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Squeeze out: Shareholders rely on the severance payment
If the major shareholder wants to act freely and rule, he can not need any cross-drivers. The Stock Corporation Act comes to his aid: if a shareholder already owns 95 percent of a company, he can exclude the remaining minority shareholders. Squeeze out means, so to speak, expropriation.
But: The major shareholder has to pay the minority shareholders an appropriate cash compensation. There are good opportunities for investors to make a decent profit.
Reasons for a squeeze out
Why does a major shareholder want a squeeze-out? Small shareholders can be very uncomfortable. It is true that the major shareholder is in charge with such a large majority. He can push through virtually any resolution at the general meeting, for example a capital increase or a dividend distribution.
But de facto, the small shareholders have it in their hands. This applies in particular to holding and the voting process at a general meeting. The result is that business decisions are delayed or blocked by potentially unfounded legal challenges.
In addition, a squeeze out is worthwhile from a financial point of view. This means that the other shareholders no longer have to be elaborately invited to the Annual General Meeting. If the company is completely in one hand, the major shareholder can remove the share from the stock exchange.
This in turn eliminates obligations such as the publication of annual reports. All in all, this means that the administrative effort and costs are reduced.
For minority shareholders: The severance payment strategy
The law only provides for cash compensation for a squeeze out. The minority shareholders cannot demand that the majority shareholder be granted shares.
The amount of the cash compensation has to be based on the economic situation of the company at the time of the resolution by the general meeting. The severance payment is fully subject to judicial review.
Valuation of the shares by an auditing company
How does the squeeze out work? The major shareholder makes a corresponding proposal at the general meeting and the shareholders vote on it. That means: Since the main shareholder with his huge majority of votes is already the master of the house, he decides to kick the others out.
It also determines the amount of the cash compensation. But not arbitrarily: How much this payment is depends on the value of the company. And that is what auditors determine after a look at the balance sheets. As a rule, they make an earnings value calculation, with future earnings being forecast and discounted.
In the case of listed companies, the stock exchange price plays a major role. Falling short of the course is only possible in exceptional cases. To avoid improper price manipulation, the average price of the last three months should be used. Squeeze outs have triggered a wave of avoidance actions by shareholders.
Challenging the squeeze out drives up the share price
However, the expulsion with the resolution of the Annual General Meeting is far from being in the dust. The minority shareholders usually try to knock out a higher price.
You express this more gallantly and speak of fairness: “Nobody willingly gives me the true value of my shares in a squeeze out,” said an investor who has regularly brought legal challenges.
The appropriateness of the cash compensation can - after the squeeze out has been carried out (entry of the transfer resolution in the commercial register) - be checked in court in the context of an award procedure to be applied for by a former shareholder. This can be worthwhile from a return point of view: Reworking is not uncommon.
Squeeze out as a strategy by investors
Investors have discovered the squeeze out to be a lucrative investment strategy. Because a look-up has been quite likely so far. Even if a severance offer has already been made, it is not too late to get on board. A possible additional return is already factored in. But there is the option of a little more.
In addition, investors are protected from the bottom: because the original compensation offer continues to apply. However, it is not quick money: on average, it takes a year and a half from the announcement of a squeeze out to the final agreement.
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