- Posted by jbehrendt on May 14, 2009
The long-expected board meeting for approving the detailed carve-out concept took place this week. Results of more than one year of work were compressed into a short presentation of 50 slides, to be presented in 2 hours by eight members of the project team – but even this compressed version seemed to be to much.
After reminding participants about the initial project targets and the value added by the project, defined already in April 2008, the transaction structure was re-explained. The intention was not only to make use of the German “Umwandlungsgesetz” which, similar to new provisions in Turkey, allows to transfer all legal rights and obligations of the current company to the carve-out company in one single legal act not requiring approval of the contract partners, but to avoid dissolution and taxation of any reserves hidden in the assets of the carve-out object, using the “Umwandlungsteuergesetz”. Again, a similar provision is now in place in Turkey, allowing Turkish companies to follow a similar path. Details of this system, together with the request for a binding advice from the tax authorities, were dutifully explained by the head of taxation of the company.
Last not least, special regulations for the more than 40,000 employees changing their employer were intended to be used. Special regulations in German law foresee that, in case a whole business is transferred into a new legal unit, all employees maintain their current rights, if they are part of their individual or any collective labour agreement, in the new company. This of course could be topped by even better conditions if the parties of collective labour agreements would agree upon them, but it would not be allowed to decrease any rights of existing employees. Again, a special concept for handling both this issue, and the setup of workers councils in the new unit, were already derived, and explained this time by the head of HR.
The part participants were most curious about followed afterwards – results of the independent valuation of the two carve-out objects done by an audit company, and crosschecked with a second opinion by a second audit company. This work was only finished the night before the board meeting, after hundreds of questions were answered, and additional information was provided, by the members of the project team to the auditors. Finally, however, they agreed upon the relevant values, and they were presented in the board meeting as well. As a result, the share of both companies carving out their supermarket and logistics business in the new unit could be defined – and fortunately, it was close to the initial expectation of all participants. So this part of the presentation could be followed by the presentation of another teammember about the balance sheet and capital structure, which was derived in line with typical capital structures of the relevant peer group.
Finally, the legal structure of the carve-out contracts, and of the articles of association of the new company could be discussed. Frankly said, it seemed that, at this point of time, some participants had lost track, but we had to bring it through – so next came the company lawyer, explaining the relevant items of the agreements. The most relevant part was the reflection of possible concerns of the shareholders of the smaller company to be pushed aside in any voting by the company with the larger share. We eliminated possible concerns by defining a set of critical decisions to be the subject of decisions of the general assembly, and, moreover, by requesting an unanimous voting result, giving the minority shareholder of the new company a de-facto veto right on all relevant decisions. The same system was applied for any decision regarding building profit reserves, so about not distributing profits. If not both parties agree, profits have to be fully distributed, meaning the minority shareholder can avoid any situation in which he cannot access his share of the profits.
At the end, there was not much reaction, partly due to the fact that the next topic, and its presenters, was already waiting in front of the door. However, the point of no return seemed to have been passed, so nobody objected our suggestion to approve the final carve-out concept, and to start now with the complicated procedures of getting the approval of all relevant institutions. Next week will be the first big challenge – we are presenting our suggestions to the supervisory boards of both companies for which we plan the carveout. Keep fingers crossed, I will keep you posted about developments.