Pan-European companies. Limited appeal

One giant step across Europe may find few imitators

IT IS a grand title with a grand idea behind it. The idea of a Societas Europaea (SE), a company based and regulated in the European Union as a whole, rather than a single nation, has been around for at least 30 years. But it was not until September 11th this year that Allianz, Europe's biggest insurer, became the first big company to opt for pan-European status, announcing the move as part of a merger and business restructuring. The legal groundwork for SE status was put in place only in October last year with the passage of EU legislation which, in theory, allows this new animal to operate seamlessly across the 28 countries of the European Economic Area (the EU and three neighbouring countries).

But there has hardly been a rush to sign up: only a handful of firms, headed by Strabag, an Austrian road-builder, have done so. One reason is continued uncertainty about tax treatment and aspects of corporate governance, as well as the slowness of some European countries to adapt their national laws. Moreover, for smaller European firms, setting up a limited company under British law is cheaper than opting for SE-status - and arguably allows the same freedoms.

Allianz decided on the SE structure as the best way to take over and integrate RAS, a 55.4%-owned insurance subsidiary in Italy, into its other European businesses. By creating a European company (Allianz SE, based in Munich), and making a tender offer in Italy for the balance of RAS shares, Allianz avoids the irksome task of squeezing out reluctant shareholders at a later date - which it would have to do under German takeover law. Michael Diekmann, chief executive, has made a virtue of these tactics by stressing that Allianz is becoming a European rather than a German company - the kind of Europhile rhetoric that always plays well in Germany.

“It's Auf Wiedersehen Deutschland AG,” jokes an Allianz source. Not quite. Allianz will not streamline its management into a single board, as the legislation would allow. Its two-tier board structure will remain, although the supervisory board will be reduced from 20 members to 12. Nor will Allianz abandon the German principle of worker representation: half of the supervisory board will still be workers' representatives, but they will be drawn from the whole of Europe rather than from Germany alone.

But SE status might make relocation to Luxembourg more feasible, if Allianz ever finds German tax or regulation intolerable. Some analysts think that regulatory arbitrage could tempt SEs to migrate to the friendliest European regimes, just as Delaware attracts companies in America.

So will the SE bandwagon now gather pace? The signs are not encouraging. This month Vossloh, a German railway technology group, postponed its SE plans, including the creation of a single board, after a battle between the chief executive and his supervisory board chairman. Suez, the French industrial group, is exploring the use of an SE vehicle in its planned takeover of Electrabel, the Belgian power company - but it is awaiting Belgian approval, and France has not yet adopted SE legislation. Airbus, Europe's aircraft-making joint venture and the very symbol of co-operative European industrial enterprise, is still registered in France and has managed for years without creating a pan-European legal entity.

Meanwhile, rulings by the European Court in favour of allowing any European company to operate in any other European country could make SE status seem redundant and expensive. Setting up the simplest limited-liability company in Germany costs around €1,000 ($1,220) and requires €25,000 in working capital. By comparison, set-up costs in Britain can be less than €300 for a German company, and start-up capital need not exceed £1 ($1.82). Michael Silberberger, who runs Go Ahead Ltd, with offices in Birmingham and Wiesbaden, says his firm has advised 14,000 German companies on their change to British limited status. He estimates that 18,000-20,000 German firms have taken this step - lured by the easier regulatory environment and corporate-governance rules. They tend to be small or medium-sized: the biggest so far is Mueller Ltd & Co KG, a pharmacy chain with 16,500 employees, based in Ulm.

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