(releads, adds EU probe, company comment, lawyer comment)
By Christiaan Hetzner
FRANKFURT, June 29 (Reuters) - Shares in German automotive supplier Phoenix AG jumped on Tuesday as Continental AG said its 227 million euro ($276.3 million) takeover bid to acquire its smaller German rival had succeeded.
But any celebration was rather muted as the European Commission immediately launched an in-depth investigation into the deal to see if it would damage competition.
"We're very optimisitic that the EU will approve the deal since we still believe there are no basic concerns in view of the intense international competition in these businesses," a Continental spokesman said.
The deal, which Continental made conditional on receiving at least three-quarters of Phoenix shares, was always going to need European cartel authority approval.
"We are extremely happy that the fair offer we made has been accepted and are confident that no fundamental problems will arise in the antitrust investigation," Continental's Chief Executive Manfred Wennemer said in a statement before the EU announced its probe.
Phoenix shares traded as high as 16.60 euros, a level last seen in July 1999 and more than the 15 euros Continental is offering, as investors gambled that Continental may have to pay more to mop up outstanding shares and secure full control.
Phoenix later said in a statement that it expected Continental to implement a so-called domination agreement in order to secure full control and achieve the 30 million euros in cost-savings it anticipates will result from the deal.
Continental declined to comment specifically about any plans for a domination agreement, adding that the 75 percent of shares it has already secured would allow it to hit its savings target.
The initial deadline for Phoenix shareholders to tender expired late on Monday. The company said then that the deal was in acute danger of collapsing with "less than 70 percent" of shareholders accepting the deal at the time.
Continental, which wouldn't specify how many shares it had received above the 75 percent threshold, has automatically extended the offer by two weeks as required by law.
Analysts had expected that despite speculation surrounding a potentially sweetened bid, investors would eventually tender due to the sizeable 40 percent premium the offer represented.
"It's a very reasonable price and I'd be surprised to see this deal not go through," said Heino Ruland, head of sales and research at Frankfurt brokerage Steubing, earlier on Tuesday.
The deal will nearly double sales at the company's ContiTech to 2.9 billion euros.
Both ContiTech and Phoenix manufacture rubber hoses, conveyor belt systems and air springs.
POTENTIAL FOR MORE
Investors can however hold onto their shares in the hopes of getting more for their stock, mergers and acquisition lawyers said.
"Normally, if a bidder were to acquire additional stock for more than the bid price within one year of the takeover, then they have to pay the difference to those investors that already tendered," said Timo Holzborn, capital markets lawyer at Munich firm Noerr Stiefenhofer Lutz.
"But bidders are not obliged to do so in the case of domination agreements and squeeze-outs where investors are paid an amount based on an expert opinion from auditors assigned by a court," he said.
That differs from Anglo-American legal standards where the auditors' price often equals the takeover price, he added, pointing out that certain funds specialise in speculating on domination agreements following German takeovers.
Shares in Phoenix were up 7.7 percent at 16.27 euros at 1611 GMT, while Continental stock was flat at 39.74 euros. (Additional reporting by David Lawsky in Brussels)