Takeovers of issuers listed in the open market

First published in Noerr Public M&A-Report 01/2025

A large number of listed companies in the small-cap and mid-cap segment are currently considered to be undervalued on the stock exchange and are therefore attracting the attention of both private equity investors and strategic buyers. If the shares of such companies are listed exclusively on the open market (section 48 Stock Exchange Act (Börsengesetz, “BörsG”)), the takeover procedure regulated in the Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, “WpÜG”) does not apply in the event of a takeover. This gives acquirers more flexibility in structuring the transaction. However, from the target company’s perspective, the provisions of stock corporation law become more important, which – unlike for issuers in the regulated market – are not superceded by the WpÜG. The following article provides an overview of legal aspects that are worth considering on the part of the acquirer and the target company in the event of a takeover.

Acquirer

Transaction preparation:

• No shareholding transparency: The success of a takeover generally depends on the acquirer succeeding in acquiring share packages from the target company's major shareholders. To achieve this, the prospective buyer must first be aware of the composition of the shareholder base. As major shareholders of issuers in the open market are not required to submit voting rights notifications under sections 33 et seq. Securities Trading Act (Wertpapierhandelsgesetz, “WpHG”) and a notification obligation under stock corporation law only applies for shareholdings exceeding 25 % or 50 %, prospective buyers only have limited public visibility into the target company’s shareholder base (often referred to as “shareholding transparency”). Some open market issuers voluntarily disclose their shareholder structure on their investor relations website, based on information provided by their major shareholders in the case of bearer shares or from their share register in the case of registered shares. In individual cases, prospective buyers may therefore rely on the target company’s assistance to obtain information about the shareholder structure. In addition, issuers in the open market have no right to information from intermediaries regarding the identity of their shareholders (“know your shareholder”) in accordance with section 67d (1) Stock Corporation Act (Aktiengesetz, “AktG”) (also known as “shareholder/share ID”)
• Greater flexibility with stakebuilding: In certain situations, it might be beneficial for prospective bidders to acquire a stake in the target company in advance of a takeover (“stakebuilding”). For target companies listed on the regulated market, it is only possible to acquire (i) shares in the amount of 2.99 % of the voting rights and instruments as defined in section 38 WpHG in the amount of 99 % of the voting rights or (ii) instruments in the amount of up to 4.99 % of the voting rights without triggering a notification obligation. Due to the inapplicability of the WpHG, such restrictions on stakebuilding do not apply to target companies listed in the open market. A notification obligation under stock corporation law only arises if the acquirer holds more than 25 % of the company’s shares.
• Transaction communication: When it comes to transaction communication, acquirers need to be aware that the target company must generally disclose inside information in connection with the takeover without Delaying such disclosure of inside information is permissible only if, among other things, immediate disclosure would likely prejudice the legitimate interests of the target company. To prevent premature disclosure of the takeover, either (i) the target company must be involved to pass a corresponding resolution to delay the immediate disclosure, or (ii) the target company must be completely isolated from receiving any information about the takeover. Particular caution is required in situations where members of the management board or supervisory board are also involved on the buyer or seller side.

Public takeover bids

As mentioned at the beginning, the WpÜG does not apply to takeovers of issuers in the open market. Nevertheless, it may be beneficial for the acquirer to publish a voluntary public takeover offer to the target company’s shareholders. In principle, the acquirer has the flexibility to structure such offers as desired. In cases where takeovers are pre-arranged between the acquirer and the target company, the parties to the transaction typically follow a takeover procedure similar to that outlined in the WpÜG.

This involves the bidder publishing an offer and other announcements regarding the offer (e.g., acceptance and results notifications), while the target company’s boards submit a reasoned statement on the offer. Aligning with the WpÜG’s takeover procedure provides the offer with a structured framework familiar to market participants, distinguishing it from unprofessional takeover attempts. Recent examples include the acquisition offer by Pineapple German Bidco GmbH (Thoma Bravo) to the shareholders of EQS Group AG in 2023 and the acquisition offer by Zentiva AG to the shareholders of Apontis Pharma AG in 2024. Compared to the regulated WpÜG takeover procedure, structuring the offer offers the following flexibility:

Time flexibility:

• No obligation to announce the offer: Bidders have no obligation to announce their decision to make a public offer to the target company’s shareholders. It is therefore possible to publish a public offer directly without announcing this decision in advance. However, announcing before initiating the offer is common practice as it allows the capital market and the public to assess the offer before the acceptance period begins.
• No official approval needed: Due to the lack of regulation of the takeover procedure, BaFin has no authority to approve the offer, which in particular means that the ten-day review of the offer documents by the authority is not required. The offer document can therefore be published immediately after its finalisation and thus also immediately or shortly after any voluntary offer announcement.
• No minimum acceptance period: Bidders are free to decide on the length of the acceptance period without any obligation to grant a minimum acceptance period. Although not required, a four-week acceptance period, common in regulated market takeovers, is often used in practice.
• No additional acceptance period: Bidders are not obliged to offer shareholders an additional acceptance period after the regular acceptance period expires. In practice, offer addressees are not regularly granted a further acceptance period voluntarily. Shareholders must therefore decide to accept or reject the offer within the set acceptance period and cannot wait to see whether any minimum acceptance threshold has been reached by the end of the regular acceptance period.

Flexibility in the type and amount of consideration:

• No constraints on type of consideration: Bidders are free to decide on the type of consideration offered. For example, offering shares as consideration only to certain shareholders without triggering any further legal consequences is possible. This facilitates a “roll-over” of a target company shareholder’s stake into a stake in the acquirer (group). In addition, there are no requirements regarding the liquidity or stock exchange listing of the offered shares.
• Different amounts of consideration: Bidders may offer sellers of larger share blocks a higher price than to the other shareholders. In contrast to the regulations of the WpÜG, block premiums, typically demanded by sellers of larger share blocks, do not have an effect on the offer price of the public offer to the other shareholders.
• No obligation to perform a company valuation if the shares of the target company are illiquid: Shares of issuers on the open market can often be In this case, however, bidders do not have to carry out a company valuation to determine the offer price, as required for issuers on the regulated market pursuant to section 5(4) Regulation on Offers under the Securities Acquisition and Takeover Act Offer Regulation (WpÜG-Angebotsverordnung).
• Flexibility in amending the offer: In WpÜG-regulated takeover bids, bidders are only allowed to amend their offer up to one working day before the end of the acceptance period. At that point in time, however, it is challenging to accurately predict how many shareholders will accept the offer since institutional investors in particular often decide on the acceptance on the last day of the acceptance period and acceptance behaviour is generally difficult to forecast. For takeover bids with a minimum acceptance threshold, this means that the bidder must decide on reducing or waiving a minimum acceptance threshold without full clarity on the final acceptance rate (see Verse/ Brellochs, ZHR 2022, 339). In contrast, for takeovers of open market issuers, bidders may amend the offer up to the expiry of the acceptance period. In contrast to WpÜG-regulated takeover bids, amending the offer does not extend the acceptance period or grant shareholders who have already accepted the offer the right to withdraw.
• Linguistic flexibility: Under the WpÜG, offers must be published in German, although a non-binding English translation is commonly prepared in transactions in the mid- and large-cap For public offers in the open market, on the other hand, offers may only be published in English or designate the English version as binding, such as the offer document for the acquisition offer of Pineapple German Bidco GmbH (Thoma Bravo) to the shareholders of EQS Group AG.

No obligation to make a mandatory offer

In certain cases, acquirers can gain control of an open market issuer without making a public offer to shareholders, e.g., if the majority of the shareholders are a small group. Unlike regulated market issuers, no mandatory offer is required in this case, allowing the acquirer to purchase one or more share blocks without a public offer via a share purchase agreement and implement structural measures immediately afterwards, such as concluding a domination and/or profit and loss transfer agreement or squeezing out minority shareholders.

No delisting offer required for delisting

Typically, delisting from the open market only requires the issuer to cancel its listing with the stock exchange. There is no need for a delisting offer in accordance with section 39 BörsG. However, stock exchange terms and conditions usually provide for a certain period of time from receipt of the cancellation notice until delisting, allowing shareholders to sell their shares via the stock exchange before the delisting (e.g., the three-month period in the case of inclusion of shares in the open market of the Frankfurt Stock Exchange) (However, the government draft of the Future Financing Act II proposes that delisting from an SME growth market (in Germany only the Scale segment of the Frankfurt Stock Exchange), which is considered a Qualified Regulated Unofficial Market, will require a prior delisting offer. If the new Federal Government will take this issue further remains to be seen).

Target company

Since stock corporation law is not subordinated to the WpÜG for open market issuers, it plays a prominent role for the target company. Thus, the rights and duties of the target company’s boards are primarily governed by sections 76(1) and 93 AktG (duties of care) and section 53a AktG (equal treatment).

• Commitment to company interests: The management board and supervisory board must prioritise the company’s interests in all measures taken during the takeover This applies in particular to decisions regarding a due diligence by one or more prospective acquirers, supporting public offers and facilitating possible subsequent structural measures such as a delisting. If members of the management board and supervisory board face (potential) conflicts of interest (e.g., due to dual roles at the acquirer, seller or target company), it must be examined whether and to what extent these members may or should participate in relevant decisions.
• Duty of neutrality of the management board? The question of whether a prohibition on the management board from influencing the composition of shareholders or a general duty of neutrality under stock corporation law can be derived from the general provisions of stock corporation law is a matter of legal debate. There are strong arguments against such a duty of neutrality. However, in the absence of Federal Court of Justice rulings, particular caution is required when implementing defence measures. In any case, the management board must prioritise the interests of the company as well as adhere to the general restrictions under stock corporation law, such as subscription rights in the case of a capital increase (section 186 AktG), the acquisition or sale of treasury shares (section 71 AktG) and the principle of equal treatment (section 53a AktG).
• Statement on a public offer: The question of whether the management board and supervisory board are obliged to issue a statement on a public offer to the target company’s shareholders is also legally controversial. There are strong arguments for an obligation of the management board based on the management board’s general duties under stock corporation law. In pre-agreed public offers, the business combination/investment agreement typically includes a duty of the target company’s boards to publish a reasoned statement on the offer. In any case, the target company’s boards have the right to publish a statement on the offer.