| Author (Person) | Bower, Helen, Thomson, Ian | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Publisher | ProQuest Information and Learning | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Title | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Details | 18.5.02 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Publication Date | 18/05/2002 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content Type | News, Overview, Topic Guide | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The European Commission is bidding to end a twelve-year struggle to introduce a Europe-wide takeover code by tabling fresh proposals during 2002. It is hoped these proposals will win the support of the European Parliament, which rejected the previous proposals at a plenary session on 4 July 2001 despite an agreement reached by Parliament representatives and the Council of Ministers on a compromise text at a Conciliation Committee on 5-6 June 2001. The new proposals are likely to be based on a report from a High Level Group of Company Law Experts on issues relating to takeover bids, which was published on 10 January 2002. Nevertheless, negative reaction to the proposals in the High-Level Group report from certain corporate and national government interests during the spring of 2002 do not suggest an easy ride for any new proposals from the European Commission. Background With the development of the single market, it has long been recognised that the EU needs a pan-European framework for takeovers. This would offer shareholders, who are frequently located in different Member States a minimum level of protection that is equivalent throughout the EU in the event of a change of control of a company, and also establish minimum guidelines for the conduct of takeover bids, particularly as regards the transparency of the procedure. Brief Chronology of the Takeover Directive Yet despite the clear reasons for a takeover Directive it has been hard to achieve agreement across the Member States. Plans to introduce a Europe-wide takeover code date back to a European Commission proposal presented in 1988 [COM(1988)823 final OJ C64, 14.3.89, p8). This was amended in 1990 but continued to face objections in the Council of the European Union and a streamlined version was proposed in 1996. This continued to meet with opposition and another compromise text was put forward by the German Presidency in 1999 which allowed for a political agreement to be adopted by the Council in June 1999, although the formal common position was delayed until June 2000. In December 2000, the European Parliament adopted fifteen amendments to the Council's common position, of which the European Commission only accepted three in full and one in part when it adopted its formal reaction in February 2001 (COM(2001)77 final). In May 2001, under pressure from German industry, the German Government withdrew its support for the Council's common position of June 2000, further threatening the adoption of the proposal. However, a conciliation committee was convened in April 2001 and an agreement on a compromise text was reached on 5-6 June 2001 leaving only the European Parliament and the Council of the European Union to adopt the proposal during July 2001. A more detailed description of the takeover proposals from 1998 to June 2001 can be found in two earlier European Sources Online's In Focus features:
The full legislative history of the proposal can be seen in: Also useful is a European Commission background document explaining the objectives of the proposal (MEMO/00/36) European Parliament rejects compromise agreement Following the compromise agreement reached by the Conciliation Committee, the European Parliament's approval seemed to be a mere formality. However, at the Plenary session on 3 July 2001 opinion within the European Parliament appeared divided over the proposed Takeover Directive. James Provan (European People's Party and European Democrats (EPP- ED)), the Chairman of the Parliament's delegation at the Conciliation Committee, recommended that the proposed Directive should be adopted. He argued that 'many concessions had been achieved' despite the Council's unwillingness to budge on a number of key issues and that the European Commission's agreement to set up a group of company law experts which would report on the key controversial issues by March 2002 was a positive step. He added that,
Other MEPs in support of the Directive included Diana Wallis (European Liberal, Democrat and Reform Party) who said,
Lord Inglewood (EPP-ED) also endorsed the agreement, on the basis it was an "even-handed approach being proposed for all shareholders" and,
However, there was also much opposition to the Directive, led by the Rapporteur for the issue Klaus-Heiner Lehne (EPP-ED) who criticised the compromise. In his report to the Parliament, he expressed his strong dissatisfaction at the solution attained on the main issue of 'defensive measures' and during the debate he described the agreement 'as a capitulation to Council' which would,
Manuel Medina Ortega (European Socialists) also opposed the agreement, which he thought,
Others to oppose the agreement included Luis Berenguer Fuster (European Socialists) who felt that the compromise agreement was too far from the second reading and Theoduros Bouwman (Greens) who said the agreement,
With opinion so clearly divided it is perhaps not surprising that when it went to the vote on 4 July 2001 the draft Takeover Directive was rejected on a tied decision of 273 in favour, 273 against and 22 abstentions with European Parliament President Nicole Fontaine refusing to use her casting vote. Speaking after the rejection of the Takeover Directive, Frits Bolkestein, European Commissioner responsible for the internal market, said
There was a general sense that Germany, with its powerful group of 99 MEPs, had blocked the Directive - only the second time the European Parliament had ever rejected a proposal after a compromise was found through the conciliation committee - after fierce lobbying from German interests groups. Unions and corporate groups such as Volkswagen feared that the proposed directive would leave German companies vulnerable to hostile bids because it outlaws defensive action by the management of a target company without consulting its shareholders. High Level Group issues new proposals A High Level Group of Company Experts, which the European Commission had agreed to establish as part of the compromise reached at the conciliation committee, held their first meeting on 11 September 2001. It was originally intended that the group would investigate the 'defensive measures' and the equal treatment of shareholders and report on these by March 2002 but following the European Parliament's rejection of the compromise agreement it became even more essential that the Group provided some new proposals. The group published their first report on 10 January 2002 on issues related to takeover bids and specifically the three points which were of specific concern to the Parliament, namely:
In response to these issues, the group came up with a number of proposals. Level Playing Field The Group concluded that it is important that takeover bids can be undertaken with a similar expectation of success across the EU and that shareholders in the various Member States should have corresponding opportunities to tender their shares in a takeover bid. Therefore, a Directive on takeover bids aimed at creating such a level playing field should be based on two principles:
Equitable price With regard to the variation in Member States' rules on the price to be paid in a mandatory bid, the Group advises that a common rule establishing the equitable price should apply across the EU, which should also provide sufficient flexibility in particular circumstances The Group's specific recommendations are:
Squeeze-out and Sell-out rights The Group proposes that the holder of the vast majority of the capital of the company can squeeze out minority shareholders after successful completion of a takeover bid, a facility already in place in most Member States. Likewise, minority shareholders should have the right to sell out to a bidder who has acquired the vast majority of shares after a takeover bid. The Group's specific proposals are:
The proposals were welcomed by Frits Bolkestein, the internal market European Commissioner, who commended the group on 'their swift, comprehensive and excellent work'. However, he remained guarded about their influence in future proposals, saying it was too early to decide what would be included in the Directive. More encouraging for those who want the Directive to go through, was the response of Klaus-Heiner Lehne, the European Parliament Rapporteur who led the opposition to the previous proposals. He said that,
However, since the proposals were published, the European Corporate Governance Institute, a business think tank, has said that the plans are likely to fail for a second time because more states now have reservations over the 'new layer of legal uncertainty' that would be introduced with the legislation. Sweden and the UK were cited as examples of countries who might reject the proposals if they are tabled again. An opportunity to discuss the issues at stake took place at a session called "The future of corporate takeovers in Europe' at the European Financial Markets Convention 2002 in Brussels on the 31 May 2002. Achieving Lisbon's Goals? Despite the continued criticism surrounding the proposed Directive, Frits Bolkestein has suggested that his Directorate General will produce new proposals in 2002. A Europe-wide takeover code is widely recognised as an essential part of the financial services action plan aimed at achieving an optimal single financial market. With the Barcelona European Council on the horizon in March 2002, there appeared to be a renewed effort across the European Union to start making progress towards achieving a common market for financial services by 2005 and the long term goal, outlined at the Lisbon European Council in 2000 of making the Union the most dynamic, competitive and knowledge-based economy in the world by 2010. The Spanish Presidency have certainly put this at the top of the agenda and at the Ecofin Council meeting on 22 January 2002, finance ministers from around the EU reasserted their goal of speeding of the liberalisation of the financial market. Andrew Smith, the UK treasury secretary, specifically highlighted the need for an agreement on the Takeover Directive. As Frits Bolkestein outlined to the Economic and Social Committee on the 25 January 2002,
If the EU could get this jigsaw piece in place then it may be easier to fill in the others, making the realisation of Lisbon's goals a real possibility. The Presidency Conclusions from the European Council, Barcelona, 15-16 March 2002 call for the adoption of a revised proposal on takeover bids. Further information within European Sources Online:
Further information can be seen in these external links: EU Institutions Further and subsequent information on the subject of this week's In Focus can be found by an search in European Sources Online by inserting "Takeovers" or "Takeover" in the keyword field. Helen Bower The European Commission is bidding to end a twelve-year struggle to introduce a Europe-wide takeover code by tabling fresh proposals during 2002. |
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