Brussels, 16/11/2007 (Agence Europe) - The European Commission has decided to send Hungary a letter of formal notice concerning its Act CXVI of 2007 "amending certain acts relating to companies of particular importance for the security of public supply", which is considered incompatible with EC law. The Commission explains in a press release that it 'is concerned that the law may contain unjustified restrictions on the free movement of capital and right of establishment, by (i) introducing onerous requirements for public takeover bids and (ii) allowing public authorities to appoint a member on the boards of energy companies with the right to participate in the management and the control of the companies concerned.'
According to the Commission, the fact that the said Act 'prescribes that, in the case of public takeover bids for a company of strategic importance for energy and water supply sectors, the operational plan that must accompany the public takeover bid has to be approved by the supreme body of the bidder before submission of the bid to the Hungarian authorities. This means that the bidder's intentions would become publicly known well in advance. In turn this would eliminate the surprise effect of the bid, may substantially increase the bid price and thereby obstruct the take over attempt. This provision appears neither suitable to attain legitimate aims to safeguard the security of energy and water supply, nor proportionate, since the competent Hungarian authorities will in any case have the right to investigate and, if necessary, mitigate the business plans for the target company, once the bid is placed.'
The Act would also extend special rights which the Commission feels are incompatible with the European Treaty, for example by preventing the application of the "breakthrough rule" (which nullifies voting limitations when a target company decides on a take-over bid) in companies where the state holds preference shares. (M.B.)