The new German Takeover Act: An economic perspective — Part 1

• Published in: International journal of disclosure and governance 2003-12, Vol.1 (1), p.60-70
• Main Authors: Schmidt, Hartmut, Prigge, Stefan
• Format: Article
• Language: English
• Subjects: Acquisitions & mergers; Bids; Corporate governance; Corporate management; Economic impact; Legislation; Purchase accounting (Acquisitions); Regulation; Stock exchanges; Stockholders
• ISSN: 1741-3591; 1746-6539
• DOI: 10.1057/palgrave.jdg.2040013

For the first time, Germany has enacted legislation on takeovers. The purpose of this paper is to present and discuss the new federal Act on secondary purchases and takeovers ('the Act'), effective as of 1st January, 2002, under an economic perspective. The problem to be solved by takeover regulation is to provide a procedure that ensures that publicly held shares are transferred to the bidder at a fair price. In this sense, takeover legislation organises a market for the concentration of publicly held shares. What justifies such regulation? Why is a special market required? Why should the bidding party refrain from simply buying publicly held shares at the stock exchange, in the regular market? To answer these questions, the authors will briefly discuss three concepts of takeovers. This will serve to determine whether there is justification for such a special market, and it becomes more evident which provisions a takeover law should comprise. Moreover, aims and provisions of the new Act will be presented. The second part of this paper, to be published in the next issue, will discuss the Act's core provisions, which constitute the market mechanism. [PUBLICATION ABSTRACT] KEYWORDS: German Takeover Act, takeover defence, mandatory bid, investor protection, private benefits of controlling shareholders, European Takeover Directive, corporate control