Mergers & Acquisitions: German Takeover Act Falls Short of Aims

The new German Acquisition and Takeover Act (Übernahmegesetz, WPüG), designed to regulate the process of business takeovers and protect the interests of shareholders and takeover participants, falls shorts of its aims. Its main shortcoming is that is applies exclusively to corporations listed on the stock market.

The probability of an unlisted business being subject to a takeover is similarly high as it is for businesses listed on the stock market. This is the finding of a study carried out by the Mannheim Centre for European Economic Research (ZEW) which analyses the causes and consequences of acquisitions and mergers in Germany. In view of the huge number of unlisted companies in Germany, an extension of the planned law, in order that it includes all corporations, is necessary.

The study has also shown that companies of which the main owner changes, have on average a higher level of debt and lesser chance of growth than firms who do not undergo such a change. Furthermore, the profitability and productivity of firms which are taken over tends to be below the industry standard. This suggests that it is rather inefficient businesses with weaker financial power which tend to be taken over. Business takeovers also seem to have an effect of increasing business discipline. Following a successful takeover, the productivity and profitability of firms tends to increase, albeit slowly.

As a result of the change in ownership, the number of employees tends to fall. Two years after a takeover, significantly more personnel will be let go than is the case in firms which have not undergone a change in ownership. At the same time, the pay per head for individual employees increases as a result of takeover. The composition of internal bodies such as the executive and supervisory boards also tends to change as a result of a takeover.

The results of the study indicate that the large size of a company and the complexity of its ownership structure provide a degree of protection against a takeover. Businesses controlled by merged companies are significantly less likely to be subject to a takeover.

Contrary to popular opinion, ownership structures in Germany companies tend to be relatively easy to change. The ZEW study shows that in the period from 1987 to 1994, a change in ownership took place, on average, in more than 7 per cent of the approximately 1,000 companies. In international comparison, the frequency of ownership change is higher than in countries such as the USA.

Contact

Dr. Jens Köke, E-Mail: koeke@zew.de