Corporate activity across Europe is on the up. Markets, stock exchanges, and companies are merging to form more powerful pan-European and truly multinational structures. Although company law in Europe remains a matter for the individual Member States, EU rules have been adopted to help facilitate the setting up and operation of companies within the Single European Market. The latest (13th) EU Companies Directive, under discussion for the last decade, addresses corporate activity in the form of take-over bids and is due for adoption before the end of this year. Member States are then likely to then have 18 months to transpose the provisions into their national laws.
The need for some minimum EU rules on take-overs has been precipitated by the numerous obstacles facing companies who are looking to make cross-border corporate acquisitions. For example, national company law rules in some Member States allow directors to use a range of defensive measures without the prior consent of the share-holders when subjected to a hostile bid. In such cases, there is often a risk of conflict in the sense that directors may act in their own interests rather than in the interests of the company and the shareholders. Equally, heavily armoured company statutes and share dealings concentrating company ownership can also be used to frustrate hostile bids.
The new Directive sets a number of minimum rules to facilitate take-overs, whilst at the same time protecting the interests of the minority shareholders of the target company. It establishes the following general principles, which are based on the same principles as the UK City Code:
*all investors holding the same class of share must be treated equally;
*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;
*the board of the target company must act in the interests of the company as a whole and must not deny the 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 and that it has taken all reasonable measures to ensure
*that it can fulfil any other type of consideration; and
*the bid should not unreasonably hinder the operation of the target company.
The countries most affected by these new measures will be the Netherlands, Spain and Germany, either as a result of a general "cultural" negativity to hostile take-overs (note the German reaction to the Vodafone Airtouch bid for Mannesman), or to specific measures permitted under their national laws. In the UK, the take-overs market will be affected to the extent that the existing voluntary City Code will have to incorporated into binding legislation, a move that has been traditionally opposed by companies fearing that mandatory rules would discourage and slow down take-over activity.
The Directive has been broadly welcomed by the Member States. One criticism, however, is that it focuses on post-bid measures and does not address the less transparent issue of pre-bid defences, such as the issuing of preemptive shares. Indeed, the new restrictions on post-bid measures may well lead to an increasingly inventive use of pre-bid defensive measures. Despite this criticism, however, the Directive is likely to open up the European market to increased take-over activity by removing obstacles currently hindering cross-border dealings.
The information and opinions contained in this publication are provided by national law firm Hammond Suddards Edge. They should not be applied to any particular set of facts without seeking appropriate legal or other professional advice.
