Legal background: Squeeze-out and cash compensation under German stock corporation law
In the course of takeovers and full integration of companies, cash compensation is a key instrument for protecting minority shareholders. In particular, in a so-called squeeze-out pursuant to Sec. 327a et seq. AktG, all remaining shareholders must be excluded from the company in exchange for appropriate cash compensation. The adequacy of the amount of compensation is often subject to legal scrutiny and may lead to court disputes.
The decision of the Munich Regional Court I in the case of Hypo Real Estate Holding AG
In proceedings 5 HK O 19183/09, the Munich Regional Court I decided on June 25, 2013, that the requests filed by minority shareholders for an increase in the cash compensation in the context of the squeeze-out at Hypo Real Estate Holding AG (HRE) were unfounded. In the court’s view, the compensation in question had already been appropriately determined and complied with both legal requirements and the principles established by the highest courts.
Initial situation and reason for review
Hypo Real Estate Holding AG was nationalized as a result of the financial crisis in 2008. The Financial Market Stabilization Fund (SoFFin) took over all shares and subsequently conducted a squeeze-out under stock corporation law. Numerous minority shareholders questioned the adequacy of the cash compensation set at €1.30 per share for this purpose and applied for a judicial revaluation at the Munich Regional Court I through appraisal proceedings.
Reasoning behind the applications of the minority shareholders
The minority shareholders argued that the earnings value of the company as of the valuation date had been set too low due to underestimation and that, in particular, essential factors had not been adequately taken into account in determining the company’s value. They claimed that the established cash compensation did not accurately reflect the company’s financial position and the resulting business prospects.
Reasons for the decision of the Munich Regional Court I
The Munich Regional Court I did not follow the arguments of the minority shareholders. In its detailed decision, the court established that the valuation of HRE had been carried out according to recognized valuation methods—especially using the earnings value method—and based on the information available at the time. The court-appointed expert also confirmed that no valuation errors or methodologically relevant inconsistencies could be found.
Furthermore, the court made it clear that retrospective changes—such as subsequent positive developments in the company’s value—are not to be considered in the retrospective assessment of the relevant valuation date. The standard for assessing the adequacy of the cash compensation is therefore restricted to the time of the squeeze-out.
Significance of the decision in the context of investor protection
The judgment underscores that courts are subject to a rigorous duty to review when conducting judicial scrutiny of cash compensations. At the same time, it confirms that the threshold for court intervention is high, provided the valuation follows the recognized principles of German stock corporation law. Especially in the context of state-owned company takeovers—as in the present case—the requirements of valuation law and the case law of the Federal Supreme Court are decisive.
Outlook: Appraisal proceedings as a control mechanism
Appraisal proceedings serve as a central means of minority protection in the context of structural measures under the AktG. They enable affected shareholders to seek judicial review of the adequacy of cash compensation offers. However, the present decision also makes clear that substantiated objections to the applied valuation methods and factual assumptions are necessary to enforce an adjustment of the compensation.
The scope of these judicial clarifications goes beyond the individual case and is significant for overall corporate practice regarding squeeze-outs and merger-related compensation.
Note on handling comparable cases
The topic of cash compensation valuation remains the subject of intense legal discussion and is subject to continuous development through case law and legislation. For companies and investors, it is therefore advisable to closely monitor current developments and possible effects on the structuring and contesting of corporate measures.
Should individual case scenarios give rise to further uncertainties or a comprehensive legal assessment appear necessary, the Rechtsanwalt at MTR Legal are available as your contact persons.
