Squeeze out
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Squeeze out is the expulsion of a small group of shareholders from a joint stock company by means of cash compensation (cf. [1]).
In Germany, a pool of shareholders owning at least 95% of a company's shares has the right to "squeeze out" the remaining minority of shareholders by paying them an adequate compensation. This procedure is based on the Securities Acquisition and Takeover Act (ger. Wertpapiererwerbs- und Übernahmegesetz, WpÜG) defined in §§ 327a - 327f of the German Stock Corporation Act[2] (ger. Aktiengesetz, AktG), valid since January 1st 2002[3].
For the first time in German history, this law provided a mandatory legal framework for takeovers, replacing the former voluntary takeover code (ger. Übernahmekodex)[4]. Although it has been asserted that the law does not to break with the German constitution it has courted the resentment of many small investors who consider it to be the legalization of expropriation.
[edit] Decision and execution
The decision to enforce a squeeze out must be made by holding a vote at the general meeting; as the major party already commands the vast majority of all votes, this usually is a mere formality. The compensation value is determined by the company's economical situation at the date of the general meeting, the minimum compensation being the share's average stock exchange price during the past three months.[4].
[edit] Objection
Expelled shareholders can appeal against the squeeze out according to § 243 AktG [5]. Also, according to this section, some reasons, such as inadequate compensation, are not sufficient to inhibit the squeeze out. Even while the rescission proceedings are still running the main shareholder has the right to register in the Commercial Registry if he meets the preconditions defined in §§ 327e sec. 2, § 319 Abs. 5, 6 AktG [6]; by doing so an approval process is initiated and all shares held by minor shareholders devolve to him.
[edit] Sources
- ^ RWE Stock Market Dictionary, cue "Squeeze Out". Visited on 05/09/2006
- ^ Bundesministerium der Justiz - Aktiengesetz §§ 327a - 327f. Visited on 05/09/2006 (ger.)
- ^ Deutsche Bank |Squeeze Out. Visited on 05/09/2006
- ^ a b Investment Banking Briefing: Developments in German Takeovers and Squeeze-Outs. April 2002
- ^ Bundesministerium der Justiz - Aktiengesetz § 243. Visited on 09/05/2006 (ger.)
- ^ Bundesministerium der Justiz - Aktiengesetz § 319. Visited on 05/09/2006 (ger.)
