Following the narrow rejection by the European Parliament in July
2001 of the European Commission's previous proposal for a directive
on takeover bids, some commentators were sceptical as to whether a
Takeover Directive would ever make it through the Parliament. The
Commission has recently presented a new proposal intended to meet
the Parliament's concerns without compromising the principles
approved unanimously by the Council of Ministers.
In particular, the new proposal:
- permits the UK to preserve the position of the Takeover Panel
as non-statutory regulator of takeover bids, and the existing rules
as to when the Panel's decisions are capable of being over turned
(Article 4);
- leaves it to individual member states to determine the
appropriate voting control threshold to trigger the obligation to
make a mandatory bid (Article 5); and
- requires that once a bid has been announced target shareholders
must approve in advance any frustrating action proposed by the
board (Article 9).
New provisions
The principal new provisions are:
- the setting of the price to be paid in a mandatory bid (the
"equitable price") at the highest price paid by the offeror, or by
persons acting in concert with the offeror, over a period of
between six and 12 months preceding the announcement of the offer.
Member states will have the flexibility to permit their supervisory
authorities to adjust the price (up or down) provided the
circumstances and criteria for such adjustments are clearly
defined. The supervisory authority will be required to publish its
reasons for any such decision (Article 5);
- a new transparency requirement requiring disclosure in a
company's annual report of details of structures and measures that
could hinder the acquisition and exercise of control over the
company by an offeror. Companies must allow their shareholders to
vote on the suitability of these potentially frustrating mechanisms
at least once every two years and the company's board will be
required to state the reasons for them (Article 10);
- a "break-through" right aimed at removing potential barriers to
takeovers, particularly where management has entrenched rights. The
new proposal allows the offeror to break through mechanisms and
structures that might frustrate a bid. It requires that during the
period when an offer is open for acceptance any restrictions in the
articles of association or in any contractual agreement between the
target and its shareholders (or between shareholders themselves) on
the ownership of, or the transfer of, securities will be
unenforceable against the offeror. In addition, any restrictions on
voting rights (whether contained in the articles of association or
in any contractual agreement) will cease to have effect at any
shareholder meeting convened to decide on any defensive measures
proposed by the target board. Where an offeror's holding is such
that, under the applicable national law, it would normally be able
to amend the target's articles of association, any restrictions on
transfers of securities or on voting rights, as well as any special
shareholder rights to control the appointment or removal of board
members, will be overridden. The successful offeror will be able to
convene a general meeting to change the articles and board in
accordance with national law and any restrictions as to his
ownership of securities or to his voting rights will be disapplied
(Article 11). Although the Article itself is not clear on the
point, the Explanatory Memorandum states that these provisions do
not concern securities carrying double or multiple voting rights;
- a "squeeze-out" right that will enable an offeror compulsorily
to acquire the shares held by any remaining minority shareholders
at a fair price (which in most cases will be presumed to be the
consideration offered in the bid). The threshold for triggering the
squeeze-out right is either determined by reference to the capital
of the target held (90 per cent) or arises where the offeror has
acquired through acceptances of the bid not less than 90 per cent
of the capital which is the subject of the bid (although a higher
threshold of 95 per cent can be set by member states). If a target
has more than one class of share capital the rule applies to each
class separately (Article 14); and
- a "sell-out" right that will enable minority shareholders,
following the takeover bid, to require the majority shareholder
(the offeror) holding 90 per cent or more of the capital to buy
their securities at the same fair price. A higher threshold is
permitted to be set by member states but must not exceed 95 per
cent (Article 15).
Will the directive be accepted?
The new proposal does not take up all the
recommendations of the Winter Report (produced by the group of
company law experts set up by the Commission following the
rejection of the previous proposal), especially as regards the
creation of a level playing field for companies facing takeover
bids. In particular, it does not regulate the exercise of multiple
voting rights. The Commission states that it received strong
representations from member states and interested parties about the
constitutional problems resulting from the suppression of multiple
voting rights, especially if no compensation were provided for the
loss of these rights. It also contends that there is "evidence that
the existence of multiple voting rights has not resulted in
relatively less takeover activity in the countries concerned". The
Commission further argues that, because shares with such rights can
also be listed and purchased in the market at a different price,
they have proven to be a useful financing mechanism for bringing
companies to listing.
It should be noted that the new proposal does not
regulate the issue of shares with special control rights ("golden
shares") held by member states in privatised companies, or other
special control rights of member states contained in national laws
- the Commission considers these to be governed by the rules on the
free movement of capital in the EC treaty (Article 56) and the case
law of the European Court of Justice. Although the new proposal
does move further towards the creation of a level playing field
within the EU there will still be an uneven playing field between
Europe and the US, where "poison pill" measures are common. The
lack of a level playing field, particularly with the US, was a
prime consideration in the Parliament's rejection of the original
version of the Directive. The Parliament considered then that until
there was a level playing field for companies within the EU facing
takeover bids, it was not right that, during a bid, the target
board could not take "frustrating" action without first obtaining
shareholder approval.
Despite the Commission noting that protection of
employees was another key consideration in the Parliament's
rejection of the original version of the Directive, the new
proposal does not introduce any new information or consultation
rights for employees. Instead, Article 13 refers to the need to
apply national law in this area and draws attention to measures
implemented under Directives 94/45/EC (on European Works Councils),
98/59/EC (on collective redundancies) and 2002/14/EC (on informing
and consulting employees).
As not all of the Parliament's concerns in relation
to protection of employees, neutralisation of defensive measures
and the creation of a level playing field have been addressed, it
remains uncertain as to whether the Parliament will approve the new
version of the Directive.
For further information please contact Ian Stevens
at [email protected] or on +44 (0)20 7367 2597.