The European Commission hopes to replace the confusing patchwork of rules governing mergers and acquisitions across the European Union with clear guidelines for the entire 15-nation block later this year when it unveils a new draft takeover directive.
Given the fact that the last version was in preparation for more than a dozen years and in the end never saw the light of day, this time around policymakers are proceeding much more cautiously. “It’s a very complex area and we want to get it right,” a Commission spokesman recently told journalists in Brussels. While the EU executive has refrained from giving a precise timetable, it is widely expected to hold off until well after September’s national elections in Germany, the country that led opposition to the previous draft amid concerns that the rules would leave its most valued companies vulnerable to takeovers while protecting companies in other countries.
Last summer, a divided European Parliament voted down the Commission’s proposal, adding some 20 amendments of its own. Among other things, MEPs complained about the lack of measures aimed at protecting employees in case of a takeover bid and the absence of a harmonized definition of the ‘equitable price’ to be paid in case of a mandatory bid.
Rather than give up, the Commission pledged to come forward with a new proposal as soon as possible. Internal Market Commissioner Frits Bolkestein, who is behind the initiative, set up a high level group of company law experts to address the problems cited by the Parliament and more generally to assess ways of modernizing European company law. The seven-member panel, also known as the ‘Wise Men,’ was asked to look at three specific issues: how to ensure a level playing field across the 15-nation EU concerning the equal treatment of shareholders in all countries; the definition of the notion of ‘equitable price’ to be paid to minority shareholders; and a majority shareholder’s right to buy out minority shareholders through a so-called squeeze-out procedure.
In its 97-page report published in January, the panel recommended that takeover bids be guided by two principles: that in the event of a takeover bid the ultimate decisions rest with the shareholders; and that there be proportionality between risk-bearing capital and control of the company. It also suggested a break-through rule which would allow a bidder who has acquired 75% or more of risk-bearing capital in a company to essentially be able to exercise voting rights and determine the composition of the company’s board and constitution.
German Christian Democrat MEP Klaus-Heiner Lehne, who led opposition to the Commission’s last proposal, has said that if the break-through rule suggested by the Wise Men were accepted it would be a “step in the right direction.” But Lehne and German industry lobby BDI are vehemently opposed to any proposal which would allow for any exemptions to this rule. German industry is also against banning golden shares, or special veto voting rights often by governments in national companies being privatized, but allowing multiple voting rights.