Frankfurt am Main Higher Regional Court considers cash compensation in Dyckerhoff AG squeeze-out as inadequate
By resolution dated September 10, 2020 (Case no.: 21 W 121/15), the Higher Regional Court (OLG) of Frankfurt am Main comprehensively examined the adequacy of the cash compensation in the context of the corporate squeeze-out at Dyckerhoff AG, and gave differentiated consideration to valuation practices and protection mechanisms for minority shareholders.
Background: Squeeze-out at Dyckerhoff AG
As part of the Dyckerhoff AG transaction, minority shareholders were excluded from the company through a so-called squeeze-out pursuant to § 327a AktG in exchange for a cash compensation. The majority shareholder determined the amount of the cash compensation and offered the excluded minority shareholders a fixed amount for their shares. Several former shareholders questioned the adequacy of this compensation and initiated court proceedings pursuant to the German SpruchG to obtain a judicial review.
Legal protection and proceedings under the German SpruchG
The appraisal proceedings serve to review the adequacy of the cash compensation and, where relevant, the compensation for loss of rights. An independent expert is appointed to perform an objective company valuation. According to § 327b para. 1 AktG, the cash compensation offered must correspond to the “full value” of the participation at the time of the general meeting.
Relevance for minority shareholders
The OLG Frankfurt a. M. confirmed that the appropriate cash compensation must reflect the economic value of the holding. Otherwise, there is a risk that minority shareholders may be disadvantaged by a squeeze-out. Especially in the context of listed companies, protection against potential undervaluation by majority shareholders is a central concern of the legislators.
Specification of valuation principles
Methods of company valuation
The OLG stated that, as a rule, the earnings value method or the discounted cash flow method should be principally applied for company valuations. These methods ensure that both the future earning capacity of the company and any special values are appropriately taken into account in the valuation.
Review of adequacy
In the Dyckerhoff AG case, the initial valuation was questionable, among other things, because the stock market price previously published was significantly higher than the cash compensation offered. The OLG emphasized that the average stock exchange price can set a lower threshold for adequacy, provided the price was not distorted by manipulation or special circumstances.
Relevance of the stock market price
The court attached particular significance to the share price of Dyckerhoff. The average share price during the three months preceding the squeeze-out announcement was significantly higher than the fixed cash compensation. No irregularities were identified that would have justified disregarding the share price. Accordingly, the OLG found the cash compensation offered to be inadequate.
Protection of minority shareholders and impact on corporate practice
The decision of the OLG Frankfurt a. M. highlights the high relevance of effective minority protection in company law. Companies considering a squeeze-out process must be aware that the judicial scrutiny of the cash compensation is handled strictly. The determination is based not only on the intrinsic value of the company in accordance with business management methods but is also reviewed by reference to actual share prices and other market-relevant factors.
This case law is particularly important for institutional and private investors who invest in minority positions. It signals that the appraisal proceedings remain an effective tool for correcting insufficient cash compensation and protecting the interests of minority shareholders.
Continuing legal uncertainties and outlook
Although the OLG Frankfurt am Main provides clear guidelines for valuation practice in its decision, the tension between company interests and minority protection remains. The question of how to factor in any special values or future market changes will continue to be the subject of judicial and extrajudicial disputes in the future.
Each appraisal proceeding is subject to individual assessment of the economic circumstances of the respective company and the capital market situation as of the relevant date. Current developments in capital markets, increasing complexity of business models, and the influence of external factors such as market developments or regulatory changes further raise the requirements for a proper and transparent company valuation.
Conclusion
The decision of the OLG Frankfurt am Main in connection with Dyckerhoff AG marks another milestone in the development of minority shareholder protection under company law. It demonstrates that courts adopt a rigorous approach when reviewing cash compensation and comprehensively consider both valuation principles and stock market developments. Minority shareholders can therefore rely on effective legal protection, ensuring fair compensation in the event of exclusion.
Note on need for legal advice
Given the complexity of structural measures under company law and the frequently demanding valuation issues, it may be advisable, if there are uncertainties regarding the legal framework or valuation practices, to seek individual assessment. The lawyers at MTR Legal are available to assist you as needed.
