Challenges to the Takeover Early Warning System in the EU: The Case of Germany

The paper shows the regulation of particular duties of investors and issuers in relation to direct or indirect holdings of publicly listed shares, building together an early warning system indicating an imminent change of control in companies. The early warning system is based on several duties, including: (1) the duty to disclose changes in the shareholdings in public companies above and below certain thresholds; (2) the duty to submit a takeover bid after reaching a certain threshold (the so-called controlling stake) or to publish forthwith a decision to launch a voluntary bid; (3) the duty to disclose in a timely manner relevant price-sensitive information in order to prevent insider dealing, as well as not to distribute any misleading information that would manipulate the market. The system is underpinned by the concept of ‘acting in concert’ whereby these three duties can be triggered with respect to more investors acting as a group with a view to acquiring or divesting shares in a company in order to influence the management of the company who would otherwise, individually, remain below the relevant thresholds. The purpose of the early warning system is to protect participants of the capital markets, minority shareholders and other stakeholders (management board members, creditors, employees, local communities, etc). The protection is achieved through increased transparency of the capital markets which enables the timely reaction of all interested parties: either by selling or buying the shares or by the activation of defence strategies before the actual change of control takes place. The paper also comments on recent changes in EU and German securities legislation.