Takeover offers with minimum acceptance thresholds

First published in Noerr Public M&A-Report 01/2022

In order to ensure that a takeover offer will only have to be settled if it results in the bidder acquiring control over the target company, such offers may be subject to a minimum acceptance threshold as a closing condition. In recent years, there has been an increasing number of reports of takeover offers that have failed or were in risk of failing because the minimum acceptance threshold was not reached. Against this background, we analysed all 90 public takeover offers approved and published by BaFin during the years from 2016 to 2021 with regard to whether the recently perceived increased risk of failure for takeover offers with minimum acceptance thresholds can also be empirically substantiated and which type of takeover offers are affected by this risk.

42 of the 90 takeover offers in the years from 2016 to 2021 (46.7%) provided for minimum acceptance thresholds. 23 of them were attributable to the large-cap segment (54.8%), 15 to the mid-cap segment (35.7%) and only four to the small-cap segment (9.5%). As the respective shares of these three segments in all takeover offers in the period under investigation amounted to 42.2% (large-cap), 32.2% (mid-cap) and 25.6% (small-cap), it was found that minimum acceptance thresholds were used relatively more often in the large-cap and mid-cap segments than in the small-cap segment.

Twelve of the 42 takeover offers with a minimum acceptance threshold (28.6%) failed due to not reaching the threshold. As much as ten of these failed transactions belonged to the large-cap segment (corresponds to 83.3% of all failed transactions), so that ultimately 43.5% of all 23 large-cap takeover offers with minimum acceptance thresholds failed in the investigation period. The remaining two failed takeover offers concerned mid-cap transactions, resulting in a significantly lower failure rate of only 13,3% of the transactions for this segment. Statistically, large-cap transactions fail more often at the minimum acceptance threshold than other public M&A transactions.

The minimum acceptance thresholds ranged from 18.5% to 90% in the period under investigation. A clear majority of the offers (36 offers or 85.7%) set the threshold at 50% or higher. 21 takeover offers had a threshold of more than 51%. This implies that half of the takeover offers (representing 50%) in the period under investigation did not only have the objective of obtaining control over the target company. Rather, the intention was apparently also to fundamentally restructure the target companies (e.g. to conclude a domination and/or profit transfer agreement or a squeeze-out), which requires the approval of a qualified majority of the shareholders at the general meeting of the target company.

When analysing the amounts of the minimum acceptance thresholds of the takeover offers that failed during the period from 2016 to 2021, it also became apparent that for nine of the twelve failed transactions (seven large-cap and two mid-cap transactions), the threshold had been 67.5% or higher. Consequently, most of the transactions that failed in the period under investigation seem to have been aimed not only at obtaining control over the target company but also at fundamentally restructuring it.

Reasons for (imminent) failure to reach the minimum acceptance threshold

Of 42 takeover bids that provided for a minimum acceptance threshold, the minimum acceptance threshold was missed in 23 takeover bids or the bid was amended due to a threatened miss. With regard to these offers, we have tried to determine the reasons leading to this (imminent) failure. In doing so, we relied on the media coverage of takeover bids that regularity accompanies these transactions. For 16 of the 23 takeover offers in question (14 of which were large-cap and two of which mid-cap offers), the reporting went into more detail on the reasons for the failure or the amendment of the offer. Sometimes several reasons are given for a transaction.

Our analysis of these media reports showed that for nine of the 16 takeover offers (56.3%) for which the media had provided more detailed coverage, the (imminent) failure was attributed to activist shareholders of the target company having publicly rejected the respective offers in advance (have played a role statt was attributed, also the participation of index funds in the target company was made responsible for the offers’ failure). In five cases (31.3%), the (imminent) failure was associated with the participation of index funds in the target company (three of which were the aforementioned cases, in which the negative stance of the participating activist shareholders was made responsible for the respective transaction’s failure). A significant participation of index funds can be a major hurdle for reaching the minimum acceptance threshold because such funds are often structured in a way that they may only tender their shares in context of a takeover offer if the offer’s success is already certain. In three cases (18.8%) the (imminent) failure of the takeover offer was due to bidding competitions, two of which occurred in 2021 between Zorro Bidco. S.à r.l. and Pet Bidco GmbH with respect to zooplus AG (see above) and the third of which in 2019 with respect to OSRAM Licht AG, with Bain Capital and The Carlyle Group on one side and Austrian ams AG on the other. Finally, there were two cases (each corresponding to 6.3%) in which the failure to reach the minimum acceptance threshold was attributed to the rejecting stance of another major shareholder or the management of the target company, respectively.