German group’s bid defence tests EU takeover rules

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Braas Monier issues shares to force US buyer to pay more, but is it a ‘poison pill’? A US group’s proposed acquisition of a German business is set to test the EU’s framework for takeovers, after the target company deployed an unusual tactic to force the buyer to increase its offer, The Financial Times reports.

A courtroom showdown is now set for Monday after US building group Standard Industries obtained an injunction to stop German roofing company Braas Monier from issuing new shares that would force Standard to increase its $2.1bn bid.

Under the EU takeover directive — a framework adopted in 2004 to establish common principles and requirements for EU member states — target companies cannot take action to frustrate a bid without shareholder approval.

But legal experts said Braas Monier appeared to be trying to exploit a loophole allowing it to raise additional capital during the offer period — forcing Standard Industries into paying a 10 per cent premium. Such a strategy has never been attempted in a German takeover situation before, they claimed.

“This is a curious, unprecedented case,” said Stephan Oppenhoff, corporate partner at Linklaters in Frankfurt.

Braas’s stand-off with Standard dates back to September when the German tilemaker’s board recommended that its shareholders reject the US group’s unsolicited bid of €25 a share, arguing it was too low.

But family-owned Standard refused to raise its bid and took the €25 a share offer direct to Braas’s shareholders, giving them until January 12 to tender their shares.

In response, Braas announced its “capital increase” plans last week, under which shareholders will be given one new share for every ten that they own. Even though no capital is actually being raised, the increased number of shares in issue changes the maths for Standard — forcing it to offer more cash.

Braas said the new share issuance would not violate any of the offer terms and would be eligible for tender. That effectively increases the cost of Standard’s offer to €2.3bn, or €27.50 per currently held share.

In addition, Brass has resolved to issue an interim dividend after the capital raising, equivalent to €0.57 per share. That raises the per-share offer price further, to €28.13 per currently held share.

Standard was caught off-guard by the move. On Tuesday, it claimed that an issuance of shares “for no consideration whatsoever” was a violation of the EU directive against “frustrating action” in a takeover. It also called the tactic “an illegal impairment of the contractual relations” between prospective buyers and a target company’s shareholders.

David Millstone and David Winter, Standard’s co-chief executive officers, wrote to Braas’s chairman on December 5, and said: “The proposed actions have no business purpose, other than to frustrate the offer.” They also suggested the moves were not in Braas’s corporate interests.

Braas countered that the takeover document written by Standard allowed Braas to issue up to 3.9m shares.

In most of Europe, a company cannot conduct a capital raising without a shareholders’ meeting. However, in Luxembourg, where Braas is headquartered, it is permitted.

Standard also warned that if Braas was able to dictate the pricing terms of the deal in this way, it would upend the “general principles of all takeover laws.”

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