Convertible Bonds and the Best Price Rule: The Celesio Case

J Grant (Ed), European Takeovers: The Art of Acquisition, London, Globe Law and Business, 2018 (2nd Ed.), pp. 370

Posted: 9 Dec 2018

See all articles by Tom Kirchmaier

Tom Kirchmaier

London School of Economics - Centre for Economic Performance; Copenhagen Business School

Jeremy Grant

London School of Economics

Casimiro Antonio Nigro

Goethe Universität, House of Finance, Corporate and Financial Law Department; LUISS Guido Carli University - Faculty of Law

Date Written: June 4, 2018

Abstract

Under German takeover law, in a voluntary bid the bidder must offer the target shareholders a price which is based on the average price of the target’s shares over a given period.

However, if in the run-up to the bid the bidder purchased the target shares at a higher price, the bid price must be increased so that it is at least equal to that higher price. To this end, such purchases include those effected under an agreement “on the basis of which the assignment of shares can be demanded” – such as options. This ‘equivalence rule’ aims to prevent circumvention of the best price rule.

In late 2013 US company McKesson purchased Haniel & Cie’s a 50.01% stake in Celesio through a share and purchase agreement that was conditional on the success of the subsequent voluntary bid – through which McKesson wanted to secure at least 75% of the voting rights in the company. Having bought both shares and convertible bonds that granted slightly more than 25% of the voting rights in Celesio, US hedge fund Elliott blocked the first bid and then sold McKesson both its shares (through Haniel) and the convertible bonds at a higher look-through price per share. Shortly thereafter, McKesson launched a second voluntary bid offering the same price as that paid to Elliott for its shares. The bid succeeded. However, Magnetar Capital and other Celesio shareholders which had tendered their shares in the second bid sued McKesson to claim the difference between the look-through price per share paid for the convertible bonds and the bid price.

At its core, the legal dispute concerned an issue that is certainly salient to German and European takeover law: whether contracts for the purchase of convertible bonds constitute “agreements on the basis of which the assignment of shares can be demanded”, and thus whether the price agreed in such contracts triggers the best price rule.

Unlike the Federal Financial Supervisory Authority (BaFin) and the Regional Court of Frankfurt am Main, the Higher Regional Court of Frankfurt am Main and the Federal Court of Justice upheld the plaintiffs’ action, emphasizing that the price agreed serves as the proxy for the price that the bidder is willing to pay for the target shares.

After outlining the German takeover regime and setting out the facts of the case, this chapter seeks to deliver a brief analysis of the Bafin´s decision and the subsequent court rulings.

Keywords: Takeovers, Mandatory Bid Rule, Best Price Rule, Circumvention, Tunneling, Tunnelling, Minority Investors Protection, Hedge Fund Activism, Relational Capitalism

JEL Classification: K22

Suggested Citation

Kirchmaier, Tom and Grant, Jeremy and Nigro, Casimiro Antonio, Convertible Bonds and the Best Price Rule: The Celesio Case (June 4, 2018). J Grant (Ed), European Takeovers: The Art of Acquisition, London, Globe Law and Business, 2018 (2nd Ed.), pp. 370. Available at SSRN: https://ssrn.com/abstract=3254179

Tom Kirchmaier

London School of Economics - Centre for Economic Performance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 207 955 6854 (Phone)

HOME PAGE: http://https://sites.google.com/site/tomkirchmaier/home

Copenhagen Business School ( email )

Porcelænshaven 24A, 3rd floor
Copenhagen
Denmark

Jeremy Grant

London School of Economics ( email )

Houghton St
London, WC2A 2AE
United Kingdom

Casimiro Antonio Nigro (Contact Author)

Goethe Universität, House of Finance, Corporate and Financial Law Department ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

LUISS Guido Carli University - Faculty of Law ( email )

Viale Romania 32
Ufficio Dottorati di Ricerca
Rome (Italy), RM 00197
Italy
(+39)3894263649 (Phone)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
103
PlumX Metrics