German partnerships limited by shares as targets for public takeovers

First published in Noerr Public M&A-Report 01/2021

German partnerships limited by shares (Kommanditgesellschaften auf Aktien, “KGaA”) do usually not play a major role in takeover law (Among the offer documents published by BaFin on its website, there is only one that is directed at the limited partners of a KGaA (Offer of AIG Century GmbH & Co. KGaA to the shareholders of AIRE GmbH & Co. KGaA dated June 12, 2012)). On one hand, this is due to the fact that, in Germany, the absolute number of publicly listed KGaAs is significantly lower than the absolute number of publicly listed stock corporations (Aktiengesellschaften, “AG”) or European Stock Corporations (Societates Europaea, “SE”). On the other hand, this particular legal form in its typical shape of a “limited liability company & Co. KGaA (Kapitalgesellschaft & Co. KGaA)” is almost “takeover resistant”. While the majority shareholder of an AG may, at the general meeting, initiate the dismissal or election of individual supervisory board members and thus influence the composition of the management board, the purchaser of the majority of the limited shares in a KGaA is not legally entitled to do so. The authority to manage a KGaA is with its general partner, and who manages the business of the general partner is decided by its majority shareholder with the appointment of the members of its management body. The resulting lack of influence by the bidder causes the KGaA to be an unattractive target for any takeover attempt.

The rarity of the KGaA being a target company in takeover situations in turn means that BaFin decisions on legal issues relating to this legal form deserve special attention. This also applies to the eight decisions published by BaFin on November 26, 2020 on the exemption of shareholders from the obligation to publish and submit a mandatory offer to the limited shareholders of Ströer SE & Co. KGaA (“Ströer KGaA”). This related to a restructuring and transfer of shares among certain limited shareholders of Ströer KGaA. In this context, the involved parties concluded a voting pool agreement under which they undertook to exercise their voting rights at the general meeting only in accordance with the resolutions of a pool meeting. BaFin granted the requested exemptions and followed its previous administrative practice and the prevailing opinion in the literature on takeover law in the published reasons.

At first, BaFin states that the conclusion of a voting pool agreement, as it was concluded in the case of Ströer KGaA, constitutes control within the meaning of section 29 para. 2 sentence 1 WpÜG. In this context, BaFin assumes that the conclusion of the agreement would establish an “acting in concert” within the meaning of section 30 para. 2 WpÜG between the parties, which would lead to a mutual attribution of their voting rights. Due to this attribution, the parties exceeded the control threshold of 30% of the voting rights pursuant to section 29 para. 2 sentence 1 WpÜG. BaFin clarifies that, in accordance with its established administrative practice, it would not be relevant for the attribution whether the respective contracting party could bring about decisions by the pool. The conclusion of a voting pool agreement alone would already be sufficient, because the parties could be perceived as “a block” from the perspective of the external shareholders.

The aforementioned fact that limited shareholders have a weak legal position compared to the shareholders of an AG because of their lack of influence on the composition of the management body, is not mentioned by BaFin in the context of determining if an acquisition of control has taken place. Instead, BaFin clarifies with reference to section 2 para. 3 no. 1 WpÜG that section 29 WpÜG would, without exception, also apply to KGaAs.

Finally, BaFin bases the granted exemption from the obligation to submit a mandatory offer on section 37 para. 1 var. 4 WpÜG (lack of an “actual possibility of exercising control”). Only in this context, BaFin refers to the limited shareholders’ reduced possibilities of exerting influence and the continuing “material control situation” by the general partner, whose control situation had not changed by the restructuring in question. In this context, BaFin states that the corporate governance structure of a KGaA regularly justifies the granting of an exemption.

The practical implications of BaFin’s decision are that, when shares in a publicly listed KGaA are acquired or a voting pool agreement is concluded, the possible obligation to submit a mandatory offer must be taken into account. KGaAs are by no means excluded from the scope of the WpÜG. BaFin assumes, however, that an exemption from the obligation to submit an offer can regularly be granted in case of an acquisition of control over a typically structured KGaA. Nevertheless, in order to avoid surprises in corresponding transactions, BaFin should be involved at an early stage of the transaction.