When acquiring public companies, it may be necessary to examine whether the provisions of Austrian Public Procurement Act and/or EU state aid law apply. In principle, the transfer of shares in public companies is not subject to tender obligation. Under certain circumstances, however, this may be assessed differently.
Furthermore, when acquiring listed companies, the provisions of Austrian Takeover Act must be observed. Listed companies are subject to extensive disclosure and transparency requirements. A key requirement is the obligation to make a takeover bid upon acquiring control. A controlling interest exists when more than 30% of the voting rights are reached.
Apart from that, there are also reporting requirements when certain shareholding thresholds are reached.
The key documents in a M&A transaction in Austria are as follows: NDA, LOI, MoU, SPA/APA closing memorandum, commercial registry entry, notification to the trust authority (if necessary).
The following documents may additionally be required for M&A transactions in the public sector: takeover offer in accordance with the Takeover Act; audit report by an independent auditor or bank on the offer documents; announcements and notifications to the Austrian Takeover Commission, the stock exchange, and the supervisory authorities; statement by the target company on the takeover bid; documentation of the acceptance periods and other deadlines within the takeover procedure.
If there is an obligation to make a takeover bid in accordance with the Austrian Takeover Act concerning a listed company, the following information must be disclosed: notification to the Takeover Commission and the company immediately after acquiring control; publication of the intention to make a mandatory offer; submission of an offer document for review by the Takeover Commission; disclosure of the information contained in § 7 Austrian Takeover Act (terms and conditions of the offer).
Apart from the takeover procedure, certain reporting requirements (in particular to the Financial Market Authority) apply when certain thresholds are reached.
For transactions in the private sector, the most important reporting requirement is to notify the Austrian Competition Authority of the transaction, provided that the statutory requirements for such notification are met.
The Austrian Takeover Act does not provide for any specific regulations for offers to be made by minority shareholders. However, the majority shareholder (provided they hold at least 90% of the shares) can exclude minority shareholders by means of a squeeze-out in return for compensation.
Share deals are the most common form of company acquisitions in Austria, as this type of transaction generally leaves the legal relationships of the target company unchanged (exception: change of control clauses).
Asset deals are also a common form of transaction, whereby the contractual relationships of the target company depend on the consent of the contractual partner.
Corporate transactions can also be implemented through a restructuring measure, in which the departing shareholders of the target company receive compensation corresponding to the value of their shares. However, company takeovers are usually carried out through a share deal, sometimes accompanied by restructuring measures, such as a merger, spin-off or contribution.
For M&A deals in Austria, the following purchase price agreements are usually made:
Locked-box clauses are more advantageous for sellers (due to price certainty) and involve less work effort as there is no necessity for a closing balance sheet. The risks for buyers (changes in value between the balance sheet date and closing) must be covered by appropriate R&W or MAC clause.
Variable purchase price agreements are more common and more advantageous for buyers. However, warranty commitments are essential in this case, too, as is, in particular, the inclusion of an objective balance sheet guarantee.
A transaction must be notified under Austrian Antitrust Law if the companies involved generated the following revenues in the last financial year prior to the transaction: a) a total of more than EUR 300 million worldwide, b) a total of more than EUR 30 million domestically, with at least two companies each generating more than EUR 1 million, and c) at least two companies each generating more than EUR 5 million worldwide, OR or if a) the companies involved generated total worldwide sales revenues of more than EUR 300 million in the last financial year prior to the merger, b) the companies involved generated total domestic sales revenues of more than EUR 15 million in the last financial year prior to the merger, c) the transaction value exceeds EUR 200 million, and d) the target company operates to a significant extent in Austria.
Transactions may also be subject to approval by the land transfer authorities, in which case this is stipulated as a condition precedent. Furthermore, acquisitions of companies operating in areas relating to public order and safety are subject to approval.
The following conditions precedent are often agreed upon in contracts:
Break-up fees are rather uncommon in Austria.
Under Austrian law, there is no legal definition of materiality or best knowledge. If no specific criteria are defined by the contract, the meaning of “materiality” in the respective matter must be interpreted based on the contractual intent of the parties. The term “best knowledge” must also be interpreted, whereby the standards applicable to the respective industry, company organisation and management obligations must be taken into account.
It is customary for sellers to commit to fulfilling the agreed R&W both at signing and at closing. This is an usual contractual guarantee provision.
Sandbegging provisions are not in accordance with Austrian law. Section 928 of the Austrian Civil Code (ABGB) excludes liability for obvious/known defects, unless the defect was fraudulently concealed or an explicit promise to the contrary was made.
The guarantees regarding the purchase price payment are generally a matter of negotiation. In Austria, the transaction is often processed via an escrow account, which also secures the payment of the purchase price. Often, especially in the case of purchase price payments in several installments, the purchase price payment is also secured by a letter of comfort from the holding company.
In Austria, it is customary to set out detailed R&W by the seller in the contract. In the event of a breach of a R&W, the seller must, depending on the agreement, either place the target company and the buyer in the position they would have been in had there been no breach of R&W (restitution in kind) or pay appropriate financial compensation.
It is common practice to agree on limitations of liability. Contractual provisions such as de minimis, cap, deductible, and basket are all common and are usually combined. The amount of the respective limitations of liability is determined in each specific case, taking into account the specific company, the risks based on the due diligence findings as well as the transaction value.
The usual R&W typically include, on the one hand, the freedom from encumbrances of the subject matter of the contract and, on the other hand, specific further warranties, which may vary depending on the company or its activities. Standard R&W include a balance sheet warranty, labor law warranties, tax and fiscal law warranty commitments, and warranties regarding compliance with environmental, data protection, money laundering, or other regulations relevant to the target company. Other common R&W relate to material contractual relationships of the target company, real estate, the target company’s liabilities to third parties, and legal and regulatory proceedings.
The general statutory limitation period for warranty and damage claims is three years from takeover or from knowledge of the damage. However, in M&A, different limitation periods are usually agreed for different warranty commitments, ranging from 2 to 5 years (for significant warranties). For tax guarantees, even longer limitation periods are common, ranging from 5 to 10 years.
The applicable law and place of jurisdiction can generally be agreed upon, provided that this does not conflict with mandatory laws (in which case the mandatory provisions take precedence). In particular, with regard to the transfer of ownership of companies based in Austria, Austrian law is mandatory. For transactions involving target companies based in Austria, it is therefore common practice to agree on the applicability of Austrian law and the jurisdiction of Austrian courts. The Vienna Commercial Court is most frequently agreed upon as the competent court.
The advantages of arbitration primarily lie in the fact that proceedings are concluded more quickly, there is greater trust in arbitration, and arbitrators often have greater professional (especially economic) expertise. The disadvantages of arbitral tribunals are often high costs (although the costs of court proceedings before state courts are also often considerable), no possibility of appeal, and possibly lower legal quality of the arbitration proceedings.
Maximilian Zirm
Partner
Email: m.zirm@gibelzirm.com
Call: +43 1 391 11 39
Milka Milicic
Attorney-at-Law
Email: m.milicic@gibelzirm.com
Call: +43 1 391 11 39
