There are many reasons why existing shareholders are granted subscription rights. On the one hand, the granting of subscription rights in Germany is mandatory for a capital increase of over ten percent, provided that there are no extraordinary circumstances. The aim is above all the shareholders are protected because a capital increase the dilution effect brings with it decreases whereby the effective share of the respective companies. This can be the case both in relation to the influence of the voting rights associated with ordinary shares and in relation to the relative dividend share for ordinary and especially for preference shares .
Furthermore, it is often easier to get existing shareholders to buy additional shares than to recruit new shareholders. The subscription right therefore also represents an incentive for existing shareholders to subscribe at least part of the new shares directly and thus partially maintain the relative share in the voting rights or in the dividends. The subscription ratio , which results from the ratio between old and new shares, ensures that each existing shareholder receives subscription rights in exactly the amount they need in order not to dilute their capital stake. By determining the theoretical ex-rights price (TERP), subtracting the issue price of the new shares and dividing the difference obtained by the subscription ratio, the arithmetical value of a “whole” subscription right can be determined. Alternatively, this value of a “whole” subscription right can also be calculated by dividing the difference between the price of the old shares and the issue price of the new shares with the subscription ratio increased by 1. The third way of determining this value is to deduct the TERP from the price of the old shares (instead of exercising subscription rights, the old shareholder can theoretically sell the share at the old price and then buy it again at the TERP price).
- Value of a “whole” subscription right = (TERP - issue price young shares) / subscription ratio
- Value of a "whole" subscription right = (old share price - issue price of new shares) / (subscription ratio + 1)
- Value of a “whole” subscription right = old share price - TERP
Implementation of a capital increase with subscription rights
In the case of a capital increase with subscription rights, the existing shareholders are to be offered the new shares for a period of at least two weeks (14 days) in accordance with the subscription rights price in accordance with AktG . If there are no stock exchange holidays during this 14-day subscription period , the existing shareholders are therefore entitled to ten trading days to accept the subscription offer . Either the exact issue price of the new shares must be specified before the start of the subscription period or the rules according to which this will be determined later. In the latter case, the exact issue price of the new shares must be announced no later than three days before the subscription period expires. All new shares that were not acquired by exercising subscription rights at the end of the subscription period are then usually placed in the market by the syndicate banks as part of a bookbuilding process . The price for this is often set just below the current share price.
If, for example, the subscribed capital of an AG is increased from 50 million to 60 million with a subscription ratio of 5: 1, each shareholder receives the right for five old shares to acquire one new share (including new shares) as part of the capital increase. The shareholders receive a subscription right for every old share in their possession. If a shareholder lacks the necessary subscription rights to be able to acquire a new share, he can buy the missing subscription rights or sell part of the subscription rights allocated to him or let his subscription rights expire.
The shareholders of a company (share class A) can be granted subscription rights to shares of the same class of shares as well as to another class of shares B. Special cases such as the issue of subscription rights to fixed-income instruments with conversion options ( convertible bonds ), profit participation certificates , bonds and instruments are also granted possible with option right .
As an option (currently not mandatory in Germany), the syndicate banks set up subscription rights trading in order to offer existing shareholders an easy way to sell their subscription rights during the subscription period.
In the first decades of the stock corporations there was no subscription right regulation. In the case of capital increases, however, it was customary to sell the new shares to the existing shareholders. This changed at the beginning of the 20th century when the Portland Bank and the Continental Trust Co. carried out capital increases in the United States and sold the new shares to third-party investors without offering them to the existing shareholders on a pro-rata basis. In the subsequent court hearings, it was decided for the first time that this was not permissible due to the dilution effect and the injustice it caused and that the existing shareholders should be granted a general subscription right.
In Germany, mandatory subscription rights were first introduced with the General German Commercial Code (ADHGB) in 1861.
Exclusion of subscription rights
There are not necessarily subscription rights for every capital increase. In the event of an ordinary capital increase, the shareholders can exclude subscription rights (3/4 majority in the general meeting ).
Another prerequisite for the exclusion of subscription rights is that the increase in share capital due to the capital increase is less than ten percent and the issue price is not significantly below the current stock exchange price ( (3) AktG). In Germany, a limit of around five percent is to be regarded as “essential”.
The subscription right can only be excluded if there are particularly valid reasons. These reasons can e.g. B. when acquiring third-party companies, company shares or participations, if in these cases the new shares are used as payment. Another valid reason is the admission of the shares of the respective company to trading on a foreign stock exchange on which the shares have not been admitted to trading until now and on which the new shares will then be issued.
While a partial exclusion of subscription rights was already provided for in the AktG of 1861, this partial exclusion, the z. B. does not exclude a large shareholder, but all others do, which is rather problematic according to current case law. This is seen particularly from the point of view of equal treatment of shareholders, whereas previously the prevailing opinion was that this was a general exclusion of subscription rights, with the special feature that the third party to whom the new shares are allocated is already a shareholder. This problem would be of particular interest if such a construct were to gradually attempt to achieve 95% dominance through partial dilution, with which the remaining shareholders could then be forced out via a squeeze-out .
This is what happened with the nationalization of the real estate financing bank Hypo Real Estate Holding AG due to the FMStG and the FMStErgG, although a squeeze-out already took place at 90%. SoFFin, controlled by the state, decided with a majority at the AGM initially a capital increase with the exclusion of subscription rights for the other shareholders, in order to then resolve the squeeze-out at a renewed AGM due to the dilution effect and a participation of 90% of the share capital. This pushed the remaining shareholders out and the bank could be nationalized. In principle, this and the enactment of the relevant laws were justified with the necessary rescue of systemically important banks in order to stabilize the German financial market in order to prevent a repetition of the events around the investment bank Lehmann Brothers Holdings Inc. in the USA in September 2008.
Reasons for the exclusion of subscription rights
The subscription right must be excluded if the stock corporation wishes to issue employee shares .
Consequences for investors
If the subscription right is excluded, investors have no opportunity to participate in the capital increase via discounted subscription rights. As a result, the nominal share of an investor in the share capital remains the same, while the volume of the total share capital increases. As a result, a shareholder effectively has less ownership of the company than before the capital increase, which is known as a dilution effect . The consequence of this is that the share price of the respective company falls sharply or less sharply, which is to be assessed as negative from the point of view of investors.
Situation in other countries
The Switzerland is one of the few countries that - unlike, for. B. Germany - do not provide for an exclusion of subscription rights in the case of capital increases of a small percentage of the share capital , see Swiss Code of Obligations .
An exclusion of subscription rights is only possible in Switzerland if "important reasons", for example the takeover of another company, make this absolutely necessary. Just as with the approval of a capital increase for ordinary shares, any restriction or cancellation of subscription rights by at least two thirds of the shareholders present must be resolved at an ordinary general meeting.
In the United Kingdom , subscription rights are generally to be granted to all existing shareholders on a pro-rata basis in the case of capital increases, provided they are made against cash contributions and no bonus shares are issued. There is an exception for shares from employee share programs (§566). The regular subscription period is 21 days, but can be reduced to up to 14 days by appropriate resolution (Section 562).
- the Stock Corporation Act: subscription rights
- Henry S. Drinker, Jr. (1930) The Preemptive Right of Shareholders to Subscribe to New Shares
- See ADHGB §282 ff
- See comment from 1902 / page 560/561
- See Uwe Hüffler, Commentary on the Stock Corporation Act (5th edition), page 874
- Swiss Code of Obligations Art. 652b
- Swiss Code of Obligations, Art. 704
- Sections 561, 564, 565 Existing shareholders' right of pre-emption (PDF; 3.6 MB)