Determination of the compensation of minority shareholders of a listed company in a squeeze-out (Munich Regional Court I, judgment of 28 June 2024 (5 HK O 15162/20) – Volkswagen AG / AUDI AG)

On July 31, 2020, the Annual General Meeting of Audi Aktiengesellschaft (“Company”) resolved to transfer the shares of the Company's minority shareholders to Volkswagen AG in accordance with Section 327a (1) AktG. Volkswagen AG determined a cash compensation of EUR 1,551.53 per no-par value share in the Company. The basis for the determination was a value of the Company of EUR 66,716 million that was determined using the capitalized earnings value method. The volume weighted average stock market price of the Company's shares determined by BaFin for the three-month period prior to the announcement of the intended squeeze-out amounted to only EUR 813.15.

Several shareholders of the Company initiated appraisal proceedings at the Munich Regional Court to determine the appropriateness of the cash compensation. In a judgment of June 28, 2024, the Munich Regional Court increased the cash compensation per no-par value share in the Company to EUR 1,754.71. The decisive factor for the increase of the cash compensation was that the beta factor used to determine the Company's capitalized earnings value had to be reduced in the opinion of the court.

In light of the recent decisions of the Federal Court of Justice on the determination of the compensation of minority shareholders on the basis of stock market prices (see, for example, the decision of January 31, 2024 (II ZB 5/22) - Kabel Deutschland Holding), the statements of the Munich Regional Court I on the question of whether an increase in the cash compensation was required in the present case, although the cash compensation determined by Volkswagen AG exceeded the volume weighted average stock market price of the Company's shares, deserve particular attention. The court answered this question in the affirmative, even though the criteria specified in Section 5 (4) WpÜG-AngVO were met during the relevant period and the Company's shares were also traded on the regulated market.

On the one hand, the court bases its view on the fact that the stock market price of the Company's shares was significantly influenced by the domination and profit transfer agreement between the Company and Volkswagen AG and thus by the development of the stock market price of Volkswagen AG. On the other hand, the court emphasizes that a determination of the compensation based on the stock market price is incompatible with the guarantee of ownership under Article 14 (1) sentence 1 of the German Constitution if there is a grave deviation between the stock market value and the capitalized earnings value. The court leaves open the threshold at which a grave deviation in this sense exists, but states that a serious deviation is to be assumed in the present case and that a difference of around 53.5% still constitutes a grave deviation. The court sees support for its argumentation in the assessment of Section 255 (5) sentence 1 and sentence 2 AktG.

It remains to be seen whether other courts will follow the reasoning of the Munich Regional Court and whether the mere existence of a grave deviation between the stock market value and the capitalized earnings value is sufficient to consider a severance payment based on the stock market value to be inappropriate or whether – depending on the amount of the deviation – further circumstances must exist that cast doubt on the validity of the stock market value.