Delisting Offers on the Frankfurt Stock Exchange

The delisting offer in short

A delisting offer is a public offer to acquire all shares of a listed company that must be published before the company can apply to revoke the admission of its shares to trading on the regulated market. Under § 39(2) of the Stock Exchange Act (Börsengesetz, BörsG), the management of an exchange such as the Frankfurt Stock Exchange revokes the admission on the issuer's application, but for shares and similar securities it may do so only if, when the application is made, an offer document for the acquisition of all securities concerned has been published under the Securities Acquisition and Takeover Act (WpÜG), unless an exception applies.

The offer must be unconditional and must be in cash in euro, at a price at least equal to the weighted average domestic stock exchange price over the six months before the offer was announced. The rules protect minority shareholders who would otherwise lose a liquid market for their shares.

This briefing explains the legal requirements, pricing rules and exceptions, the role of BaFin and the exchange, and the alternatives to a full delisting.

Legal framework

The current framework dates from a 2015 reform that responded to a change in case law: after the Federal Court of Justice had abandoned the requirement of a general meeting resolution and a compensation offer for delistings (BGH, order of 8 October 2013 – II ZB 26/12), several companies delisted without any offer, leaving minority shareholders with illiquid shares. The legislature responded by building investor protection into the stock exchange rules themselves. The key elements are now:

The offer is made by a bidder, usually the controlling shareholder, although the issuer itself can in principle make it. The WpÜG rules on offer documents, BaFin review, acceptance periods and the reasoned statement of the management and supervisory boards apply with modifications. See the statutory text of § 39 BörsG.

Pricing the delisting offer

Pricing is the heart of every delisting offer. The minimum consideration is the higher of the weighted average domestic stock exchange price over the six months before the announcement of the offer and, under the takeover rules applied by reference, the highest price the bidder or persons acting in concert with it paid for shares in the six months before publication of the offer document. Unlike in a takeover offer, the bidder cannot offer shares as consideration: only cash in euro is permitted.

The stock exchange price is replaced by a valuation-based price in special circumstances. This applies where the issuer failed to publish inside information as soon as possible or published false inside information, or where the issuer or the bidder engaged in market manipulation, and these breaches materially affected the average price. It also applies where shares were traded on fewer than one third of trading days in the six-month period and successive prices deviated by more than 5%. In these cases, the bidder must pay a price corresponding to the value of the company determined by a valuation.

Under the current statutory text, the amount of the consideration is determined by the court in appraisal proceedings under the Appraisal Proceedings Act on application (§ 1 no. 8 SpruchG). This gives shareholders who accepted the offer a collective procedure to have the adequacy of the price reviewed, similar to the review of compensation in a squeeze-out. Bidders should therefore expect that the price may be tested in court and should document the price determination carefully, including the calculation of the six-month average and any pre-acquisitions.

Exceptions: downlisting and other cases

A delisting offer is not required in every case. Under § 39(2) sentence 2 BörsG, revocation on application is also permissible without an offer where:

• the securities remain admitted to the regulated market of another German stock exchange;
• they remain admitted to an organised market in another EU or EEA state whose rules on revocation provide equivalent protection;
• they remain included in trading on an SME growth market in Germany, or admitted to an SME growth market in another EU or EEA state with equivalent protection; or
• insolvency proceedings have been opened over the issuer's assets.

The SME growth market exception reflects the EU's efforts to make smaller markets more attractive for listed companies.

In practice, issuers considering a move from the regulated market to an SME growth market or to the open market (Freiverkehr) should check the rules of the exchange and segment concerned, because exchanges set their own requirements for inclusion and for terminating inclusion, and protection levels differ. A move to the open market at the issuer's request ends the obligations tied to the regulated market, such as financial reporting under the WpHG and the corporate governance declaration, but it keeps a trading venue for shareholders, which some issuers see as a fair compromise with their minority investors.

Process and timeline

A typical delisting follows these steps:

1. Agreement between the controlling shareholder and the issuer on the delisting, often in a delisting agreement setting out the issuer's obligations to apply for revocation and cooperate.
2. Announcement of the decision to make a delisting offer under § 10 WpÜG, which starts the reference period counting backwards.
3. Submission of the offer document to BaFin within four weeks, BaFin review and publication.
4. Application by the issuer to the exchange for revocation, filed together with a reference to the published offer.
5. Reasoned statement of the management and supervisory boards on the offer.
6. Acceptance period, settlement and decision of the exchange on revocation, followed by its publication and effectiveness.

Under the exchange rules, the revocation usually takes effect after a short period following publication. Shareholders who did not accept the offer remain shareholders of a company without a regulated market listing, with reduced liquidity and transparency, which may later become the subject of a squeeze-out if the controlling shareholder reaches the necessary threshold.

Duties of the issuer's boards

Although the controlling shareholder usually drives the process, the decision to apply for revocation is a management decision of the issuer. The management board must assess whether leaving the regulated market is in the interest of the company, taking into account financing needs, the costs of the listing, the company's standing with customers and lenders, and the position of minority shareholders. Many issuers involve the supervisory board through an approval requirement in the rules of procedure, and some articles of association require a general meeting resolution, which then binds the board.

Board members who have personal ties to the bidder, such as representatives of the controlling shareholder on the supervisory board, face conflicts of interest. Good practice is to form a committee of independent members, obtain an independent fairness opinion on the price and document the deliberations. The reasoned statement under § 27 WpÜG is a public document for which the board members may be liable if it is incorrect, so it should be prepared with the same care as a prospectus-like disclosure.

The issuer also has continuing obligations until the revocation takes effect: ad hoc disclosure, managers' transactions, voting-rights notifications and financial reporting continue. After the revocation, obligations that depend on admission to the regulated market cease, but obligations under company law, such as the publication of annual accounts, remain. If the shares continue to be traded in the open market at the issuer's request, certain market abuse rules continue to apply.

Strategic considerations for a delisting offer

Controlling shareholders typically launch a delisting offer after a takeover that did not reach the squeeze-out threshold, or when the costs and obligations of a listing outweigh its benefits: ad hoc disclosure, voting-rights notifications, financial reporting, corporate governance code declarations and investor relations. The delisting offer allows the controlling shareholder to increase its stake at a price that is often close to the market price, since many investors, especially index funds, must sell once the shares leave the regulated market.

A delisting can be combined with a takeover offer: a bidder can announce a combined takeover and delisting offer, provided the offer meets the requirements of both regimes, including the unconditional nature required for the delisting part. Where the bidder already holds a domination agreement or plans one, the interplay with compensation payments to outside shareholders must be considered; see our briefing on domination and profit transfer agreements.

The management and supervisory boards of the issuer must act in the interest of the company in the delisting process. Their reasoned statement on the offer must assess the price and the consequences for the company and its shareholders. Conflicts of interest, for example where board members are close to the controlling shareholder, must be handled and disclosed.

Illustration: a hypothetical bidder holds 78% of a listed AG after a takeover offer. The costs of the listing are significant, and liquidity in the shares is low. The bidder announces a delisting offer at the six-month average price, which is above its takeover price. After checking the issuer's disclosure history, its advisers confirm that no special circumstances require a valuation. Several funds and retail investors tender their shares, and the bidder's stake rises to 92%, close to the threshold for a merger squeeze-out.

How TRW & Co helps

We advise controlling shareholders, bidders and issuers on delisting offers and alternatives: structuring and timing, price determination, offer documents and BaFin procedures, delisting agreements, reasoned statements of the boards, applications to the exchange and appraisal proceedings. We also advise on downlistings to SME growth markets and the open market. Our public takeovers and capital markets teams work together. Contact us to discuss a delisting.