Determination of the cash compensation in a merger squeeze-out based on the stock market price - “Isra Vision” (OLG Frankfurt, decision of 9 February 2024 - 21 W 129/22)

In its decision of 9 February 2024, the Higher Regional Court of Frankfurt basically reaffirms the case law of the Federal Court of Justice (see most recently Federal Court of Justice, decision of February 21, 2023 - II ZB 12/21), according to which the stock market price alone can be decisive for determining the compensation of minority shareholders in a structural measure - in this case a merger squeeze-out - unless this proves to be unsuitable due to the specific circumstances of the individual case.

The company in question, former Isra Vision AG, was listed on the regulated market of the Frankfurt Stock Exchange (Prime Standard). On 10 February 2020, Atlas Copco Germany Holding AG announced a voluntary public takeover offer for the company in the amount of EUR 50 per share, as a result of which the company's share price jumped to around EUR 50. On 3 August 2020, the bidder then published an ad hoc announcement stating that the bidder was seeking an upstream merger of the target company into the bidder with a squeeze-out of the minority shareholders pursuant to Sections 62 UmwG and 327b AktG. Following the successful takeover offer, the Bidder held over 90% of the shares in Isra Vision AG and thus had the shareholding required for the merger squeeze-out. The capitalized earnings value per share determined according to the valuation report was EUR 41.67 and was corrected to EUR 42.72 shortly before the Annual General Meeting adopting the resolution on the merger and squeeze-out. The volume-weighted three-month average stock market price (VWAP) reported by BaFin prior to the public announcement of the squeeze-out on 3 August 2020 was EUR 46.77. This value was confirmed as appropriate by the court-appointed expert auditor, and the Annual General Meeting of Isra Vision AG then resolved on 15 December 2020 to squeeze out the minority shareholders against this compensation.

The Higher Regional Court of Frankfurt, as the appellate court in the appraisal proceedings, rejected the complaints of the minority shareholders filing the application as unfounded and deemed the fairness of the compensation based on the stock market price to be appropriate.

However, unlike the lower court, the Frankfurt Higher Regional Court ruled that calculating the compensation based on the stock market price is not generally the better valuation method compared to determining the capitalized earnings value, but that a comprehensive assessment is always required in each individual case to determine the appropriate valuation method. In the court’s view, in addition to the absence of price manipulation and information deficits, the liquidity of the market for the shares in question, in particular the number of trading days, daily trading volume, inclusion in a stock market index and bid-ask spread, are decisive for the choice of the stock market price method.

The court agrees with the applicants insofar as the share price was obviously significantly influenced by the announcement of the takeover offer for the takeover price of EUR 50 per share. In addition, the court points out that a squeeze-out often involves a certain market tightness due to the high shareholding required by the majority shareholder, which, however, tends to apply less to a squeeze-out under merger law (90%) than to other types of squeeze-outs (where a shareholding of at least 95% is required). With regard to these aspects, the court notes that in the case at hand, the share price could at least be considered as an upper limit of the intrinsic value of the company and that there was a period of significant trading between the expiry of the offer period under the takeover offer (29 April 2020) and the date of the ad hoc notification of the squeeze-out (3 August 2020) during which the share price did not change significantly. However, due to the public takeover offer, the less-than-optimal liquidity of the market and the exclusion of the shares from various stock market indices, there remained a residual doubt as to the validity of the calculated market price. Therefore, the court considered it necessary to include the capitalized earnings value in the valuation for verification purposes. But since the court was convinced that the valuation expert had correctly determined the capitalized earnings value, which was below the three-months VWAP anyway, there was no need to increase the compensation.

The decision of the OLG Frankfurt deserves approval. It does not contradict the case law of the Federal Court of Justice, according to which the stock market price can in principle be a suitable method for determining the appropriate compensation, and at the same time points to the limits of this method.