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Brussels, 2nd October 2002

Company law: Commission proposes a transparent framework for takeover bids

The European Commission today presented its new proposal for a Directive laying down common rules for takeover bids. The proposal sets out to offer European firms greater legal certainty for cross-border takeover bids in the interests of all concerned, including their employees, and to protect minority shareholders where control of a company changes hands. To provide a framework for such corporate restructuring, which involves the laws and the authorities of more than one Member State, action at Union level is the only way to enable progress. That is why, although the previous proposal was rejected by the European Parliament in July 2001, the Commission has remained convinced of the need for an EU Directive on takeover bids and has spared no effort in order to come forward as soon as possible with a new proposal that is likely to meet with the approval of the Council and Parliament.

Internal Market Commissioner Frits Bolkestein said: "The aim of this proposal is to enable takeover bids to be made in the EU under the best possible conditions for all those concerned. This Directive has always been an essential step towards the objective of fully integrating European capital markets by 2005; it is a key element in our drive to make Europe the most competitive economy in the world by 2010. The new proposal provides concrete responses to the concerns raised by the European Parliament when it rejected the previous proposal last year. I am firmly convinced that this proposal now has every chance of being swiftly adopted by the Council and Parliament. It is a balanced and reasonable text which steers clear of the pitfalls of extreme positions that could have consigned us to Dante's Inferno with no exit. It is the fruit of wide-ranging consultations with European experts and all interested parties. We must now move forward and I hope I can count on all those involved in the decision-making process to make rapid headway".

The new proposal is intended to meet Parliament's concerns without compromising the basic principles approved unanimously in the Council's common position concerning the previous proposal. Those principles are:

  • all holders of securities of the offeree company who are in identical situations must be given equal treatment

  • the addressees of the bid must have sufficient time and information to be able to reach a properly informed decision on the bid

  • the board of the offeree company must act in the interests of the company as a whole

  • 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

  • an offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

New ideas

The new proposal pursues the same objectives as its predecessor: alongside the general objectives of integrating European markets in line with the Financial Services Action Plan and undertaking harmonisation conducive to corporate restructuring, it sets out to strengthen the legal certainty of cross-border takeover bids in the interests of all concerned and to ensure protection for minority shareholders in the course of such transactions.

The new proposal also has the same scope and lays down the same basic principles as its predecessor. In particular, the rule that the board of the offeree company must obtain the shareholders' authorisation before launching defensive measures has been retained, as it is considered essential that the future of the company should be decided by the people who own it.

However, the new proposal has been supplemented in such a way as to meet the concerns voiced by Parliament. The proposal here follows the recommendations set out for the Commission in the Jaap Winter Group Report (see below and IP/02/24) as regards a common definition of the "equitable price" in a mandatory bid and the introduction of a squeeze-out right enabling a majority shareholder to require the remaining minority shareholders to sell him their securities. This is combined with a sell-out right enabling minority shareholders to require the majority shareholder to buy their securities following a takeover bid.

As regards more specifically the removal of barriers to takeover bids in Europe, the new proposal would require greater transparency concerning companies' capital structure and control and the defensive mechanisms they have put in place, and would introduce a break-through rule whereby structural defensive measures were neutralised following a successful takeover bid. This rule would apply to restrictions on the transfer of securities and voting rights but would not encroach on anyone's acquired rights, so as not to raise legal or even constitutional problems that would be intractable in most Member States.

Reference is also made to the rights to information and consultation of employees of the companies concerned, which are in no way weakened.

A step forward

The proposal represents a consistent approach that is the most realistic as things stand. The requirement for greater transparency, combined with the unenforceability of measures that could result in inappropriate protection of management should together enable significant progress to be made towards the removal of barriers to takeover bids called for by the European Parliament, without undermining the competitive position of European businesses vis-à-vis their counterparts in non-member countries, and in particular the United States. This is a first step; the revision provided for by the proposal will afford an opportunity for examining whether other initiatives could be taken with a view to removing barriers to takeover bids.


The previous proposal for a Directive on takeover bids was rejected by Parliament in July 2001, after 12 years of negotiation: a conciliation procedure between Parliament and the Council had produced a compromise text, but when this was put to the vote at a plenary sitting of Parliament there was no majority (273 MEPs voted for and 273 against) (see IP/01/943). Contributing factors to 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; and

  • the misconception 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.

Following that vote, 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. In preparing the present proposal, the Commission has taken broad account of the recommendations made by the Group in its report on issues related to takeover bids, which was published in January 2002 (IP/02/24).

The text of the new proposal will be available on the Europa website: also MEMO/02/201.

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