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Last Trade - 26/04/17

Large Cap
Market Cap £4.15bn
Enterprise Value £5.07bn
Revenue £n/a
Position in Universe th / 1048

BREAKINGVIEWS-German M&A rules leave targets worse off

Thu 24th March, 2016 10:50am
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.) By Olaf Storbeck LONDON, March 24 (Reuters Breakingviews) - A seemingly sensible merger has been left hanging in the balance by quirky German takeover rules. The $1.8 billion tie-up of U.S. cash dispenser Diebold DBD.N and German rival Wincor Nixdorf WING.DE would create a global leader in automated teller machines with a well-balanced geographic footprint and annual cost savings of $160 million. The 35 percent premium, paid 80 percent in cash and 20 percent in shares, has been backed by Wincor's board. What should have been relatively straightforward is anything but. At 1000 GMT on March 24, it was still unclear if shareholders had tendered enough shares to reach the acceptance threshold of 75 percent. True, the premium by March 23 had fallen to 27 percent, factoring in share and exchange rate moves. But the bigger problem is Germany's weird takeover law. Buyers in Germany need the approval of at least 75 percent of the target's shareholders to get effective control over another company. If a deal gets over this threshold and goes through, remaining small shareholders enjoy generous legal protections. They can sue for higher compensation, get attractive guaranteed dividends in a squeeze-out and may secure lucrative back-end deals. These safeguards create incentives for wily investors to buy into the company, reject the deal and then enjoy the financial benefits offered to hold-outs. But this strategy only works as long as the deal is actually happening and not too many investors try to hold out. This caused Vodafone VOD.L headaches in its purchase of Kabel Deutschland KD8Gn.DE in 2013 and almost brought down the acquisition of German drug wholesaler Celesio CLSGn.DE by U.S. peer McKesson MCK.N , which eventually closed in 2014. In Wincor's case, most recently 30 percent of outstanding Wincor shares were held by hedge funds, according to a person with knowledge of the situation. The German tax code creates another wrinkle. Part cash, part share deals are unattractive for retail investors residing in Germany - the tax authorities treat the cash component like a dividend and insist on a 26.4 percent withholding tax. Up to 12 percent of Wincor's shareholders were affected by that. Even if the Wincor deal eventually limps over the acceptance threshold, this kind of drama has a negative effect on Germany's equity markets. International bidders will think twice before tabling fair and coherent offers, and inefficient corporate structures will persist. That isn't in shareholders' interest, whatever their size. CONTEXT NEWS - Diebold was waiting on March 24 to find out whether it had gained the required level of support for its $1.8 billion takeover of German rival Wincor Nixdorf. - A few hours before the March 22 deadline for Wincor investors to tender their shares, the U.S. automatic teller manufacturer had secured control over 58.3 percent of the target's equity capital, including 9.9 percent shares owned by Wincor itself. The minimum acceptance threshold stands at 75 percent. - For every outstanding Wincor Nixdorf share, Diebold had offered 38.98 euros in cash and 0.434 of a common Diebold share. - Including debt, the offer values Wincor Nixdorf at 1.7 billion euros. Based on Diebold's share price before the announcement of the bid on Oct. 17, 2015, the offer represents an implied value of 52.50 euros per Wincor share, a premium of about 35 percent. RELATED COLUMN German lessons urn:newsml:reuters.com:*:nL8N13I1SZ - For previous columns by the author, Reuters customers can click on STORBECK/ <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS www.breakingviews.com/TOPNewsSubscription ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (On Twitter https://twitter.com/OlafStorbeck Editing by George Hay, John Foley and Sarah Bailey) ((olaf.storbeck@thomsonreuters.com; Reuters Messaging: olaf.storbeck.thomsonreuters.com@reuters.net)) Keywords: WINCOR NIXDORF M&A/BREAKINGVIEWS
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