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The EU wishes to offer European businesses greater legal certainty with regard to takeover bids * while protecting the interests of shareholders (and particularly minority shareholders), employees and any other interested parties. It is using a directive to introduce transparent rules that will apply throughout the EU to cross-border takeover bids, in the interests of all concerned. This means, for example, strengthening the rules on informing shareholders about bids (period for acceptance, consideration, financing of the bid, etc.) The EU is also promoting corporate restructuring to help boost the competitiveness of the European market.
European Parliament and Council Directive 2004/25/EC of 21 April 2004 on takeover bids.
The Directive sets out to establish minimum guidelines for the conduct of takeover bids involving the securities * of companies governed by the laws of Member States, where all or some of those securities are admitted to trading on a regulated market. It also seeks to provide an adequate level of protection for holders of securities throughout the Community, by establishing a framework of common principles and general requirements which Member States are to implement through more detailed rules in accordance with their national systems and their cultural contexts. Member States are required to transpose the Directive no later than two years after its entry into force.
The Directive lays down measures coordinating the laws, regulations, administrative provisions, codes of practice and other arrangements of the Member States, including arrangements established by organisations officially authorised to regulate the markets relating to takeover bids for the securities of companies governed by the laws of Member States (hereinafter referred to as "rules"), where all or some of those securities are admitted to trading on a regulated market within the meaning of Directive 93/22/EEC in one or more Member States (hereinafter referred to as a "regulated market").
The Directive does not apply to takeover bids for securities issued by companies whose object is the collective investment of capital provided by the public, which operate on the principle of risk spreading and the units of which are, at the holder's request, repurchased or redeemed, directly or indirectly, out of the assets of those companies. Action taken by such companies to ensure that the stock exchange value of their units does not vary significantly from their net asset value are regarded as equivalent to such repurchase or redemption.
The Directive does not apply to takeover bids for securities issued by the Member States' central banks.
The Member States must ensure that the following principles are complied with:
- all holders of securities of the offeree company * must be given equal treatment; if a person acquires control of a company, the other holders of securities must be protected;
- the addressees of the bid must have sufficient time and information to be able to reach a properly informed decision on the bid; where it advises the holders of securities, the board of the offeree company must give its views on the effects of implementation of the bid on employment, the conditions of employment and the locations of the company's places of business;
- the board of the offeree company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid;
- false markets must not be created in the securities of the offeree company, of the offeror company * or of any other company concerned by the bid in such a way that the rise or fall in the prices of the securities becomes artificial and the normal functioning of the market is distorted;
- an offeror must announce a bid only after ensuring that he can fulfil in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration;
- an offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.
For the regulation of bids, Member States may lay down additional conditions and provisions more stringent than those of the Directive.
Supervisory authority and applicable law
Member States are to designate the authority or authorities competent to supervise bids. The authorities thus designated must be either public authorities, associations or private bodies recognised by national law or by public authorities expressly empowered for that purpose by national law. Member States must inform the Commission of those designations. They must ensure that those authorities exercise their functions impartially and independently of all parties to a bid.
The authority competent to supervise a bid is that of the Member State in which the offeree company has its registered office if that company's securities are admitted to trading on a regulated market in that Member State. In all other cases (e.g. where securities are not admitted or are admitted to trading on more than one regulated market), the Directive lays down rules for deciding the competent supervisory authority.
Member States must ensure that all persons employed or formerly employed by their supervisory authorities are bound by professional secrecy.
The supervisory authorities and the authorities responsible for supervising capital markets must cooperate and supply each other with information. Information thus exchanged will be covered by the rules of professional secrecy.
Protection of minority shareholders, mandatory bid and equitable price *
Where a natural or legal person, as a result of his own acquisition or the acquisition by persons acting in concert with him *, holds securities of a company which give him a specified percentage of voting rights in that company, giving him control of that company, Member States must ensure that such a person is required to make a bid as a means of protecting the minority shareholders of that company. Such a bid must be addressed at the earliest opportunity to all the holders of those securities for all their holdings at the equitable price.
Where control has been acquired following a voluntary bid to all the holders of securities for all their holdings, the obligation to launch a bid no longer applies.
The percentage of voting rights which confers control and the method of its calculation must be determined by the rules of the Member State in which the company has its registered office.
The supervisory authorities may be authorised by Member States to adjust the equitable price, in circumstances and in accordance with criteria that are clearly determined. Any such decision must be substantiated and made public.
By way of consideration the offeror may offer securities, cash or a combination of both. Where the consideration does not consist of liquid securities admitted to trading on a regulated market, it must include a cash alternative.
Member States may provide that a cash consideration must be offered, at least as an alternative, in all cases.
Information concerning bids
Member States must ensure that a decision to make a bid is made public without delay and that the supervisory authority is informed of the bid. They must also ensure that an offeror is required to draw up and make public in good time an offer document containing the information necessary to enable the holders of the offeree company's securities to reach a properly informed decision on the bid.
The Directive lays down the minimum information that the offer document must contain. It must, for example, state the terms of the bid, the identity of the offeror, the consideration offered and the maximum and minimum percentages or quantities of securities which the offeror undertakes to acquire; it must also state the conditions to which the bid is subject, the offeror's intentions with regard to the future business of the offeree company, the time allowed for acceptance of the bid and the national law which will govern the contract.
The Directive requires that employees or representatives of the offeree company must be informed in detail in the event of a takeover bid. It even extends the obligation to inform or consult staff to the employees of the offeror company. It also expressly stipulates that information for and consultation of employees must be in line with the relevant national provisions and with the various Community provisions adopted in this field, such as Directive 94/45/EC on European Works Councils, Directive 98/59/EC on collective redundancies and Directive 2002/14/EC on informing and consulting employees.
Time allowed for acceptance
Member States must provide that the time allowed for the acceptance of a bid may not be less than two weeks or more than ten weeks from the date of publication of the offer document. In certain circumstances, they may provide that the period of ten weeks may be extended.
Obligations of the board of the offeree company
Although the Directive does provide for arrangements in this area, it leaves it up to Member States whether or not to apply them. The requirement that the board of the offeree company must obtain the prior authorisation of its shareholders before taking any defensive action is thus optional. Member States leave it up to the companies themselves to decide whether or not to apply this rule.
The requirement to freeze members' extraordinary rights (such as multiple voting rights, appointment rights and restrictions on the transfer of securities) during the bid is also optional. Member States leave it up to the companies themselves to decide whether or not to apply this rule.
Other rules applicable to the conduct of bids
Member States must lay down rules governing the conduct of bids, at least as regards the following:
- the lapsing of bids;
- the revision of bids;
- competing bids;
- the disclosure of the results of bids;
- the irrevocability of bids and the conditions permitted.
Right of squeeze-out
The Directive provides for a "squeeze-out right" enabling a majority shareholder to require the remaining minority shareholders to sell him their securities. Member States must ensure that an offeror is able to require all the holders of the remaining securities to sell him those securities at a fair price.
Member States must introduce the squeeze-out right in one of the following situations:
- where the offeror holds securities representing not less than 90 % of the capital carrying voting rights in the offeree company. Member States may set a higher threshold that may not, however, be higher than 95 % of the capital carrying voting rights and 95 % of the voting rights;
- where, following acceptance of the bid, he has acquired or firmly contracted to acquire securities representing not less than 90 % of the capital carrying voting rights and 90 % of the voting rights comprised in the bid.
If the offeror wishes to exercise the right of squeeze-out, he must do so within three months of the end of the time allowed for acceptance of the bid. Member States must ensure that a fair price is guaranteed.
Right of sell-out
The right of squeeze-out is combined with a "sell-out right" enabling minority shareholders to require the majority shareholder to buy their securities following a takeover bid. Member States must ensure that a holder of remaining securities is able to require the offeror to buy his securities from him at a fair price.
Transposition and revision clause
Member States have two years to transpose the Directive (by 20 May 2006 at the latest). A revision clause stipulates that the Commission may propose a revision of the text five years after the deadline for transposing the Directive, in the light of experience acquired in applying it.
To that end, Member States will provide the Commission annually with information on the takeover bids launched against companies having securities admitted to trading on their regulated markets.
The Directive is a key component of the Financial Services Action Plan. The Lisbon European Council (March 2000) placed it among the main priorities as regards the integration of EU financial markets by 2005.
The previous proposal for a directive on takeover bids was rejected by Parliament in July 2001, after twelve years of negotiation: a conciliation procedure between Parliament and the Council had produced a compromise text but, when this was put to a plenary sitting of Parliament, an equal number voted for and against, and the compromise text was therefore rejected. This vote was motivated mainly by:
- concerns over the obligation on the board of the offeree company to obtain the approval of shareholders before taking any defensive action against the bid;
- misunderstanding that this obligation on the board to remain impartial meant that the offeree company was unable to defend itself and, consequently, fear that European companies would be left vulnerable to being taken over by US companies in particular or, quite simply, by firms in other Member States;
- regret that the protection which the Directive would afford employees of companies involved in a takeover bid was insufficient.
Following the rejection of the proposal, the Commission set up a Group of High-Level Company Law Experts under the chairmanship of Professor Jaap Winter with the task of presenting suggestions for resolving the issues raised by Parliament. The present Directive takes broad account of the recommendations made by the Group in its report on issues related to takeover bids (pdf ), published in January 2002.
|Key terms used in the act|
|Takeover bid: a public offer (other than by the offeree company itself) made to the holders of the securities of a company to acquire all or some of those securities, whether mandatory or voluntary, which follows or has as its objective the acquisition of control of the offeree company in accordance with national law.
Securities: transferable securities carrying voting rights in a company.
Offeree company: a company whose securities are the subject of a bid.
Offeror: any natural or legal person governed by public or private law making a bid.
Equitable price: the highest price paid for the same securities by the offeror, or by persons acting in concert with him, over a period, to be determined by the Member States, of not less than six months and not more than twelve before the bid. If, after the bid has been made public and before the offer closes for acceptance, the offeror or any person acting in concert with him purchases securities at a price higher than the offer price, the offeror must increase his offer so that it is not less than the highest price paid for the securities so acquired.
Persons acting in concert: natural or legal persons who cooperate with the offeror or the offeree company on the basis of an agreement, either express or tacit, either oral or written, aimed either at acquiring control of the offeree company or at frustrating the successful outcome of a bid.
|Act||Entry into force||Deadline for transposition in the Member States||Official Journal|
|Directive 2004/25/EC [adoption: codecision COD/2002/0240]||20.05.2004||20.05.2006||OJ L 142 of 30.04.2004|