The Acquisition and Leveraged Finance Review

During the decade preceding the financial and economic crisis, Austria has developed into a buoyant market for both domestic and international M&A activity, with some of the peak years seeing over 400 deals.

Compared to the crisis years, 2014 seems to indicate some improvement in the market despite not having been able to deliver on the expectations. The cross-border deals still surpass the domestic activity by approximately two to one. The majority of the international transactions involves international investors buying into the local market rather than vice versa. The most notable deals have been recorded in the real estate and banking sectors respectively.

Originally published by Law Business Research Ltd, and reproduced with permission.

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ii Jurisdiction
As for a submission by an Austrian company to the jurisdiction of a foreign court, this
will generally be recognised in finance transactions in Austria, assuming validity of the
agreement on the submission and non-violation of any rules on exclusive jurisdiction. In
most cases, the Brussels 1a Regulation26 will apply. Outside the scope of applicability of
the Brussels 1a Regulation, a sufficient relation of either the parties or the object of the
dispute to the chosen jurisdiction may be required.
It is quite common for Austria-related transactions to be subject to arbitration
agreements. These, in particular the issues as to whether or not an arbitration agreement
is null and void, inoperative or incapable of being performed, are not subject to the rules
laid down in the Brussels 1a Regulation, regardless of whether the court decided on this
as a principal issue or as an incidental question. Rather, in the majority of cases, the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at
New York on 10 June 1958, will apply in that regard.
The recognition and enforcement of foreign judgments and arbitral awards is
subject to the Brussels Ia Regulation, the New York Convention, or, respectively, Austrian
domestic laws or (bilateral) international agreements on enforceability. According to the
Brussels Ia Regulation, a judgment given in an EU Member State shall be recognised
in any other Member State (excluding Denmark) without any special procedure being
required. Likewise, a judgment given in an EU Member State which is enforceable in
that member state is enforceable in the other EU Member States without any declaration
of enforceability being required. As opposed to that, the New York Convention provides
for the possibility of certain limited defences. As regards all other instances, in the
absence of an applicable international agreement on enforceability, there is no automatic
enforceability. Depending on the circumstances, the Austrian courts would decline the
recognition and enforceability or re-examine the merits of the case.
Given the absence of applicable international agreements on recognition and
enforceability with the US and Russia respectively, the standard market practice when
dealing with those two jurisdictions is to opt for arbitration.
26 Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of
12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil
and commercial matters.
i Certain funds requirements
The Austrian Takeover Act27 imposes certain obligations on the offeror. Section 4 no.
1 of the Austrian Takeover Act explicitly stipulates that the offeror may announce a bid
only after ensuring that it can fulfil in full any cash consideration, and after taking all
reasonable measures to secure the implementation of any other type of consideration. In
addition, the offeror has to appoint a qualified expert, independent from the offeror, who
must confirm that the offer is in compliance with the provisions of the Austrian Takeover
Act, and in particular, with regard to the consideration offered, that the offeror has the
financial means to fulfil the bid.
ii Mandatory offers triggered by a share pledge or enforcement of a share pledge
In general, mandatory offers are governed by the Austrian Takeover Act. A mandatory
takeover offer is required if the offeror acquires a ‘controlling interest’ in the target
company. A person holds a controlling interest if he or she holds a direct or indirect
interest in the target company, exceeding 30 per cent of the voting rights attached to the
shares with permanent voting rights. Such mandatory offers require that the price to be
offered to the remaining shareholders must at least equal the average price paid for the
shares during the previous six months prior to the acquisition of the controlling interest.
In case of the enforcement of pledged shares in a public company, the mandatory
offer obligation is triggered in the same way as in case of any other acquisition. This
scenario is common in acquisition financing, when a credit institution, following the
borrower’s default, enforces the share pledge and thus acquires the shares in a public
A pledge of shares in a public company does not itself trigger the duty to
mandatory offer since the pledgor remains as the beneficial owner of the pledged shares
and thus is entitled to exercise the voting rights attached to such shares.
In case of transfer of shares by way of security,28 the voting rights may be
theoretically exercised by the transferee, however, in practice the transferee is instructed
by the transferor on how to exercise the voting rights so that such shares will not be
attributed to the transferee and thus he or she will have no duty to mandatory offer.
iii Minority squeeze-outs
The Austrian Squeeze-Out Act29 provides a procedure under which a majority shareholder
may squeeze out all minority shareholders. A shareholder (including any affiliated
companies) holding at least 90 per cent of the capital with voting rights and at least
90 per cent of the voting rights qualifies as a majority shareholder under the Austrian
Squeeze-Out Act. The majority shareholder may require the holders of all remaining
27 Bundesgesetz betreffend Übernahmeangebote (Übernahmegesetz – ÜbG).
28 Sicherungsübereignung.
29 Bundesgesetz über den Ausschluss von Minderheitsgesellschaftern (Gesellschafter-Ausschlussgesetz –
shares to sell the shares to the majority shareholder. The necessary shareholders’ resolution
on the squeeze-out requires a simple majority vote.
The majority shareholder must offer to pay adequate cash compensation for the
acquired shares to the minority shareholders. The squeeze-out of minority shareholders
becomes effective with the registration of the squeeze-out with the Austrian companies
registry. Upon such registration, the shares of the squeezed-out minority shareholders
are automatically transferred to the majority shareholder. The amount of the cash
compensation can be challenged in a review proceeding, to be commenced after the
squeeze-out is implemented.
iv Other permitted conditionality
Generally speaking, the parties involved in an acquisition transaction can make the
offer subject to certain conditions. However, for listed public companies, the Austrian
Takeover Act stipulates that an offer may only be conditional if it is objectively justified.
Such objective justification is given if the respective conditions are based on the fulfilment
of certain legal obligations of the offeror or if the fulfilment of the conditions does not
solely depend on the subjective decision of the offeror.
On the other side, a public offer cannot be made conditional on financing. The
offeror must be able to settle the offer consideration when it is due and payable. Therefore,
the offeror’s financial adviser must confirm in the offer documentation that the offeror
has sufficient funds to pay the consideration. The financial adviser will therefore review
the financing arrangements of the offer very carefully, in particular the provisions of
external financing.
v Disclosure requirements for financing terms including flex and fees
A takeover offer in Austria typically consists of an offer by the bidder to all shareholders of
the target company to acquire their shares. The Austrian Takeover Act sets out minimum
requirements for the offer document. Besides other required details, the bidder has to
disclose in the offer document the conditions for the bid financing.
The bidder must disclose whether he or she will finance the takeover with his or
her own funds or will make use of debt financing. In the case of the latter, the bidder
has no obligation to provide the name of the financing credit institution in the offer
document. However, the bidder is free to name the lender – this is recommended for the
benefit of the bidder in case of a greater financing volume.
If an arrangement exists between the bidder and the financing institution which
makes the interest payments of the bidder conditional on the cash flows of the target
company, such arrangement has to be disclosed in the offer document.
vii Confidentiality requirements or other restrictions on debt issuance or
syndication while the take private is under way
In general, during takeovers of listed companies, the intention of the offeror to make a
public offer for a listed company or to take steps resulting in an obligation to launch a
bid, has to be kept confidential to prevent premature disclosure.
In practice, confidentiality agreements are often entered into at the stage when
negotiations between the parties begin. Since offerors have to oblige all participating
parties to assure confidentiality, they usually prescribe internal rules to keep all
communication confidential.
The confidentiality obligation under the Austrian Takeover Act applies also to
financial arrangements, such as debt issuance and syndication.
For the remainder of 2015, no significant change in the 2014 trends is to be expected
(i.e., the M&A activity will most probably remain moderately positive).
Some of the activity will certainly be attributable to the repositioning of the
local banking sector. Likewise, due to the ongoing intensive efforts of restructuring
their non-performing asset portfolios, it is rather likely that the local sources of finance
will remain conservative when considering new finance opportunities or novel forms of
financial products. In other words, new deals will most likely continue to be characterised
by restrictive (financial) covenants and extensive security packages.
Possibly, the share of finance originating in Austria will reduce over the coming
years as the Austrian investors continue to scale back their involvement abroad, in
particular in Central and Eastern Europe.
Appendix 1
DLA Piper Weiss-Tessbach Rechtsanwälte GmbH
Jasna Zwitter-Tehovnik LLM (NYU) is a partner at DLA Piper and a finance and projects
practitioner, qualified in four jurisdictions: Austria, New York, Slovenia and as a solicitor
of the Senior Courts of England and Wales. She advises commercial and investment
banks, corporates, sponsors, private equity and mezzanine financiers on a wide range of
financing transactions with a focus on acquisition finance, structured finance and project
finance as well as debt restructurings.
The second area of Jasna’s practice is infrastructure and energy projects,
including private partnership transactions, (cross-border) mergers and acquisitions and
privatisations, often with a focus on SEE, CEE and CIS regions. Jasna speaks regularly at
seminars and lectures. She is author and co-author of the Distressed Loan Handbook and
has written several articles and commentary articles in banking and capital markets and
corporate law. Jasna is also ISDA counsel for Austria.
DLA Piper Weiss-Tessbach Rechtsanwälte GmbH
Mag. Jože Vraničar is an associate in DLA Piper’s finance and projects team in Vienna.
He successfully passed the Austrian bar exam in 2014. He specialises in banking law,
acquisition and corporate finance, and infrastructure projects across a wide range of
industries, including construction and real estate, consumer goods, energy, hospitality
and public services. Another significant pillar of his practice is providing advice on
corporate and M&A matters.
About the Authors
Schottenring 14
1010 Vienna
Tel: +43 1 531 78 1042
Fax: +43 1 533 52 52

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