In 2021, global activity was below the activity levels of previous years, whereas activist campaigns in the US (corresponding to 55 per cent of global campaigns) increased from 2020 by 10 per cent. Following a record level in 2020, Europe registered 50 new campaigns in 2021, down 12 per cent year-on-year.2 Globally, M&A and board change remained the most common objectives in 2021. Forty-three per cent of activist campaigns were M&A-related activist campaigns, slightly above the multi-year average corresponding to 39 per cent, whereby opposition to announced deals was the most common M&A theme corresponding to 19 per cent of all activist campaigns.3 Globally, investors, proxy advisers and other stakeholders called for greater diversity at listed companies. Environmental, social
and governance (ESG) activism gained momentum and the pressure for public companies to adhere to best ESG practices will continue to intensify.
In Austria, a long and stable tradition of shareholder activism does not exist yet, and shareholder activism campaigns can be categorised into many different types. A significant number of listed Austrian companies are controlled by one shareholder or a group of shareholders, which is one of the main reasons why shareholder activism has played a less
pronounced role in Austria as compared with shareholder activism on a global level. However, in recent years, the number of activist campaigns has increased in Austria, and activist shareholders of listed companies have actively sought to directly or indirectly generate profit for themselves or other shareholders by focusing mainly on the profitability and valuation of public companies.
Generally, activist shareholders concentrate on corporate structure and strategy, and restructuring measures; takeover bids, composition of management and supervisory boards; return of value to shareholders (e.g., share buy-backs and additional dividend payments); and acquisitions, merger proposals and opposition to delistings.
Activist shareholders take advantage of the possibilities provided to them by law, such as requesting the convocation of a shareholders’ meeting or inclusion of items on the agendas of shareholders’ meetings, the possibility of contesting shareholder resolutions and having the share exchange ratio in a corporate restructuring examined by a court.
It is likely that public companies will be required to deal with activist campaigns
a. have many free-float shares;
b. are facing a disappointing share price;
c. have non-active institutional shareholders;
d. experience low shareholder attendance at shareholders’ meetings;
e. encounter takeovers; or
f. have proposed restructuring measures.
It can be expected that Austria will see more activism in the future. In particular, the EU Shareholder Rights Directive II (2017/828), amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, which has already been implemented into national law (SRR), aims to improve the participation of shareholders and may foster shareholder activism in the future.
II. Legal and Regulatory Framework
In past years, the main jurisdiction for shareholder activism has been and remains the United States, where activist shareholders employ the receptive legal frameworks available to them to reach their goals. In Austria, there are various legislative and regulatory frameworks with respect to shareholder rights, shareholder activism and shareholder engagement. The principal sources of law in this regard are found in the Stock Corporation Act, the Stock Exchange Act and the Takeover Act.
i. Shareholder Rights
Apart from basic shareholders rights, such as the entitlement to dividends and disposal of their participation in a company, shareholders are entitled to other essential rights that foster shareholder activism and provide an environment for activists.
Irrespective of their percentage of shareholdings in a company, the rights of shareholders include entitlement to participate and speak at shareholders’ meetings as well as ask questions and receive answers with respect to the items on the agenda, exercise their voting rights and challenge a resolution of the shareholders in court.
Rights of minority shareholders holding at least 1 per cent of a company’s share capital include the entitlement to submit motions with respect to the items on the agenda of shareholders’ meetings; and to request a review by the Takeover Commission of the amount of the offer price with respect to mandatory tender offers and voluntary tender offers within three months of the publication of the results of a takeover offer.
Rights of minority shareholders holding at least 5 per cent of a company’s share capital include the entitlement to request the following:
a. convocation of a shareholders’ meeting;
b. inclusion of items on the agendas of shareholders’ meetings;
c. audit of the annual accounts by a different auditor for good cause; and
d. convocation of a shareholders’ meeting by shareholders of an acquiring company in the
course of a simplified merger.
Rights of minority shareholders holding at least 10 per cent of a company’s share capital include the entitlement to request dismissal of a member of the supervisory board for good cause; and that a claim be made against shareholders, the management board, supervisory board or third party to the extent the claim is not obviously unfounded.
Rights of shareholders holding at least 20 per cent of a company’s share capital include the entitlement to object to the waiver or settlement of claims against founding shareholders, the management or supervisory board members.
Shareholders holding more than 25 per cent of a company’s share capital present at a shareholders’ meeting may object to amendments of the articles of the company (including capital measures); and measures excluding shareholder subscription rights.
Shareholders holding at least 30 per cent of a company’s share capital have the right to elect an additional supervisory board member, if three or more members of the supervisory board are elected in one shareholders’ meeting and one candidate got at least one-third of the votes in all prior elections without being successfully elected. In that case, the unsuccessful candidate having received the one-third vote in prior elections will be declared as elected without any further votes.
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Reproduced with permission from Law Business Research Ltd. This article was first published in The Shareholder Rights and Activism Review 2022.
Shareholder Rights and Activism in Austria