the Italian labour market by introducing clearer rules on hiring and firing and a simplified employment system, with protection increasing with length of service. Recent tax reforms should also help streamline the relationship between tax authorities and foreign investors. And after many years of tax increases there have finally been some much welcomed cuts, and although most related to personal income and property taxes, it is expected that they will extend to corporate tax from next year. Liberalisations are also in the government’s agenda, although we are still waiting for parliament’s final approval of the law that should take the first timid steps in this direction.

Another area the government has been focusing on is the reform of the civil justice system, whose inefficiency has often been considered one of the main reasons for limited investment, slow growth, and a difficult business environment. The first data released seem encouraging, indicating a 20% reduction in the backlog of both new and pending cases. The main gist of the reform is the establishment of a separate track for out-of-court settlement, which offers alternative dispute resolution methods for minor cases and certain family law matters (including amicable separations and divorces). In addition, courts can now fast-track simpler proceedings, and new rules have been adopted to accelerate certain enforcement procedures. Last, but not least, as a general rule judges are now required to order the losing party to pay the winner’s attorney’s fees and higher interest rates are payable on the amounts awarded. Although the actual costs of litigation (for the State and the parties) are higher than those awarded by the court, these changes will probably prove the most effective methods to limit frivolous litigation.

Generally speaking, it is fair to say that although the reforms underway will not individually lead to radical change in the market place, they have persuaded foreign investors that the government is tackling the right issues.

Small and medium-sized enterprises for sale

From an industrial point of view, Italy can be considered a land of opportunities. One should remember that it is the second largest industrialised country in Europe. Unlike France and Germany, it has only a few large banks and multinational companies, but it counts myriads of profitable small and medium-sized companies (especially in the rich regions in the north-east) that export all over the world. These are, to a large extent, still family-owned and often face the inevitable problem of generational change. Thus, after the crisis of these years, old patrons facing these choices are more sensitive to the sirens of private equity funds and international strategic investors offering a rich way out and sometimes guaranteeing well-paid jobs to their offspring.

Foreigners are welcome

To complete the picture, it should also be remembered that Italy has always had a favourable attitude towards foreign investors. Unlike other countries, we have never experienced a wave of economic nationalism. The only response to a series of transactions carried out by French companies, which culminated with the acquisition of Parmalat, was the establishment of a sovereign fund. Since then the fund has played an important role but has never been an instrument to block foreign acquisitions. On the contrary, it has often been instrumental in allowing state-owned companies to divest and gradually transfer control of certain assets and companies. More recently, for instance, it acquired a 12.5% interest in Saipem (a global leader with distinctive skills and capabilities in engineering and construction and oil and gas drilling) from ENI, allowing ENI to deconsolidate Saipem. To confirm this internationally-minded strategy of the Italian Strategic Fund, suffice it to say that the Kuwait Investment Authority holds 22.9% of its investment arm.

Chinese investments are here to stay

Of all countries, China has had the lion’s share, with Chinese acquisitions in the last 18 months surpassing those in the United Kingdom and the United States, including acquisitions of significant and strategic assets, such as a 35% stake in CDP Reti, a company that holds 30% of Terna and Snam, which respectively own the electric and natural gas networks. Interestingly, even when Italy was generally considered a less attractive market, Chinese companies considered it one of their preferred entry points to the European market. Italy does in fact offer strategic assets in the traditional and advanced sectors and a gateway to the Mediterranean area. China’s special interest in Italy is also evident from the fact that in the last few years Chinese state-owned banks have acquired small but notable shareholdings in Italy’s largest blue chips.

***

In conclusion, as one would reasonably expect, a number of factors converged to create this momentum for Italy. The credibility of the current government is an important element in this bounce back, but we all know that political credibility is a currency that can be rapidly amassed but just as rapidly depleted. The completion of the reforms underway (including a serious spending review) will be the litmus test. But for now, we have reason to believe that this growth trend will continue.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

GERMAN UPDATE – Amendments to German Securities Trading Act (WpHG) with High Significance in Practice: Disclosure of Significant Shareholdings, Home Country Disclosure, Interim Financial Reporting

Editors’ Note:  Dr. Christof Jäckle and Dr. Emanuel Strehle are members of XBMA’s Legal Roundtable and Partners at Hengeler Mueller, a leading German firm in the M&A and corporate arena.  Dr. Christian Schwandtner, partner of Hengeler Mueller, authored the following article.

Executive Summary

  • Revised notification requirements with regard to significant shareholdings conferring voting rights in companies listed in Germany as well as with regard to (financial) instruments regarding such shares in force since 26 November 2015
  • Mandatory standard form for notifications to be used
  • Scope of sanctions for breach of disclosure requirements substantially broadened
  • One-off disclosure requirements triggered by the mere amendment of the German Securitites Trading Act (WpHG), in particular, any holding of instruments in excess of 5% on 2 November 2015 has to be notified
  • One-off disclosure requirement for all issuers if their (statutory or elected) home state (Herkunftsstaat) is Germany

Main Article

On 1 October 2015 and 6 November 2015, the German Bundestag and Bundesrat passed the Act regarding the Implementation of the Amendment Directive to the Transparency Directive (Gesetz zur Umsetzung der Transparenzrichtlinie-Änderungsrichtlinie, hereinafter the “Implementation Act” – see official document (Drucksache) no. 482/15 of the German Bundesrat (http://www.bundesrat.de/bv.html?id=0482-15) to adopt Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 which amends the European Transparency Directive (Directive 2004/109/EC of the European Parliament and of the Council) providing, inter alia, for disclosure requirements for significant shareholdings in companies listed in Germany (please note that, under certain circumstances, the German disclosure requirements may apply to non-German companies whose shares are listed on a German stock exchange). The new law has become effective on 26 November 2015 (hereinafter the “Effective Date“).

 

I.         Summary of Status Quo of Notification Requirements in Germany

The German provisions on the disclosure of significant shareholdings conferring voting rights are set forth in the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG“), which in this regard is based on the European Transparency Directive. The WpHG has until now provided for the following three separate disclosure requirements with regard to significant shareholdings:

(a)        The owners of shares conferring voting rights in German listed companies must notify the respective issuer and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin“) pursuant to Sec. 21 of the WpHG if certain threshold proportions (3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%) of the total voting rights in the issuer are reached or exceeded (or if the shareholding falls below such threshold). In this regard, not only the shares conferring voting rights directly owned by the relevant person are taken into consideration but, pursuant to Sec. 22 of the WpHG, shares owned by a third party may be attributed to the relevant person, e.g., shares owned by subsidiaries of such person, or shares which are owned by a third party deemed to be acting in concert with the relevant person.

(b)        In 2007 (amended in 2009), the German disclosure requirements were extended to include certain financial instruments and other instruments which entitle the holder to acquire voting rights pertaining to existing shares of the respective German listed company. These must also be notified to the issuer and BaFin pursuant to Sec. 25 of the WpHG if the aggregate percentage of shares conferring voting rights which may be acquired under such instruments together with shares owned or attributed to the relevant person pursuant to Sec. 21 and 22 of the WpHG reaches, exceeds or falls below any of the above mentioned thresholds (except for the threshold of 3%).

(c)        As certain instruments with regard to the delivery of shares conferring voting rights (e.g., short positions under put options), and more significantly cash-settled instruments, were not captured by the definition of instruments set forth in Sec. 25 of the WpHG and did not trigger notification obligations, new disclosure requirements with regard to such instruments were introduced in 2012. Since then, Sec. 25a of the WpHG provides for a rather broad disclosure of instruments which do not grant an enforceable right to acquire voting rights but facilitate such acquisition at least economically (e.g., cash settled options or total return equity swaps) or provide for an obligation of the holder to acquire shares conferring voting rights (e.g., short positions under put options, share purchase agreements subject to conditions precedent which are not under the sole control of the purchaser). Furthermore, Sec. 25a of the WpHG even captures instruments whose holder is not the beneficiary but which facilitate the acquisition of voting rights by a third party. Again, any shareholding pursuant to Sec. 21 and 22 of the WpHG and holding of instruments pursuant to Sec. 25 of the WpHG must be aggregated with holdings of instruments pursuant to Sec. 25a of the WpHG for the purpose of determining whether the relevant thresholds of voting rights in the German listed company are met (except for the threshold of 3%). The disclosure requirements pursuant to Sec. 25a of the WpHG went well beyond the requirements stipulated by the European Transparency Directive thus far.

 

II.        Amendment to the European Transparency Directive by Directive 2013/50/EU

The European Transparency Directive was amended by Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013. The key amendments with regard to voting rights notifications relate to the definition of financial instruments, which now not only captures financial instruments entitling the holder to acquire shares conferring voting rights but also financial instruments referenced to shares and “with economic effect similar to” those entitling the holder to delivery of shares (Article 13, para. 1 lit b) of the Transparency Directive (as amended)). Also, Article 13a of the Transparency Directive (as amended) now provides for an aggregation of voting rights held directly or indirectly and financial instruments within the meaning of Article 13 of the Transparency Directive (as amended). In addition, the scope of sanctions for a breach of the notification requirements has been significantly extended (including fines of up to the higher of EUR 10m and 5% of the total annual turnover according to the last available annual accounts), a public ‘naming and shaming’ of the relevant person and a loss of the right to exercise voting rights.

 

III.      Implementation of revised European Transparency Directive into the WpHG

The revised Transparency Directive is implemented into German law by the Implementation Act (the WpHG as amended by the Implementation Act in the following the “Revised WpHG“). BaFin has published on its website, among other materials, Frequently Asked Questions (FAQ) with regard to the new disclosure requirements under Sec. 21/22, 25 and 25a of the WpHG (as revised) to give guidance on the new law:

http://www.bafin.de/SharedDocs/Downloads/DE/FAQ/dl_faq_trl-aendrl-umsg.pdf.

The key changes made to the disclosure requirements under the WpHG can be summarized as follows:

 

1.         Continuation of System of three different Disclosure Regimes but with revised Trigger Events

The new disclosure requirements under Sec. 21/22, 25 and 25a of the Revised WpHG still provide for three separate disclosure regimes as before, but with different trigger events and content:

(a)         Holding/Attribution of Voting Rights

Sec. 21 and 22 of the Revised WpHG require a disclosure of voting rights held or attributed to the relevant person (including rights held by parties acting in concert with them).

(b)         Holding of Instruments

Sec. 25 of the Revised WpHG combines the current disclosure requirements under Sec. 25 and 25a of the WpHG: pursuant to Sec. 25 of the Revised WpHG (x) instruments entitling the holder to acquire shares conferring voting rights as well as (y) other instruments relating to shares conferring voting rights and having similar economic effect as the instruments pursuant to (x) (irrespective of an actual delivery of shares) will have to be notified if the aggregate holding of such instruments reaches, exceeds or falls below the (unchanged) thresholds pursuant to Sec. 21 of the Revised WpHG (except for the threshold of 3%, which still applies only to holdings/attributions of shares conferring voting rights). Please note that Sec. 25 of the Revised WpHG only takes into account the (direct or indirect) holding of instruments for the purpose of determining whether the relevant thresholds are met.

Thus, the disclosure requirements pursuant to Sec. 25 and 25a of the WpHG regarding (financial) instruments have been consolidated in Sec. 25 of the Revised WpHG. Such consolidation shall, pursuant to the explanatory notes of the legislator to the Implementation Act, not result in a change to the scope of instruments which were previously to be notified pursuant to Sec. 25 and 25a of the WpHG although the definition of the relevant other instruments (i.e., instruments under (y) above) has been slightly reworded. However, there will at least be a minor change of scope resulting from the new wording: under Sec. 25a of the WpHG instruments had to be disclosed even if they facilitated the acquisition of shares by a third party rather than their holder. Sec. 25 of the Revised WpHG no longer refers to third parties so that only instruments from which the actual holder benefits have to be disclosed by the holder. However, if an instrument provides for a benefit to a third party (e.g., under a contract containing third party rights) that third party may itself be required to make a disclosure notification pursuant to Sec. 25 of the Revised WpHG.

(c)         Aggregation of Voting Rights and Instruments

Sec. 25a of the Revised WpHG provides for a separate disclosure requirement with regard to the aggregated holding/attribution of shares (Sec. 21 and 22 of the Revised WpHG) and the holding of instruments (Sec. 25 of the Revised WpHG), in addition to the individual notification requirements for each of these. Such aggregation had to be made under the old law as well but as part of the disclosure of instruments rather than as a separate disclosure as it is now provided for in Sec. 25a of the Revised WpHG. Under the new law, if the aggregate holding of shares and instruments reaches, exceeds or falls below any of the thresholds pursuant to Sec. 21 of the Revised WpHG (except for the threshold of 3%) this must be notified pursuant to Sec. 25a of the Revised WpHG even if no disclosure requirement pursuant to Sec. 21/22 and 25 of the Revised WpHG is triggered.

Example: shareholder A holds 2% of the shares of the German listed company X AG (covered by Sec. 21 of the Revised WpHG) and instruments entitling the holder to a delivery of 2% of the shares of X AG conferring voting rights (i.e., an instrument within the meaning of Sec. 25 of the Revised WpHG). Under the new law (as under the current law) such holding (i.e., shares and instruments) does not trigger any notifications as no relevant threshold is reached or exceeded. If A now acquires another 2.9% in the form of instruments relating to the shares of X AG, such acquisition does not trigger a notification pursuant to Sec. 21 of the Revised WpHG as the shareholding is still below 3% (namely 2%) or a notification pursuant to Sec. 25 of the Revised WpHG as the holding of instruments is still below 5% (namely 4.9%). However, a notification pursuant to Sec. 25a of the Revised WpHG is triggered as the aggregate holding of shares and instruments has exceeded 5% (namely 6.9%). Thus, a notification pursuant to Sec. 25a of the Revised WpHG must be made by shareholder A.

 

2.         Sec. 21 of the Revised WpHG: Unconditional Right or Obligation to transfer Shares triggering Voting Rights Notifications

With regard to shares directly held by or attributed to the relevant person, voting rights notifications will no longer be triggered by the closing of the trade/acquisition, i.e., the transfer of legal ownership of the shares. Instead, the right (or obligation, in case of a disposal) to transfer legal ownership of the shares will trigger the voting rights notifications if such right or obligation is (x) unconditional (unbedingt) and (y) to be settled without delay (ohne zeitliche Verzögerung). This is usually the case for the acquisition or disposal of shares via a stock exchange which are settled on the second trading day after the trading on the stock exchange (“t+2”); in such cases, the voting rights notifications are triggered on the day of the trade on the stock exchange already (“t”) rather than on the day of settlement of such trade by delivery of the shares (“t+2”).

Please note that such amendment applies only to the voting rights notifications under the Revised WpHG, and not to the determination of control (30% threshold of voting rights in a German listed company reached or exceeded) under the German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG) for which the settlement of the acquisition and thus legal ownership of the shares remains relevant.

 

3.         Amended Attribution Rules pursuant to Sec. 22 (1) of the Revised WpHG

(a)        Sec. 22 (1) of the Revised WpHG provides for an attribution of voting rights in case of a temporary transfer of voting rights without the underlying shares for consideration (no. 7 of Sec. 22 (1) of the Revised WpHG) and in case of shares which are lodged as collateral (Sicherungsverwahrung) provided the holder of the collateral controls the voting rights and declares his intention to exercise the voting rights (no. 8 of Sec. 22 (1) of the Revised WpHG). The temporary transferee or collateral holder would have to make a notification if the shareholding thresholds under the WpHG were met. Neither attribution rules should have a significant impact in respect of German listed companies, however. A separate transfer of voting rights without the underlying shares is not permissible for shares in a stock corporation (Aktiengesellschaft) incorporated under German law. Collateral over shares, meanwhile, is usually granted by way of pledge over the shares rather than by way of security transfer or security assignment of legal ownership of the shares to the holder of the security, so legal ownership of and thus the voting rights pertaining to the shares remain with the pledgor and the pledgee is not subject to a disclosure requirement pursuant to Sec. 21 and 22 of the WpHG.

In this respect, BaFin is changing its practice with regard to pledges over shares providing for forfeiture (Verfallklausel); in the view of BaFin such pledge no longer is an instrument within the meaning of Sec. 25 of the Revised WpHG.

(b)       Furthermore, the definition of the term “subsidiary” is now included in Sec. 22a of the Revised WpHG. This inclusion has no substantive consequences, but formally consolidates the definitions which were previously spread across Sec. 22 (2) and (3) of the WpHG and the Capital Investment Act (Kapitalanlagegesetzbuch).

 

4.         Non-counting of Voting Rights pertaining to Shares held for Stabilization Purposes

Sec. 23 (1a) of the Revised WpHG implements Article 9, para. 6a of the European Transparency Directive (as amended). Pursuant to the new para. (1a), voting rights pertaining to shares are not to be counted towards the disclosure thresholds if such shares have been acquired for stabilization purposes in accordance with Commission Regulation (EC) no. 2273/2003 of 22 December 2003 (buy-back-programs and stabilization of financial instruments), provided the voting rights attached to those shares are not exercised or otherwise used to intervene in the management of the issuer. Against this background, BaFin is changing its approach to shares subscribed by underwriters in an IPO which will be exempt from notification pursuant to Sec. 23 (2) no. 1 of the Revised WpHG if held for no longer than three trading days for the purposes of settlement of the IPO.

 

5.         Form of Disclosure and Deadline for Notifications due under the Revised WpHG

(a)        New Standard Form for Notifications

Any notification pursuant to Sec. 21/22, 25 and 25a of the Revised WpHG must be made to the issuer and BaFin using the official standard form as will be attached to the Legal Ordinance regarding Securities Trading Notifications and Insider Lists (Wertpapierhandelsanzeige- und Insiderverzeichnisverordnung, WpAIV). The use of the standard form is mandatory and will improve the comparability of notifications. Furthermore, under the new law only one notification is usually required for groups of companies rather than a separate notification by each group company.

(b)        Timing of Notification

As under the existing regime, Sec. 21 (1) of the WpHG states that notifications have to be made without undue delay (unverzüglich) and in any case no later than four trading days after the shareholder gains knowledge of the acquisition or disposal of shares or of a holding of instruments. However, under the Revised WpHG it is also irrefutably assumed (unwiderleglich vermutet) that the relevant shareholder has gained such knowledge two trading days after the trade of shares or instruments has occurred (irrespective of the settlement of such trade). This amendment should not generally have a substantial impact in practice but it underlines the German legislator’s intention to increase the standard of diligence applied by market participants to notification requirements, and hence the risk of sanctions for non-compliance.

 

6.         Sanctions

Broadening the scope of sanctions triggered by a breach of the notification requirements is one of the Implementation Act’s key objectives.

(a)        Loss of Rights pertaining to Shares, Sec. 28 of the Revised WpHG

A loss of voting rights and dividend rights was previously triggered only by a breach of the disclosure requirement relating to shares directly owned or attributed pursuant to no. 1 and no. 2 of Sec. 22 (1) of the WpHG (although fines could still be imposed). Under the new law a loss of rights is also triggered by the breach of a disclosure requirement arising due to any of the other attribution rules under Sec. 22 of the Revised WpHG. Most importantly, this also includes a breach of disclosure requirements with regard to voting rights attributed to parties that are acting in concert within the meaning of Sec. 22 (2) of the Revised WpHG. In these cases, the loss of voting rights and dividend rights not only relates to the shares directly held/owned by the person in breach of the disclosure requirements but also to the shares held by third parties which are attributed to such person pursuant to Sec. 22 of the Revised WpHG.

Example: If shareholders A and B are acting in concert with regard to their respective shares held in a German listed company and if shareholder A (or its direct and indirect controlling shareholder(s)!) does not comply with the disclosure requirements pursuant to Sec. 21 and 22 (2) of the Revised WpHG, both shareholder A and shareholder B will be subject to a loss of rights pertaining to the shares held even if shareholder B has fully complied with his disclosure requirements. Parties acting in concert will therefore have to make sure that each party fully complies with his respective disclosure requirements to avoid a loss of rights.

In addition, any breach of the disclosure requirements pursuant to Sec. 25 (1) (holding of instruments) and 25a (1) (aggregation of holding of shares and instruments) of the Revised WpHG will result in a loss of voting rights and dividend rights pursuant to Sec. 28 (2) of the Revised WpHG. However, such loss of rights relates to shares (directly) held by the relevant person being in breach of the disclosure requirements only but not to shares held by a third party. Previously, a breach of the disclosure requirements relating to (financial) instruments did not result in a loss of rights but could result in a fine being imposed by BaFin.

(b)        Fines

The monetary fines in case of a breach of the disclosure requirements have been substantially increased (Sec. 39 (4) of the Revised WpHG). So far, fines of up to EUR 1m can be imposed. Under the Revised WpHG, fines in the amount of up to EUR 2m may be imposed by BaFin on natural persons being holder of shares/instruments; for legal entities, the increase is very substantial: BaFin may now impose fines of up to the higher of EUR 10m and 5% of the annual consolidated turnover of the group to which such legal entity belongs. BaFin may increase the fine up to an amount equal to two times the economic benefit (including avoided losses) resulting from the non-compliance with the disclosure requirements.

(c)        Naming and Shaming

Moreover, BaFin will now publish actions taken and fines imposed as a result of any breach of the disclosure requirements on its webpage. Such publication will include the name of the relevant person(s) (including individuals) and the disclosure requirement which has not been complied with (Sec. 40c of the Revised WpHG) and will be made regardless whether the administrative action of BaFin is or still can be challenged.

 

7.         One-Off Disclosure Requirements triggered by the Amendment of the WpHG

Sec. 41 (4f) of the Revised WpHG provides for three different one-off disclosure requirements (Bestandsmitteilungspflicht) which are triggered simply by the fact that the WpHG has been amended by the Implementation Act, i.e., without any acquisition or disposal of shares or instruments:

(a)        Pursuant to Sec. 41 (4f) sentence 1 of the Revised WpHG, every person must disclose, by 15 January 2016 at the latest, its current holding of shares conferring voting rights pursuant to Sec. 21 and 22 of the Revised WpHG as per the Effective Date if, solely due to the amendment of Sec. 21 and 22 of the WpHG, one of the thresholds under Sec. 21 of the Revised WpHG is reached or exceeded. It is relatively unlikely that such notifications will be triggered in practice given that the new attribution rules pursuant to no. 7 and no. 8 of Sec. 22 (1) of the Revised WpHG should only very rarely apply. A notification might be triggered by the new rule that the trading rather than the closing of a trade is to the relevant triggering event in the future (see 2. above). Again, however, this would only apply to  rather exceptional cases, e.g., trading on the day before the day the Implementation Act becomes legally effective. Given that BaFin is of the opinion that a one-off disclosure pursuant to Sec. 41 (4f) sentence 1 of the Revised WpHG is not required if a notification pursuant to Sec. 21/22, 25 or 25a of the Revised WpHG is made ordinarily, such one-off notifications should be rare in practice.

(b)       Pursuant to Sec. 41 (4f) sentence 2 of the Revised WpHG, every person must disclose its holding of instruments within the meaning of Sec. 25 of the Revised WpHG as per the Effective Date if such holding is equal to or greater than 5% on the Effective Date. Please note that such notification requirement solely depends on the holding of instruments reaching or exceeding the threshold of 5% on the Effective Date. Any holder of instruments within the meaning of Sec. 25 of the Revised WpHG reaching or exceeding the threshold of 5% through such instruments is thus required to make a one-off disclosure pursuant to Sec. 41 (4f) sentence 2 of the Revised WpHG. Such disclosure must be made by 15 January 2016 at the latest. However, if a regular disclosure pursuant to Sec. 25 of the Revised WpHG is triggered after the Effective Date due to a change in the holding of instruments and a respective notification is made, no one-off disclosure as per the Effective Date is required in the view of BaFin if this disclosure has not already been made.

(c)        Pursuant to Sec. 41 (4f) sentence 3 of the Revised WpHG, every person must disclose, by 15 January 2016 at the latest, its current aggregated holding of shares and instruments pursuant to Sec. 25a of the Revised WpHG as per the date the Effective Date if, solely due to the amendment of Sec. 21/22 and 25a of the WpHG, one of the thresholds under Sec. 21 of the Revised WpHG is reached or exceeded (except for the threshold of 3%). Again, it should be rather unlikely that such notifications will be triggered in practice given that the change in the law should in almost all cases not result in a different aggregated holding of shares and instruments as under the current law.

A breach of the one-off disclosure requirements can result in fines up to EUR 200,000 (Sec. 44 (5) of the Revised WpHG). However, failure to comply will not result in a loss of rights and, the “naming and shaming” provisions do not apply.

 

IV.       Select Overview of Further Changes

By the Implementation Act further changes to the WpHG will be made which do not relate to the notification of the holding of shares and instruments but with significance for issuers, in particular:

  • One-off disclosure requirement for all issuers if their (statutory or elected) home state (Herkunftsstaat) is Germany, Sec. 2c of the Revised WpHG; the disclosure has to be made without undue delay (unverzüglich) after the Effective Date. In case of a breach, fines of up to EUR 200,000 may be imposed. BaFin has made available a draft form of such disclosure in its internet site
  • Issuers of shares listed in Germany have to disclose, without undue delay (unverzüglich), any increase or decrease of the number of shares outstanding, Sec. 26a of the Revised WpHG (while up to know such disclosure has to be made only at the end of the month)
  • Interim financial reporting:
    • Suspension of requirement to publish interim management statements (Zwischenmitteilungen) pursuant to Sec. 37x of the WpHG; however, interim reporting requirements under applicable listing rules of stock exchanges remain unaffected thereby
    • If interim management statements are to be reviewed by an auditor such auditor has to be elected by shareholder’s resolution.
    • Deadline for the publication of half-yearly financial reports extended from two to three months, Sec. 37w of the Revised WpHG
    • New reporting requirements for certain mineral exploiting (mineralgewinnend) and wood harvesting (holzeinschlagend) companies, Sec. 37x of the Revised WpHG
  • Monitoring of financial statements: strengthening of the enforcement procedures pursuant to Sec. 37n et seqq. of the Revised WpHG
  • De-regulation: Repeal of several publication and notification obligations of issuers (deletion of Sec. 30c, 30e (1) no. 1 c), no. 2 of the WpHG

 

V.        Summary

The scope of triggering events for notifications of holdings of shares and instruments does not change substantially under the Revised WpHG as compared to the current law. However, as the potential sanctions for non-compliance with the disclosure requirements have been substantially increased, market participants should familiarize themselves carefully with the new and existing rules and the official form of notifications to be made. Furthermore, it is worth checking whether the one-off disclosure requirements pursuant to Sec. 41 (4f) of the Revised WpHG apply, in particular with regard to the holding of instruments reaching or exceeding the threshold of 5% on 26 November 2015.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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