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EUROPEAN REVIEW

ISSUE 22 - Page 4

Commission has another try at takeovers directive

THE EUROPEAN COMMISSION HAS presented a new proposal for a directive dealing with company takeovers. Talked about for over 12 years, and given added impetus by the bad behaviour of corporations in several recent cases, the Commission thought they had come up with the answer two years ago (see our issue 12 page 3). But in an unprecedented tied vote, including a member who had joined the previous day and was not on the voting roll, the European Parliament rejected the plan. MEPs had fears about the absence of a 'level playing field' in the proposal, meaning that 'defensive measures' by a company to stop itself being taken over would be outlawed for EU firms but possible in other countries such as the USA.

The new draft law seeks to allay those fears. Company boards will be allowed to defend the firm but only after consultation with shareholders, the Commission also point out that 'three times more capital is flowing from the EU in the direction of the US for takeovers than the reverse at the moment'. Greater transparency and disclosure, the end of restricted voting rights and the requirement to have a general meeting of shareholders look at capital structures every 2 years would ensure that all companies were on an equal footing, they say.

Giuseppe Brienza MEP, whose vote meant a tie in the European Parliament and Commissioner Bolkestein

So much for the rights of shareholders, but how would employees be treated under the new directive ? After all it was the effect on jobs and the community in takeovers like the Vodafone-Mannesmann deal (see issue 10 page 4) that was meant to be addressed by the EU. The first, defeated, proposal would have conferred a whole new set of rights on workers, including the ability to make recommendations to shareholders on the acceptance of a bid. The new one relies on existing legislation like the European Works Councils and Information and Consultation directives to keep employees informed. This not good enough for the ETUC which, in a recent statement, criticised the draft on several counts. Apart from the use of several 'shoulds' instead of the more binding 'shall', the statement called the lack of provision for consultation of employees before a company draws up an opinion on a bid, 'appalling'. It also insisted that existing legislation does not deal with the special circumstance of a takeover and that information and consultation must be specifically written in to any new directive.

Extensive consultations are now going on to make sure that the proposal does not meet the same fate as its predecessor. 'The Takeover Directive is on the boil - now all wise heads have to work together to find a good compromise' in the words of Internal Market Commissioner Frits Bolkestein. In any case the Commission wants it to form part of a single market in financial services by 2005.

The main provisions of the proposals

A full bid (i.e. for all of a company's shares) must be made where there is transfer of control.

An equitable price must be paid to all shareholders under such a bid.

A procedure for a 'squeeze-out right' and a 'sell-out' right for minority shareholders to be bought out or to sell their stake.

Rules on transparency and disclosure, unrestricted voting rights and company meetings to ensure a 'level playing field'

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