EU Takeover Directive - The EU Commission tries again

United Kingdom
On 4 July this year the European Parliament rejected the European Union's proposed Thirteenth Directive on company law concerning takeover bids. The Directive sought to provide adequate protection of shareholders throughout the European Union through some basic rules for the conduct of bids for any EU company listed within the Union. This stance by the European Parliament alarmed many commentators, including some MEPs and European Commission officials, who feared it would send out a hostile signal to overseas investors about the European Union's view on bids for its companies.

However, it now appears that the European Commission is trying to resurrect the idea that there should be an EU wide framework for the regulation of takeover bids. The Commission has set up a group of company law experts that it hopes will help it to prepare a new proposal for a directive on the conduct of takeover bids and to define new priorities for the broader future development of company law in the European Union. The expert group, which comprises seven members, is scheduled to hold its first meeting on 11 September with the aim of delivering a preliminary report on its recommendations concerning rules for takeover bids by the end of 2001 and a final report concerning broader issues for the development of EU company law by the middle of 2002.

In its deliberations, the expert group will initially consider the following three issues taking into account the positions of the EU's Council of Ministers and the European Parliament during the last stages of negotiation of the previous proposal for a Takeover Directive:-

  • how to ensure the existence of a level playing field in the EU concerning the equal treatment of shareholders across member states;
  • the definition of the notion of an "equitable price" to be paid to minority shareholders (presumably this is in connection with a mandatory bid); and
  • the right for a majority shareholder to buy out minority shareholders (commonly referred to as the "squeeze-out procedure").
Back at the beginning of June, when the delegations from the Council of Ministers and the European Parliament to the Conciliation Committee finally reached agreement on the previous proposal for the Takeover Directive, the European Commission had announced a proposal to set up a committee of company law experts to look at the above three areas. Of course this was in the context of assuming the Takeover Directive would be implemented. For more detailed information on the outcome of the conciliation procedure click here.

Frits Bolkestein, the Internal Market Commissioner is quoted as saying that a clear set of pan-EU rules for the conduct of takeovers will benefit European companies and shareholders, especially minority shareholders, by clarifying their rights and obligations whilst also facilitating the goals set by the Lisbon Summit of restructuring the European economy to make it the most competitive in the world by 2010.

If everything goes according to plan, the European Commission expects to bring forward a new draft proposal for a Takeover Directive in the early part of 2002, based in part on the recommendations of the expert group. It will be interesting to see whether or not any new proposal is more successful than the last, when over 12 years of on and off negotiations failed to reach agreement. There will be particular interest in whether or not any new proposal seeks to take account of the concerns many MEPs had that the original proposal, which required target boards to seek the prior approval of shareholders before implementing any poison pills, had the effect of creating an unlevel playing field for corporate takeovers, particularly as between the United States and the EU. If there is a watering down of the anti-poison pill rules then questions will be raised as to whether or not any new legislation would serve any useful purpose as a mechanism to provide adequate protection for shareholders throughout the European Union.

If you would like further information, please contact Nick Callister Radcliffe a corporate partner at CMS Cameron McKenna and former secretary to the UK Takeover Panel Executive. Phone: 44 (0)20 7367 2394 e-mail: ncr@cms-cmck.com