German investor group DSW sues to set precedent on AGM merger votes

Linde case could be used as a blueprint for other German corporations

Germany’s main shareholder association DSW says it stands a serious chance of winning its legal action against a planned merger between industrial groups Linde and Praxair in a bid to ensure that future mergers are approved by shareholders at AGMs.

DSW (Deutsche Schutzvereinigung für Wertpapierbesitz) represents 30,000 private investors and has emerged as leading investor voice at Deutsche Bank and VW.

At a September special AGM of Praxair, the American industrial gas company, about 83% of shareholders approved the merger with German competitor.

Linde’s supervisory and management boards, however, rejected DSW’s calls to hold a vote on the transaction at an AGM. Instead it opened an acceptance period for Linde shareholders to tender their shares for stock of the new entity Linde plc, which closes today.

At the time of writing more than 75% of Linde shareholders have tendered shares, among them Australian Super, Nordea, Norges Bank Investment Management, T. Rowe Price Group and Union Investment.

Jella Benner-Heinacher, DSW’s Chief Managing Director, told RI that the merger creates a completely new structure and therefore the prior approval of Linde shareholders is fundamental.

German company law is not explicit about whether shareholders should give the green light in such cases at an AGM.

Benner-Heinacher said: “It is now up to the court to decide whether the approval by Linde shareholders was not a legal requirement. This case could be used as a blueprint for other German corporations.”The claim has been filed by law firm Bergdolt, whose head, Daniela Bergdolt, is also Vice-president of DSW.

Bergdolt admits that the legal case will not stop the merger but would set an important precedent.

“We know a lot of other companies are just waiting to see how this will develop and whether they are allowed to do that too.”

She added that her firm has examined the merits of the case very thoroughly; backed by leading experts in corporate law, she expects a fruitful outcome from the litigation, which would not begin earlier than March 2018.

A spokesperson for Linde declined to comment on the lawsuit as it is an ongoing legal case. The spokesperson said Linde expects the acceptance percentage to increase as passive investment funds, if they agree with the merger, tender at the very end of the offer period.

Ingo Speich, Head of Sustainability and Engagement at Union Investment, which has tendered its more than 1% of Linde shares, told RI that the merger is acceptable for his firm. However, he said, shareholders should have been informed in a proper way.

“In general, you have to question if it’s right to do such a transforming transaction without asking the shareholders. My understanding, from a pure governance point of view, is that extra AGMs should be possible.”

Speich added that the best way would be a specific AGM for any merger to proceed but at the same time, he noted that German law should be clear that the vote results can’t be challenged in the courts afterwards.

Competition authorities still need to approve the merger.