New delisting rules in Germany

Background

In 2012, the Federal Constitutional Court (Bundesverfassungsgericht) ruled that the mere possibility to sell shares is not protected by the constitutional property guarantee under the German Basic Law (Grundgesetz).

Following such decision, the German Federal Court of Justice (Bundesgerichtshof) changed its settled case-law in 2013 (so-called FRoSTA decision): The Federal Court now took the view that a delisting of shares from the regulated market no longer requires an approving resolution by the shareholders' meeting and/or a compensation offer to all shareholders. Consequently, the delisting was substantially facilitated as it only required a corresponding resolution of the management board of the company (and, as the case may be, a consenting resolution of its supervisory board).

The Federal Court's decision resulted in a highly increased number of delistings. In almost all cases, the stock exchange price of the relevant shares significantly decreased as a consequence of the announcement to delist the shares. This situation was considered as highly unsatisfactory in respect of investor protection, thus, there were growing calls for legislative action.

Scope of the new rules

The rules only apply in case of a delisting from the regulated market. Thus, they do not apply to partial delistings with the shares remaining listed on other German or EU regulated markets with similar delisting procedures but they do apply to down-listing or down-grading cases in which the shares remain listed in the open market only (since most open markets do not provide for satisfactory investor protection in case of a delisting).

The delisting rules have retroactive effect and thereby also apply to delisting proceedings which have commenced after 7th September 2015

Main requirements for a delisting

According to the revised provisions, an application to delist the shares from the regulated market is subject to a cash compensation offer to be made to all shareholders. Usually, such offer will be made by the company's major shareholder who strives for the delisting but this is no legal requirement. The offer must be aimed at the acquisition of all shares in the company and may not be made subject to any conditions (such as availability of funding or reaching of a minimum acceptance threshold). Moreover, the offer must provide for a cash consideration.

The purchase price under the offer has to correspond to the weighted average domestic stock exchange price over the period of the last six months. A valuation of the company is not required unless no meaningful stock exchange price for the six month period can be determined (e.g. due to low trading activities or a high volatility) or the stock exchange price has been manipulated or an inside information relating to the company or its shares has not been properly published.

The shareholders may apply for judicial review of the offered purchase price and claim the difference between such purchase price and the company's actual value (either by way of an individual action at court or, as the case may be, a class action).

Conclusion: Increase of costs requires diligent structuring

Delistings are made more difficult in future since they are associated with potentially considerable costs resulting from the obligation to make the purchase offer to the shareholders. Thus, it is to be expected that the spate of delisting applications will cease or be significantly reduced again. However, a diligent structuring of the delisting procedure, particularly its timing, still allows to reduce costs and efforts to a certain extent.