As of 26 November 2015, issuers seeking to revoke the admission to trading of their shares on a regulated market must, pursuant to section 39 of the German Stock Exchange Act (Börsengesetz – BörsG; only available in German) as amended (BörsG, new version), submit a compensation offer pursuant to the Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – WpÜG). BaFin has the task of monitoring these compensation offers. Only securities still admitted to trading on a regulated market on another stock exchange in the European Economic Area (EEA) where there are safeguards for delisting equivalent to those of section 39 of the BörsG (new version) are exempt from this provision.

The new provision was a response by the legislators to a demand from those protecting the interests of investors, albeit in a different form. After the Federal Court of Justice (Bundesgerichtshof – BGH) had changed its longstanding ruling on delisting in 2013 with the "Frosta" ruling (ref. no. II ZB 26/12; only available in German), those protecting the interests of investors took the view that the delistings led to significant losses for shareholders. Contrary to the "Macroton" ruling which had prevailed for around eleven years (Originally 2002, ref. no. II ZR 133/01), the BGH decided that stock corporations did not require a shareholders' resolution and, above all, did not need to make a compensation offer to shareholders in order to withdraw from the stock exchange. Subsequently, the number of delistings without a compensation offer rose sharply.

Timing of the compensation offer

The offer document must already be published when the delisting application is made and it must explicitly refer to the delisting application. However, the compensation offer does not need to be concluded at the time the application is made.

The provisions of the WpÜG apply to the offer, with the exception of provisions whose application is only reasonable in conjunction with a different sort of offer, such as a takeover bid.

Compensation offer by the target company

The WpÜG is actually not applicable to a company buying back its own shares, and this principle continues to apply.

However, there is now an exception exclusively for delistings, where the target company can make the compensation offer itself as long as it fulfils the requirements of company law. The exception for delistings means that issuers of shares are now less dependent on one major shareholder.

Consideration and statutory minimum price

In some small but significant points the provisions regarding delisting differ from those for takeover bids or pure acquisition bids.

For one, the offeror must offer a sum of money in euros as compensation consideration. Unlike in takeover or pure acquisition bids, this excludes exchange shares and sums of money in other currencies as the consideration. This also applies to the delisting of the securities of an issuer which is domiciled outside Germany.

Above all, however, the offeror must comply with the minimum pricing provisions of the WpÜG and the WpÜG Offer Regulation (WpÜG-Angebotsverordnung – WpÜG-AngebV), but instead of offering the standard volume-weighted average stock exchange price of the last three months, it must offer the volume-weighted average stock exchange price of the last six months.

Company valuation in cases of market abuse

By contrast, if there were certain abusive market activities prior to the compensation offer, the minimum price is calculated using a company valuation.

For instance, section 39 (3) of the BörsG (new version) mentions the case of a target company failing to publish an ad hoc notification or providing false information in such a notification in the six months before the compensation offer. In addition, market manipulation pursuant to section 20a of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) in the six months before the compensation offer also leads to the six-month average stock exchange price not being a reliable basis for the compensation. The general principles, such as those provided by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer – IdW), apply to the company valuation.

No conditions

To protect shareholders, the offeror may not place conditions on a compensation offer made due to a delisting application. This is meant to ensure that the offer will later really be concluded and the shareholders who accept the offer will receive their consideration.

In this regard, therefore, stricter requirements apply to compensation offers than to takeover bids and even to mandatory offers, since the offeror is allowed to place the condition on those that the relevant competition authorities agree to the merger.

Foreign companies included

A compensation offer is not only a requirement for German stock corporations wishing to withdraw from a regulated market in Germany, but also for all other companies whose shares are admitted to trading on a regulated market in Germany. Pursuant to section 2 (2) of the WpÜG, this also applies to securities comparable to shares, certificates representing shares and other securities whose object is the acquisition of shares, securities comparable to shares, or certificates representing shares.

The provisions thus also apply to the delisting of companies domiciled outside Germany, whether or not they are domiciled in the EEA. However, they only apply to a delisting from the regulated market; no compensation offer is required for the withdrawal from the regulated unofficial market of a stock exchange. In any case, the rules and regulations of the stock exchange from which the issuer wishes to withdraw must be adhered to.

Pending delisting applications

Pursuant to section 52 (9) of the BörsG (new version), transitional provisions apply to delisting applications made before the entry into force of the law on 26 November 2015. Issuers which made a delisting application after 7 September 2015 and which had not received a final or binding decision from the management board of the stock exchange or a court by 26 November must make their shareholders a compensation offer. In such a case, however, the fact that the acquisition offer is published after the submission of the delisting application does not contravene the provisions.

The new provisions do not apply to delisting applications made up to 7 September 2015. The same applies to delisting applications made after 7 September in which a final or binding decision has already been made.