Takeovers – latest proposal, October 2002

Details of the Commission's latest proposal for a Directive on company takeovers were released on 2 October 2002. The Directive is intended to provide: common rules for takeover bids in the EU for all those concerned (companies, shareholders and other stakeholders); increased legal certainty for companies operating in several Member States; and proper protection to minority shareholders in the case of a change of control.

Commissioner Frits Bolkestein, responsible for Internal Market affairs, said the proposal is intended 'to enable takeover bids to be made in the EU under the best possible conditions for all those concerned. This Directive has always been an essential step towards the objective of fully integrating European capital markets by 2005; it is a key element in our drive to make Europe the most competitive economy in the world by 2010.'

After 12 years of negotiation, an earlier text was rejected by the European Parliament in July 2001, with MEPs said to have been concerned about two particular aspects:

• the obligation on the board of the offeree company to obtain the approval of shareholders before taking any defensive action against the bid; and
• the obligation on the board to remain impartial (which was taken to mean that an offeree company was unable to defend itself and would be left vulnerable to takeovers, especially by US companies).

Parliament's rejection caused the Commission to establish a Group of High-Level Company Law Experts, chaired by Professor Jaap Winter, tasked with resolving MEPs concerns. The Winter Report was published in January 2002 and forms the basis of the Commission's current proposal. The Commission has sought to retain the basic principles of the earlier draft:

• all holders of securities of the offeree company who are in identical situations must be given equal treatment;

• the addressees of the bid must have sufficient time and information to be able to reach a properly informed decision on the bid;

• the board of the offeree company must act in the interests of the company as a whole false markets must not be created in the securities of the offeree company, of the offeror company or of any other company concerned by the bid;

• an offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

However, in response to Parliament's concerns, the new proposal (described by Commissioner Bolkestein as 'a coherent way forward') has a number of supplementary elements:

• a procedure for a 'squeeze-out right' enabling a majority shareholder to require the remaining minority shareholders to sell him their securities and a 'sell-out' right enabling minority shareholders to require the majority shareholder to buy their securities following a takeover bid;

• a definition of the equitable price to be paid in the case of a mandatory bid (generally 'the highest price paid for the same securities by the offeror, or by persons acting in concert with him, over a period of between six and twelve months prior to the bid is regarded as an equitable price');

• rules intended to establish a 'level playing field' by 'banning certain legal restrictions that can be regarded as hindering bids';

• clarification of employees' rights ('the close and effective involvement of the companies' employees, via their representatives, is an important factor not only for the success of the operation but also for proper consideration of the different interests that may be affected by the takeover)

• a new Article requiring companies covered by the Directive to publish 'at least in their annual report' details of 'structures and measures that could hinder the acquisition and exercise of control over the company by an offeror'.

The Commission hopes that the revised text will now be adopted as soon as possible.

Links:

European Commission:
	02.10.02:	Company law: Commission proposes a transparent framework for takeover bids [IP/02/1402]
	02.10.02:	Frits Bolkestein: New proposal on takeover bids [SPEECH/02/449]
	02.10.02:	Proposal for a Directive on Takeover Bids Frequently Asked Questions [MEMO/02/201]
	Commission Communication on the proposal for a Directive - on takeover bids
European Sources Online:
	In Focus: European Commission plans to propose new Takeover Directive in 2002

Eric Davies
KnowEurope Researcher,
Compiled: Thursday, 3 October 2002

Details of the Commission's latest proposal for a Directive on company takeovers were released on 2 October 2002.