19.3 Toehold, Creeping Takeover, Major Holdings 529closure of major shareholdings^60 does not require the disclosure of cash-settled
call options.
There are stricter disclosure obligations in Switzerland and the UK. In July 2008, the Fi-
nancial Services Authority (FSA, the UK regulatory authority) decided that share and de-
rivatives (“contracts for difference”) holdings in the same company should be aggregated
for disclosure purposes. The threshold was set at 3%. In contrast, the SEC is strictly against
the adoption of similar disclosure obligations in the US.
Schaeffler. The Porsche method was soon emulated by Schaeffler KG, a family-
owned engineering group, when it tried to acquire Continental AG, a listed and far
larger company. Schaeffler used swaps to fix the cost of the takeover in advance.
In public, Schaeffler made statements that Schaeffler only aimed to achieve a mi-
nority position. In July 2008, Schaeffler made a public offer for Continental’s
shares and offered to pay the lowest legally possible price.
Continental argued that the methods used by Schaeffler were illegal.^61 In Au-
gust 2008, the BaFin nevertheless stated that it had not identified any breaches of
reporting requirements in Continental AG takeover procedure.
First, Schaeffler had been under no obligation to make a mandatory bid. Only
those who acquired at least 30% of the voting rights of a quoted company were
required to make a mandatory offer to the other shareholders under the German
Securities Acquisition and Takeover Act (WpÜG).^62 The Directive on takeover
bids does not require the making of a mandatory bid unless a person actually holds
shares that give voting rights. The mere securing of option rights will therefore not
trigger a duty to make a mandatory bid.^63 Furthermore, the making of a voluntary
bid can exempt the offeror from the obligation to make a mandatory bid.^64
Second, Schaeffler did not have a duty to disclose major holdings under the Se-
curities Trading Act (WpHG) according to which voting rights reports had to be
filed as soon as the reporting thresholds were reached. Schaeffler owned just un-
der 3% of Continental’s shares before the announcement of the takeover bid. It
had built up a cash-settled total return equity swap for around 28% of Continen-
tal’s shares between March and May 2008, but this was a contract for difference,
under which two parties bet on prices rising or falling. Such contracts are not in-
tended to involve the actual delivery of shares but are settled by means of a cash
payment of the difference. The shares underlying the swap agreement could,
therefore, have been attributed to Schaeffler only if BaFin had been able to prove
the existence of further agreements under which: (a) its counterparty (Merrill
Lynch International) or third parties had held Continental shares on behalf of
(^60) Article 9(1) of Directive 2004/109/EC (Transparency Directive).
(^61) Continental AG, press release of 30 July 2008. They were also criticised by professor
Habersack M of the University of Tübingen. See also Zetzsche DA, Continental AG vs.
Schaeffler, Hidden Ownership and European Law - Matter of Law or Enforcement?
CBC-RPS No. 0039 (October 2008).
(^62) § 35 and § 29(2) WpÜG.
(^63) Article 5(1) of Directive 2004/25/EC (Directive on takeover bids).
(^64) Article 5(2) of Directive 2004/25/EC (Directive on takeover bids).