FRANKFURT (Bloomberg) -- German Chancellor Angela Merkel's Cabinet approved legislation making it more difficult for stealth takeovers such as Porsche SE's 2008 acquisition of shares in Volkswagen AG.
The move, two years in the making, aims to plug gaps in disclosure rules for stock options including swaps held by investors building a position in companies. The provision helped Porsche's bid to build a majority stake in Volkswagen as well as an attempt by Schaeffler Group to control tiremaker Continental AG. Both bids ultimately backfired.
German finance-industry groups including the BVAI Alternative Investment Federation said the government measure, backed by ministers in Berlin today, will probably benefit investment strategies by increasing transparency and won't necessarily hamper takeovers. At present, disclosure applies only to common shares, a copy of the draft bill shows.
“It's hard to argue against the basic logic of the legislation,” Frank Dornseifer, Bonn-based BVAI's managing director, said in an interview. Widening disclosure rules “amplifies insight for all market players and not just for executives at companies whose shares are being bought invisibly.”
Herzogenaurach-based Schaeffler in March 2008 began amassing a position in Continental through equity swaps. When the stock dropped close to a three-year low in July of that year, Schaeffler made a bid that Europe's second-largest car- parts maker was powerless to fight off. The financial crash intervened, and Schaeffler was stuck with more shares than it intended to purchase, plunging it into debt.
Porsche's use of options to build a stake in Volkswagen was “unacceptable,” U.S. pension fund TIAA-CREF said in a letter to then Finance Minister Peer Steinbrueck in 2008. Porsche was itself taken over by Volkswagen in August 2009.
Nine German companies including Daimler AG, Munich Re and Siemens AG asked the government in 2008 to force disclosure of swap purchases after the financial regulator, BaFin, said the swaps didn't violate disclosure laws.
The bill before the Cabinet, which also needs the approval of parliament, states that “non-reportable financial instruments have been used in concrete cases in the past to move with stealth on a company including taking it over.”
The enactment of new disclosure rules has been delayed by almost two years after Merkel's government bracketed the move with a wider plan to boost financial-market transparency in the wake of the crisis. The bill includes new rules on open real estate funds. A ban on naked short-selling and tighter rules for so-called gray market financial were taken out the original bill.