5.11 Shares as a Means of Payment 243Code on Takeovers and Mergers is concerned with regulating takeover bids, how-
ever effected, and both mergers and tender offers fall within its scope.
Because of the strict rules of the Takeover Code, cash offers tend to more feasible than ten-
der offers and statutory mergers in UK takeover practice.
Particular Legal Risks
As mergers and share exchange offers mean that two or more businesses will be
combined, they give rise to particular legal risks: it would be difficult to undo a
takeover; the risk of time-consuming litigation can frustrate an acquisition; and the
valuation of securities influences the risk of litigation.
Undoing of takeovers. Company laws generally discourage the undoing of
mergers, and they discourage litigation that can frustrate mergers. Shareholders in
a company that will not survive the merger tend to have only very limited rights to
contest a merger in the court ex post.^531 Instead, they are protected by appraisal
rights and a right to obtain a fair price for their shares.^532
Share exchanges are not governed by the same rules. They are nevertheless
governed by company law rules on the issuing of shares for a consideration other
than in cash. There are sanctions for the breach of such rules. Depending on the
governing law, the breach of legal constraints based on Community law may in-
crease the risk that the resolutions on which the issuing of shares was based are
declared invalid.^533 This is because penalties in respect of infringements of Com-
munity law must be effective, proportionate and dissuasive.^534
Litigation. A merger can lead to litigation in both participating companies. In
contrast, a share exchange offer is less likely to lead to litigation in the target
company as the offer requires less corporate action by the target. A public take-
over bid is an example of a transaction where the board of the target must take
some corporate action. Squeeze-out procedures following the bid or otherwise are
likely to lead to litigation in some countries.
In Germany, practically all squeeze-out processes are contested in the court. There is a class
of professional litigants that bring proceedings in bad faith (Berufskläger).^535
(^531) Recital 9 and Article 22 of Directive 78/855/EEC (Third Company Law Directive); Re-
cital 8 and Article 17 of Directive 2005/56/EC (Directive on cross-border mergers); Ar-
ticle 30 of Regulation 2157/2001 (SE Regulation).
(^532) Article 28 of Directive 78/855/EEC (Third Company Law Directive).
(^533) See, for example, Articles 9(1) and 9(2) of Directive 68/151/EEC (First Company Law
Directive).
(^534) Case 68/88 Commission v Greece [1989] ECR 2965, paragraphs 23 and 24; Case C-
326/88 Hansen [1990] ECR I-2911, paragraph 17; Case C-36/94 Siesse [1995] ECR I-
3573, paragraph 20; Case C-177/95 Ebony Maritime and Loten Navigation [1997] ECR
I-1111, paragraph 35; Case C-167/01 Inspire Art [2003] ECR I-10155, paragraph 63.
(^535) Jahn J, Meist enden Aktionärsausschlüsse vor Gericht, FAZ, 23 Oktober 2007.