Takeovers in Europe: Lowest common denominator

Date: 29/11/03

Too much compromise over the EU's draft takeover directive

FRITS BOLKESTEIN, the commissioner in charge of the European Union's single market, wanted to go for the nuclear option. His proposals for making it easier to take over companies in the European Union had been so watered down that, on November 26th, the Dutchman tried to talk his fellow commissioners into vetoing them altogether. They refused, because most preferred a poor compromise to nothing at all. From them, it passed to the EU's industry ministers and to the European Parliament's legal-affairs committee. To Mr Bolkestein's chagrin, both groups voted to approve the compromise on November 27th.

Mr Bolkestein, an economic liberaliser, would like to make takeovers in the EU much easier. He thinks that cross-border mergers and acquisitions would help restructure European industry and make the EU's economy more competitive. He also believes takeovers can be jump-started only by new EU-wide rules.

After a previous draft directive was rejected by the European Parliament in 2001, Mr Bolkestein produced a new text, adopted by the commission in October 2002. He recommended that companies be obliged to ask shareholders' permission for anti-takeover measures, such as the pre-emptive sale of parts of a company or the issuing of new shares to friendly parties. He proposed a ban on multiple voting-rights that give holders of small stakes disproportionate influence. He also suggested a “breakthrough” rule to nullify defensive actions against a bidder who has accumulated 75% of a firm's shares.

In the past year Germany, Sweden and other countries have lobbied furiously to weaken Mr Bolkestein's proposal. The French sided quickly with the Germans. Germany bought British support by helping to block a separate proposal to extend the rights of temporary workers. Swedes talked other small countries into supporting them. This campaign paid off: the draft's main measures have become optional, and thus pointless in Mr Bolkestein's eyes.

What motivates Mr Bolkestein's opponents? The Germans fear losing control of Volkswagen, which is protected from takeover by a special law. Having seen Mannesmann, a telecoms firm, bought by Britain's Vodafone in 2000, they worry that other firms might fall into foreign hands. Chris Huhne, a member of the European Parliament, says it seems paradoxical for a country so keen on political integration to stand in the way of unifying Europe's capital markets; but German trade unions fear for their country's social model and boards worry that foreign owners might put an end to their cosy corporate governance. The Swedes think that the abolition of multiple voting-rights would make their corporate empires vulnerable. The Wallenberg family, for instance, owns only 7% of Ericsson, a telecoms firm, yet controls the company, with an ally, because one class of shares carries 1,000 times the voting rights of another class.

Approved by ministers and the legal committee, the draft directive will be submitted to the full parliament next month. After 14 years of negotiation, its chances of passing the last hurdle are good. Mr Bolkestein, however, would have preferred something with teeth.

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