Wella Holder Files Suit To Block P&G’s Takeover Deal

Mellon HVB Alternative Strategies, a New York-based fund manager and holder of preference shares in Wella AG, is opposed to takeover terms being offered by Procter & Gamble Co. and has filed suit in Frankfurt’s higher court in an effort to block the deal from proceeding next week.

The move is aimed at buying time for preference shareholders to appeal a decision by Germany’s financial markets regulator, BaFin, which had previously rejected claims that preference shareholders are receiving an unfair deal. The lawsuit seeks an injunction against the deal proceeding and asks the court to direct BaFin to reconsider its ruling.

Those shareholders are opposed to the 5.54 billion euros ($6.48 billion) takeover, which also calls for the assumption of 1.1 billion euros in debt, because P&G is offering 92.25 euros for each share of common stock in the company, 78% of which is held by the Stoeher family, founders of Wella. But it is only offering 65 euros for each preference share. “We are confident of the legality and the fairness of the offer,” said Andrew Fisk, a spokesman for P&G in Europe.

This is the first case to be filed to a German higher court that involves a takeover taking place under Germany’s new takeover code, which took effect 18 months ago.

Wella’s 23 million preference shares, which account for 35% of its capital structure, don’t have voting rights but do offer a higher dividend than the ordinary shares. However, the preference shares have traditionally traded at a premium to the ordinary shares because the latter are largely illiquid due to the Stroeher family’s large holding. Indeed, the preference shares, not the common stock, are part of the Frankfurt stock exchange’s mid-cap MDAX share index.

As a result of opposition from shareholders Henkel KgaA, Mellon HVB and Hedge Fund Elliott, P&G had recently increased its offer for the preference shares to 65 euros from an initial bid of 61.50 euros a share.

P&G has argued that while German takeover law requires it to make an offer to all shareholders, this does not apply across different classes of shareholders.