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Brussels, 19 June 2000

Company law: Commission welcomes Common Position on the takeovers Directive

The European Commission has welcomed the adoption by the Council of Ministers on June 19th of a Common Position on the Directive on takeover bids. This Directive is part of the EU's Financial Services Action Plan and is an important element in achieving the target of a single market in financial services by 2005, set by the Lisbon European Summit. It will guarantee legal certainty for takeovers by setting minimum guidelines for corporate conduct. In particular, it aims to ensure an adequate level of protection for minority shareholders throughout the Union when control of a company changes. Under the co-decision procedure the Directive will now be sent to the European Parliament for a second reading, which must be completed by the end of October.

Internal Market Commissioner Frits Bolkestein said: "This Directive has been in the pipeline for more than a decade and I am delighted that it has finally met with Member States' approval. It is a key element in the creation of a fully integrated market in financial services. Investors and consumers want more choice, greater liquidity and lower business costs within a sound prudential framework. They want to buy and sell across frontiers with one set of uniformly enforced common rules. Adoption of this Directive is a big step in this direction. A step recognised by the Lisbon Summit as essential if Europe is to reap the full benefits of the New Economy."

General principles laid down by the Directive

Once adopted and implemented, the Directive will establish certain basic principles so as to tackle potential barriers to cross-border mergers and acquisitions activity at a time when, to take full advantage of a buoyant economy and the advantages of the single currency, companies are increasingly looking to invest across frontiers. In particular, under the proposed Directive:

  • All investors holding the same class of shares must be equally treated, particularly when there is a change of control within the company (currently several Member States do not require a full bid if control is transferred);

  • Shareholders in the target company must be given enough time and sufficient information to enable them to reach a properly informed decision on the bid (currently some Member States allow the target company to take defensive measures without the prior consent of shareholders);

  • The board of the target company must act in the interests of the company as a whole and must not deny shareholders the opportunity to decide on the merits of the offer;

  • False markets must not be created in the shares of the target company;

  • The bid cannot be announced until the bidder has ensured that it can fulfil in full any cash consideration if offered and that it has taken all reasonable measures to ensure it can fulfil any other type of consideration;

  • A takeover bid should not unreasonably hinder the operation of the target company.

The proposed Directive will give Member States the flexibility to reflect national practice and corporate culture in drafting the detailed rules implementing these general provisions into national law.

Protection of minority shareholders

The proposed Directive is designed to ensure an adequate level of protection for minority shareholders across the Union in the case of a change of company control. To ensure this, Member States are obliged to require that bidders in such cases make a full bid for all the shares at an equitable price. This raises the issue of alternative compensation. A compromise has been found that protects shareholders in the target company without making large takeovers more difficult, by ensuring that when the compensation offered by the bidder does not consist of liquid securities, alternative compensation has to include some cash as an alternative.


Transparency is a means of ensuring that all parties with an interest in the bid are treated equally. The Directive therefore lays down obligations regarding information and publication of bids. These obligations, binding on both to the target company and the bidder, apply to information that must be supplied to the supervisory authorities, shareholders and employees. Member States must ensure that bids are made public without delay and that the supervisory authority is informed of the bid. They may require that the authority is advised before the bid is made public. As soon as it is public, the board of the target company must inform its employees, either through their representatives or directly. An offer document containing the information necessary to enable shareholders in the target company to reach a properly informed decision on the bid must be made public.


An important element of this Directive is the obligation on Member States to appoint one or more supervisory authorities. These bodies have wide powers of investigation and decision. In the case of cross-border takeovers, the Directive establishes which supervisory authority is competent and which country's law is applicable to a particular bid. In general, the rules of the target company's Member State of origin pertain, but the Directive also estalishes a legal framework for cases where a target company is not listed in the company's state of origin.

Protection of shareholder' interests

As well as the obligation to inform shareholders and employees, the board of the target company is obliged to act neutrally and may not take any action, other than seeking alternative bids, which may cause the bid to fail, without first getting the prior authorisation of a general meeting of shareholders during the period of acceptance of the bid.

To allow sufficient time for a general meeting to be called, the Directive provides for an acceptance period (to be specified in the offer document) of not less than two week and not more than 10 weeks from the date the offer document is published. Member States may modify the length of this period in specific appropriate cases.

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