Term Raider – Definition and Legal Classification
The term Raider has a special significance from a legal perspective mainly in business law, particularly in connection with corporate transactions, takeovers, and securities trading. While the term is rarely used in everyday language, it has found its way into technical jargon, especially in connection with so-called ‘hostile takeovers’. Below, the nature, legal framework, and various facets of the term are explained in detail.
Origin and Basic Understanding of the Term “Raider”
Etymology
The expression ‘Raider’ comes from the English verb ‘to raid’, meaning ‘to attack’ or ‘to plunder’. In business, it is used for natural or legal persons who—mostly with speculative motives—seek aggressive, usually hostile, takeovers of companies.
Distinction from Other Terms
A ‘Raider’ differs from strategic investors or private equity firms through their approach, which generally aims to secure favorable influence, control, or short-term economic advantage—often against the will of the company or its current owners.
Legal Principles and Framework Conditions
Takeover Law and Securities Trading Law
The central legal area in which ‘Raiders’ operate is takeover law, especially in connection with public takeovers of listed companies. In Germany, above all, the Securities Acquisition and Takeover Act (WpÜG) as well as European takeover directives are decisive.
Process of a Hostile Takeover by a Raider
- Building up Stakes: Frequently, a Raider starts with the gradual acquisition of shares, often initially below the statutory notification thresholds under § 33 WpHG.
- Notification Obligations: When certain thresholds are exceeded (3%, 5%, 10%, etc.), the acquisition must be reported.
- Mandatory Offer: From a shareholding of 30% of the voting rights, a mandatory takeover offer to the remaining shareholders may be required (§ 35 WpÜG).
- Fight for Control: Countermeasures by the management of the target company, such as ‘defensive measures’, are subject to legal restrictions (§ 33 para. 1 sentence 1 WpÜG—duty of neutrality).
Permissibility and Limitations of Raider Activities
Principle of Legality and Prohibitions on Abuse
Takeovers by raiders are, in principle, legally permissible, but are subject to numerous regulations to protect shareholders, the market, and the target company. Prohibited practices such as insider trading, market abuse or the deliberate evasion of reporting duties are punishable by fines and penalties (§§ 38ff. WpHG, Market Abuse Regulation (MAR)).
Antitrust Law Limits
If raider activities create or increase a dominant market position, the merger control regulations under the Act against Restraints of Competition (GWB) as well as the EU Merger Regulation must be observed. Where applicable, takeovers must be notified to the competent antitrust authorities and may only be completed after clearance.
Typical Forms and Motives of a Raider
Strategic and Financial Raider
- Strategic Raider: The aim here is often the integration of the takeover target into one’s own company or its breakup.
- Financial Raider: This usually refers to funds or individuals who pursue short-term profits, for example, by selling off company assets and subsequently exiting.
Methods and Tactics
- Shareholder activism: Influencing corporate decisions through the use and mobilization of voting rights.
- Greenmailing: Threatening a takeover with the aim of having the target company buy back the shares at an inflated price.
- Asset stripping: Sale of profitable company divisions following a takeover.
Protective and Defensive Measures Against Raiders
Statutory Instruments
Supported by the WpÜG and the Stock Corporation Act (AktG), various instruments exist to protect target companies from raider takeovers:
- Voting right restrictions (§ 136 AktG)
- Registration of registered shares (§ 68 AktG)
- Multiple voting rights (generally not permitted in Germany)
- Resolutions on mergers or transformations, which can make takeovers more difficult
Internal corporate measures
Management can attempt to prevent or at least make a takeover more difficult through so-called ‘defense strategies’ (‘poison pill’, ‘white knight’, ‘golden parachute’, etc.), subject to the duty of neutrality under the WpÜG.
Tax and Insolvency Law Aspects
Following a raider takeover, especially in the case of asset stripping or division of the company, significant tax consequences may arise. Likewise, insolvency law provisions, for example in cases of unlawful management or ‘existence-destroying interventions’, must be observed (§ 826 BGB in conjunction with the Insolvency Code).
International Law and Cross-Border Activities of Raiders
European Level
The European Takeover Directive 2004/25/EC harmonizes conditions within the European Union and sets minimum standards for transparency, equal treatment of shareholders, and the admissibility of defensive measures.
Global Perspective
Raiders operating internationally also face different national takeover rules, stock exchange regulations, and market practices, such as in the USA (regulated by the ‘Williams Act’) or the UK (regulated by the ‘Takeover Code’ of the UK Takeover Panel).
Conclusion
The term Raider is a synonym in business and corporate law for aggressive players who seek to achieve control or profit by targeted acquisition of corporate shares. These activities are strictly regulated by law, with numerous duties, prohibitions, and control mechanisms in place. The legal challenges range from securities trading law and takeover law to competition and insolvency law issues. Comprehensive understanding of these legal frameworks is essential to properly assess risks and courses of action in relation to raiders in a corporate context.
Frequently Asked Questions
What legal consequences can result from a ‘Raider’ intervention in a company?
The legal consequences of a so-called ‘Raider’—that is, a person who seeks to gain control over a company through targeted hostile takeovers or covert influence—are diverse and depend on the method chosen. Even the acquisition of substantial voting shares in a listed company is subject to the Securities Trading Act (WpHG) as well as the Securities Acquisition and Takeover Act (WpÜG), in particular the notification obligations upon exceeding certain thresholds. Violations of these notification obligations may be punished by severe fines (§ 39 WpHG). Manipulation or unauthorized influence, such as through insider trading (§ 119 WpHG), market manipulation, or the acquisition of trade secrets by deception (§ 23 GeschGehG), can also lead to criminal consequences, including imprisonment. In cases where boundaries to breach of trust, fraud, or other criminal offenses are crossed, the Criminal Code (StGB) provides for further sanctions. Civilly, affected companies may bring claims for damages or injunctions. Corporate law instruments, such as contestation of general meeting resolutions or special audits under stock corporation law (§§ 142 ff. AktG), may also be considered.
What notification and publication obligations exist in the case of stake acquisitions by a raider?
German capital market law imposes strict notification and publication obligations as soon as an investor—even a ‘raider’—acquires or disposes of substantial holdings in a listed stock corporation. According to § 33 WpHG, natural or legal persons must notify the company and the Federal Financial Supervisory Authority (BaFin) if their voting share reaches, exceeds, or falls below certain thresholds (3 %, 5 %, 10 %, 15 %, 20 %, 25 %, 30 %, 50 % and 75 %). The company, in turn, must publicly disclose this information according to § 40 WpHG. Furthermore, upon a change of control according to § 35 WpÜG, a mandatory offer to the remaining shareholders may be required. Violations not only carry regulatory sanctions but may also suspend rights from the acquired shares (§ 44 WpHG).
What restrictions exist for raiders regarding use of voting rights and majority decisions?
The exercise of voting rights in Germany is governed by stock corporation law, corporate law, and in some cases, capital market regulations. Raiders, like all shareholders, are bound by the Stock Corporation Act (AktG), particularly the duty of loyalty to the company and the prohibition of abuse of voting rights (§ 243 AktG: challenge on account of a legal violation). If a raider tries to bundle voting rights via voting pools, clandestine agreements (so-called acting-in-concert pursuant to § 34 WpHG), or by means of trust arrangements to achieve a majority decision, this can have far-reaching consequences. In case of violations of notification rules, BaFin may suspend the voting rights (§ 44 WpHG). In individual cases, a challenge to resolutions of the general meeting may also succeed if they are based on unlawfully exercised voting rights.
Are there specific regulations for defending against hostile takeovers by raiders?
German stock corporation law provides for various defense mechanisms against hostile takeovers. On the one hand, § 33 WpÜG limits the board’s independent actions during an ongoing takeover—the management board may generally take essential measures to prevent a takeover only with the approval of the supervisory board (‘duty of neutrality’). On the other hand, companies may protect themselves by articles of association regulations, such as maximum voting rights, registration requirements for registered shares, or the issuance of preference shares without voting rights. Capital increases excluding subscription rights in favor of friendly investors may also be possible under statutory requirements (§§ 186, 203 AktG). Ultimately, companies are also free to fend off takeover bids with counter-offers or compensation payments.
When does inadmissible market manipulation exist in raider activities and how is this sanctioned?
Market manipulation is strictly prohibited under the EU Market Abuse Regulation (MAR) as well as §§ 119 ff. WpHG. Inadmissible market manipulation exists if a raider tries to influence the target company’s share price through deliberately misleading transactions, false rumors, or other manipulative actions. Such conduct is actively monitored by BaFin and may result in fines running into millions. In serious cases, criminal penalties (§ 120 WpHG), including monetary fines and imprisonment, may also apply. In addition, civil claims by injured parties, such as damages under § 826 BGB (intentional immoral harm), may arise.
What role do disclosure requirements play in the financing of hostile takeovers?
The financing of a hostile takeover is subject to numerous transparency and disclosure obligations. In particular, an offer under the WpÜG (§ 11) must include a comprehensive financing concept that credibly demonstrates the secured financing of the acquisition. Financing methods frequently used, such as leveraged buy-outs (LBOs), therefore require transparent disclosure of third-party financing sources. Breach of these obligations may lead to prohibition of the public offer or its subsequent nullification. Criminal law may also be applicable, for example in cases of intentional deception of market participants about actual financing capabilities.
What special duties of care apply to board members in the face of impending raider activities?
Board members, especially the management board and supervisory board, carry particularly high duties of care and supervision (§§ 93, 116 AktG) in anticipation of and during a hostile takeover. They must timely identify potential risks of a takeover for the company and shareholders and prepare suitable countermeasures within the framework of statutory requirements. This also includes proper information of the capital market (§ 15 WpHG; ad hoc disclosure), careful documentation of all decision-making processes, and transparent communication with shareholders. Breach of these duties may give rise to liability towards the company (§ 93 para. 2 AktG) and, where applicable, to claims for damages by shareholders.
