Brussels, 02/10/2002 (Agence Europe) - The new draft directive on takeover bids adopted by the Commission on Wednesday "is a fundamental step for the setting up of the single market for capital by 2005" Commissioner Frits Bolkestein pointed out when presenting his proposal to the European Parliament's Committee on Legal Affairs and the Internal Market. He hoped an agreement could be found rapidly between Council and Parliament, which in July 2003 had rejected (273 in favour and 273 against) a text negotiated over twelve years. Parliament's rapporteur, Klaus-Heiner Lehne promised to accelerate work so that the text could be adopted rapidly, if possible on a single reading. He regarded that the text was clearly better than the one rejected by Parliament, especially for aspects affecting the purchase and compulsory sale of minority stakes and workers rights. The question of "multiple voting rights" is, however, the main difficulty of the new text.
The directive has as aim to ensure equality of treatment for all interested parties in a takeover bid, guarantee the protection of minority stakeholders during a change of control of the company and establish greater legal security for this type of operation, the Commissioner recalled. The proposed text would take effect in 2005, with as three year transition period before the agreement of shareholders would be necessary for a company to be able to take defence measures against a hostile takeover bid. A "review clause" provides for the examination of the directive's effects 5 years after entry into force. This new proposal is "balanced and reasonable" and provides "concrete answers to Parliament", the Commissioner assured. Here are the main points of the proposal Transparency: companies quoted on the stock exchange will have to publish in their annual report their capital and control structures, as well as their defensive measures. Shareholders in companies targeted by takeover bids will have a deadline for the necessary information in order to make a decision. Those performing takeover bids will have to present an "overall offer" focusing on the whole share portfolio of the company to be taken over.
Adoption of defensive measures: As in the paper rejected by the EP, the draft directive lays out that the directors in a company targeted in a takeover bid have to ask for autoritisation from shareholders, who are duly informed, before they can take defensive measures. The Commissionerr declared that the fundamental principle was that it belongs to owners of the company and not to the managers to decide its fate. Nevertheless, a transition period will allow Member States to postpone the application of this principle for three yeas after the entry into force of the directive. It will therefore not enter into force until 2008. Commissioner Bolkestein indicated that he hoped to get through this through the Member States who were the most worried about the draft directive thanks to this derogation, (Editor's note: Austria).
Neutralisation of defensive measures (breakthrough rules) when the company on offer succeeds with a breakthrough among a majority of shareholders, the directive will allow the the blocking of mechanisms preventing the exercising of the right of proportionate control in its participation. Article 11 of the Directive foresees that no restiction is allowed to the transfer of shares and is written into the statues or the contractual arrangements and which cannot be opposed by the compay taking over during the period authorised for accepting the offer.
Furthermore, all the limits to voting rights will cease to be applied when the general shareholders' assembly of the company targeted has decided on defensive measures. Finally, the special voting rights, which authorise shareholders to nominate or revoke members of the management board, will cease to be applied at the first general assembly following closure of the offer.
Multiple voting rights: A hiatus in the principle of "neutrality", the directive does not allow multiple voting rights associated to certain actions to be blocked. According to Commissioner Bolkestein, these multiple voting rights cannot be blocked without there being expropriation, which is not allowed by the principles of the Treaty. He also remarked that the shares with multiple voting rights are proposed on the market with the agreement of shareholders and buyers. Market analysts say that these multiple voting rights exist mainly in France and in Scandinavian countries (as in the case of Erikson), and allow for the price of shares to be increased, he said. The Commissioner considers that European companies should not be placed at a disadvantage compared to the United States, where more than 400 companies have shares with multiple voting rights.
According to the EP rapporteur and most MEPs, this provision is an anomaly which contradicts the principle of "one share/one vote" and which could block bidding. According to Klaus-Heiner Lehne, the arguments of the Commission's legal services on the right of ownership are not convincing. He therefore decided to appoint two experts to assess the implications of this exception. The rapporteur also felt that the question of fair competition with the United States should be "examined" before the debate.
"For me, the ideal thing would be to reach a democracy founded on the principle of one share/one vote", he said. These rights "upset the market", recognised the Commissioner, but "we can only do one thing at a time". The consequences of this derogation could be re-examined during revision of the directive after five years, he proposed.
Purchase and compulsory sale of minority shares: Article 14 of the directive on "squeeze-out" leaves it up to Member States to define the amount of capital held by the majority shareholder after which minority shareholders would have to sell the majority shareholder their shares. This threshold would be between 90% and 95% of the capital held or 90% of acceptance of the offer. Conversely, Article 15 on sell-out obligations allows minority shareholders to impose acquisition of their shares, when the offering company holds at least 90% of the capital of the company targeted.
Fair price: Seeking to answer the concerns expressed by the EP, Article 5par4 of the Directive specifies that the fair price to be paid during a compulsory buy-out or sell-out must correspond to the highest price paid by the offering company during a period of six to twelve months previous to the bid. Derogation is possible under certain conditions: if there has been market manipulation or if exceptional events have modified market prices in general.
Worker consultation and information: Article 13 of the directive is limited to indicating that the national legislation and the directives on European works councils, collective dismissals and worker information and consultation apply in the case of takeover bids. For left-wing MEPs, this solution does not solve all the problems.
Control authority: The directive makes it compulsory for Member State to set up a control authority, either public or private, responsible for supervising takeover bids. Accordin to market rules, the relevant authority will be that of the State where the target company is quoted, for anything that is concerned with procedure and price issues. According to the rules of the State of origin, the relevant authority will be that of the State where the company has its registered office, for anything concerning questions on worker information and corporate law.