Post by Sapphire Capital on Aug 22, 2008 8:07:24 GMT 4
Schaeffler technique allowed to continue
Source: Nicholas Pettifer
German shareholder groups are in uproar over Schaeffler's use of cash swaps in its offer for Continental. But calls for regulation are falling on deaf ears because effective rules would prove difficult to create.
"The problem with [regulation of cash-settled derivatives] is where do you draw the line? You cannot outlaw cash-settled derivatives. And if you ban them in the six months prior to an offer, for example, people will just buy them before," said Stephan Oppenhoff, corporate partner at Linklaters.
Shareholder groups like Schutzgemeinschaft der Kapitalanleger (SdK) are angry because the use of cash swaps allows companies to build stakes silently before launching minimum price offers for the rest of the shares.
This is because cash swaps are not covered by the recently passed Risk Limitation Bill in Germany and therefore do not have to be disclosed. This is the attraction for companies launching a takeover.
Once a company has a substantial stake via cash swaps, it can launch a takeover offer using the minimum pricing rule. This calculates a figure using the average share price in the three months prior to the offer and the highest price that the bidder has paid in the previous six months. Whichever is higher is then used to price the rest of the shares available.
Bidders can therefore avoid paying a premium.
"Derivatives are not published to the market and so, to some degree, the share price does not move towards the level of a successful offer price as much as it would if straight shares were bought," said Oppenhoff.
Critics of the technique fear that it may be used by less friendly or foreign investors to acquire stakes in German companies. However, the German authorities have not indicated that they are worried by the technique and will be confident that the new foreign investment powers will sufficiently protect companies.
Source: Nicholas Pettifer
German shareholder groups are in uproar over Schaeffler's use of cash swaps in its offer for Continental. But calls for regulation are falling on deaf ears because effective rules would prove difficult to create.
"The problem with [regulation of cash-settled derivatives] is where do you draw the line? You cannot outlaw cash-settled derivatives. And if you ban them in the six months prior to an offer, for example, people will just buy them before," said Stephan Oppenhoff, corporate partner at Linklaters.
Shareholder groups like Schutzgemeinschaft der Kapitalanleger (SdK) are angry because the use of cash swaps allows companies to build stakes silently before launching minimum price offers for the rest of the shares.
This is because cash swaps are not covered by the recently passed Risk Limitation Bill in Germany and therefore do not have to be disclosed. This is the attraction for companies launching a takeover.
Once a company has a substantial stake via cash swaps, it can launch a takeover offer using the minimum pricing rule. This calculates a figure using the average share price in the three months prior to the offer and the highest price that the bidder has paid in the previous six months. Whichever is higher is then used to price the rest of the shares available.
Bidders can therefore avoid paying a premium.
"Derivatives are not published to the market and so, to some degree, the share price does not move towards the level of a successful offer price as much as it would if straight shares were bought," said Oppenhoff.
Critics of the technique fear that it may be used by less friendly or foreign investors to acquire stakes in German companies. However, the German authorities have not indicated that they are worried by the technique and will be confident that the new foreign investment powers will sufficiently protect companies.