274 5 Equity and Shareholders’ Capital
purchasing target securities form a certain shareholder at a higher price during the duration
of the offer, the provisions of the Directive ensure that the offeror must offer to pay the
same price to holders of securities of the same class. (b) Unlike the Williams Act of
1968,^692 the Directive on takeover bids requires a mandatory bid. Furthermore, it restrains
partial bids.^693 (c) In addition, the Directive goes further in ensuring shareholder sover-
eignty by curtailing unauthorised managerial resistance. In the US, constitutional reasons
may explain this difference, as such rules could interfere with State corporation law.
Special remarks: fair value. The form of consideration, the valuation of shares,
and the exchange ratio will be influenced by legal rules governing such matters.
Compliance is necessary for two reasons. Shareholders of the target will take such
rules into account when deciding how to vote on a merger or whether to accept a
share exchange offer. Furthermore, compliance is necessary in order to reduce le-
gal risk: virtually all squeeze-out processes in Germany are contested and re-
viewed by the court.
It goes without saying that company laws cannot fix the price of shares. Com-
pany laws can only address some aspects of valuation. There is a difference be-
tween mergers and share exchange offers in this respect.
Community law does not determine how exactly shares should be valued in the
context of mergers.
Community law addresses the valuation of shares in the context of some share
exchange offers. However, such rules only cover a number of special situations
such as mandatory bids and the exercise of squeeze-out rights and sell-out rights,
and Member States may lay down provisions more favourable to holders of securi-
ties than those of the Directive.^694
In some cases, a large shareholder whose share ownership exceeds a certain
threshold must make a mandatory bid under provisions implementing the Direc-
tive on takeover bids for all transferable securities carrying voting rights in the
company (see section 19.10). The offeror must pay at least an “equitable price”.^695
“Equitable price” has been defined as follows: “The highest price paid for the
(^692) Williams Act of 1968 is an amendment of the Securities and Exchange Act of 1934 that
regulates tender offers and other takeover related actions such as larger share purchases.
In addition, tender offers are regulated by the State Takeover Statutes.
(^693) Ogowewo TI, The Underlying Themes of Tender Offer Regulation in the United King-
dom and the United States of America, JBL 1996 pp 463–481. “A further reason for the
variance in approach - especially in regard to partial bids - may be historical. In the
United Kingdom, the tender offer emerged as a mechanism for taking over or merging
entire undertakings of companies. The offers were predominantly full offers, condi-
tioned on 90 per cent acceptance so as to take advantage of the compulsory acquisition
provisions. In the United States, take-overs were usually effected through the statutory
merger route. The tender offer emerged mainly as a way of removing incumbent man-
agement, and therefore performing quite efficiently that which proxy contests had failed
to do. For one to gain control of a company, a partial bid was usually enough. And if a
true consolidation was later desired, a statutory merger could be effected. Thus, partial
bids were not looked upon as an exception.”
(^694) Article 3(2) of Directive 2004/25/EC (Directive on takeover bids).
(^695) Article 5 of Directive 2004/25/EC (Directive on takeover bids).