Squeeze-out

A squeeze-out is the compulsory removal of the remaining minority shareholders in exchange for adequate compensation. The main shareholder acquires their shares and can thereby become the sole owner. Germany provides several procedures. A corporate-law squeeze-out generally requires 95 percent of share capital. The takeover-law procedure following a takeover or mandatory offer generally requires 95 percent of voting share capital. A merger-law squeeze-out can be available from 90 percent of share capital where additional conditions are met.

For a buyer, removing minority shareholders can simplify integration and reduce the administrative burden of maintaining a company with outside shareholders. It may accompany a group restructuring or a withdrawal from the stock market. Delisting and a squeeze-out are nevertheless distinct steps: ending exchange trading does not itself eliminate minority holdings. Nor does every integration measure require complete ownership.

The key economic questions are how to reach the required holding, finance the compensation and manage the timetable. A bidder should therefore examine early which procedure fits the intended structure and what happens if the required threshold is not reached. Further share purchases may be expensive and increase the overall acquisition cost beyond the original budget.

Compensation protects excluded shareholders against losing their investment without adequate consideration. Its calculation and judicial review depend on the procedure used. In a takeover-law squeeze-out, the offer consideration is deemed adequate only if additional conditions are satisfied, notably a sufficiently high acceptance rate for the offer. Merely holding 95 percent does not automatically meet that test. Other procedures generally focus on a company valuation and the relevance of the market price. Potential additional payments and procedural costs therefore belong in the buyer's financial assessment. The level of compensation and completion of the exclusion procedure should be considered as separate planning issues.

Note: This explanation is for general information only and does not constitute legal advice. The legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified lawyer.