10.3 Third Party as a Source of Remuneration 369bank – is a regional public sector bank. The Sparkasse brand is powerful in Ger-
many.
In June 2006, the Commission sent a reasoned opinion to Germany, because the
name Sparkasse could only be used by public sector banks under § 40 of the Ger-
man Banking Act (Gesetz über das Kreditwesen, Kreditwesengesetz, KWG). Ac-
cording to the Commission, this prevented private sector investors from benefiting
from the goodwill value of the name following a privatisation and thereby in-
fringed EC Treaty provisions on the freedom of establishment (Article 43) and the
free movement of capital (Article 56).
In December 2006, the Commission and the German authorities reached
agreement on the basis of the principle of neutrality of Community law as regards
the decision to privatise a public enterprise in general and Sparkassen in particular
(Article 295 of the EC Treaty). It was agreed that the privatisation of Sparkassen
is within the sole discretion of Member States.
Furthermore, the parties agreed that Member States can require the Sparkassen
to continue to meet certain public service obligations after a privatisation. A num-
ber of public service obligations that are typical for Sparkassen were identified
and regarded as compatible with Community law. These obligations include en-
suring the area-wide provision of service to economically weaker sections of the
population and to small and medium-sized businesses, as well as guaranteeing the
regional principle in accordance with the relevant Sparkassen law.
Furthermore, the Commission and the German authorities agreed on the duty of
Member States to respect Community law in the application of national law (Arti-
cle 10 of the EC Treaty). According to their agreement, § 40 KWG will be applied
in a manner that does not infringe the provisions of the EC Treaty on the right of
establishment and the movement of payments and capital, and § 40 KWG is su-
perseded by higher ranking and directly applicable Community law.
Methods of Privatisation
In the EU, the methods of privatisation are constrained by Community law. Usual
privatisation methods include: trade sale to one buyer; sale to a small group of in-
vestors as a private placement; public offering; and sale to employees. Each
method of privatisation has its commercial advantages and disadvantages as well
as legal advantages and disadvantages.
Trade sale. From a legal perspective, a trade sale is simple. A trade sale will re-
sult in the firm having a controlling shareholder. Weaker information asymmetries
before the sale and the buyer’s private benefits of control after the sale can in-
crease the price that the buyer is prepared to pay. If an auction process is used,
foreign investors cannot be prevented from bidding.
Private placement. From a legal perspective, a sale through a private placement
resembles a trade sale. The biggest difference is that the firm will not typically end
up having one controlling shareholder. This can mean that the firm will fail to ob-
tain an optimal governance structure. Furthermore, as the private benefits of con-
trol will be shared by many investors, there might be a discount compared with a
trade sale.