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Brussels, 20 November 1997
Company law: amended proposal for a Directive on takeover bids
Rules on information for employees of target companies have been introduced into the revised version of the proposal for a Directive to co-ordinate procedures for takeover bids that has been put forward by the European Commission on the initiative of Single Market Commissioner Mario Monti. The new rules would provide for employees to be kept informed once the bid has been made public and for the offer document to be made available to them. The Directive aims to guarantee legal certainty throughout the EU by means of a minimum level of harmonisation in accordance with the principle of subsidiarity. The proposal has been revised under the codecision procedure in the light of the opinions delivered by the European Parliament and the Economic and Social Committee.
"This amended proposal would put in place a flexible framework so that employees, shareholders, and companies throughout the EU know where they stand when takeover bids are made", said Single Market Commissioner Mario Monti. "I am delighted that we have been able to take on board most of the concerns expressed by the European Parliament, the Economic and Social Committee and other interested parties, while further improving the proposal".
The revised proposal would create a pan-EU framework for takeovers laying down certain basic principles and a limited number of general requirements which Member States should implement through more detailed rules. Thus, the Member States would have considerable freedom to regulate a wide range of matters in accordance with their own national structures and practices. A majority of Member States indicated their preference for such an approach when consulted in 1993.
The aim is to provide an equivalent protection throughout the Union for minority shareholders of companies listed on the stock exchange in the event of a change in control and to provide for minimum guidelines for the conduct of take-over bids, particularly as regards the transparency of the procedure.
The amendments providing for employees to be kept informed once the bid has been made public and for the offer document to be made available to them have
been introduced at the request of the European Parliament. The proposed rules on disclosure with regard to shareholders have also been widened to cover employees. When considering a bid, management would be required, as a general principle, to take into account all the interests of the company, including employment.
In addition, any authorisation by the general meeting of shareholders for the adoption of defensive measures would have to be granted during the period of acceptance of the bid to ensure that the fate of the take-over bid, and therefore the company, was decided by its shareholders. To allow sufficient time for a general meeting of shareholders to be called during the procedure, the Commission has kept the minimum four-week period for acceptance of the bid rather than the two weeks called for by Parliament. This would enable the Member States to provide for a longer minimum period and set a maximum of ten weeks for the period for acceptance of the bid, which would allow enough time to call a general meeting of shareholders.
The amendments also clarify the definition of the offeror (i.e. the person or company making the bid) and supplement the rules to determine which supervisory authority is competent and which country's law is applicable to a particular bid (particularly important in the case of cross-border takeovers). In the case of a partial bid, the amended proposal clarifies that a bid should not be launched for less than 70% of a target company's securities, except in cases authorised by the supervisory authority.
Little risk of increased litigation
The proposed Directive takes very much into account the characteristics of self-regulatory systems. In particular, it addresses the issue of the potential for nuisance or tactical litigation to hinder bids. Therefore, the proposal explicitly encourages the supervisory authority to exercise control in a way which would avoid recourse to administrative or judicial actions. Indeed, the Directive would not affect the power of Member States to designate the authorities responsible for dealing with disputes and for deciding on irregularities committed during the bid procedure, provided that an injured party enjoys adequate remedies.
It has been suggested that adoption of the Directive would mean that aggrieved parties in countries with a self-regulatory system would be more inclined than at present to have recourse to national courts. Such court action, it is argued, would give rise to delays which would act as a strong disincentive to takeovers. However, this view flies in the face of evidence that litigation is already possible under a self-regulatory system, even though it is not common practice. The Directive would not provide any new means for action to delay the bid. Therefore, it is not clear why national courts would change their approach simply as a result of the Directive's implementation.
The possibility of recourse to the Court of Justice, with all the delays that this might entail, has also been raised. Nevertheless, it is important to note that it is national courts that deal with legal challenges instituted on the grounds of breach of Community legislation. These cases are forwarded to the EU's Court of Justice only in the event that the national court seeks clarification on a point of Community law. There is therefore no reason to believe that cases would be referred to the European Court during the course of takeovers, except in exceptional circumstances.
The Commission was prompted to bring forward a new proposal for a Directive on takeover bids in February 1996 (see IP/96/120 and MEMO/96/14) by its commitment to strictly respect the principle of subsidiarity. Indeed, the 1996 proposal was put forward in response to the Commission's undertaking at the Edinburgh European Council in December 1992 to revise its previous proposal for a Directive on takeovers dating from 1989 which attempted detailed harmonisation in this field. The new proposal took into account the results of extensive consultations with the Member States.