28 April 2003

FT on Takeover: Directive to fall at last hurdle

The 18-year-old marathon to harmonise European takeover rules is running out of stamina. And unless the Commission and its member states can find a final burst of energy, the 13th directive is likely to collapse before ever reaching the finishing line.

With the possible exception of Fritz Bolkenstein, the internal market commissioner, and his Brussels team - who appear to be making the issue a personal matter - the prevailing attitude to the directive's failure to finish the course appears to be: so what?

As on previous occasions, some furious lobbying is taking place before a meeting of the Competitiveness Council called for May 19 to discuss the various last-ditch compromise proposals to salvage the directive.

This could clear the way for a vote in the European Council before the summer holidays. Should the vote be delayed, let alone go against the directive for a second time in two years, that would be the end of the story.

Everybody agrees on the need for greater transparency, greater protection of the interests of minority shareholders, and creating, to use the ugly jargon, a 'level playing-field' in the European market for corporate control. But not everybody agrees - especially in France, Germany or Sweden - on what many suspect to be the true motive of the directive: to encourage hostile takeovers in Europe and stimulate cross-border mergers.

Recent efforts to conciliate the differing European positions have remained blocked on two specific issues embodied in articles 9 and 11 of the proposed revised directive. Article 9 aims to ensure that all shareholders are given the right to decide on defensive measures once a takeover is made public. In other words, the board needs the approval of a shareholders' meeting before it can implement any poison pill. Article 11 is designed to neutralise all pre-bid defences by imposing restrictions on multiple voting rights or the transfer of securities.

Countries such as France and Germany have objected to article 9 because they claim that the boards of US companies can avail themselves of an arsenal of defences, such as issuing new shares, without calling a shareholders meeting. As for article 11, the Swedes claim elimination of multiple voting rights would be tantamount to an expropriation and damaging destabilisation of a sound company's long-term strategy.

Jean-Louis Beffa, the chairman of Saint-Gobain and the longest serving 'patron' of a large CAC 40 French blue chip company, does not mince his words. Investment bankers and arbitrageurs have long campaigned for the takeover directive, he argues, because it is in their interest that hostile takeovers succeed. Preventing boards from taking defensive action until such measures are approved by shareholders plays into the hands of speculators who have every interest in maintaining high volatility in a target company's share price.

Mr Beffa is even more appalled at the idea of cancelling French double voting rights. In France, he points out, shareholders are given double voting rights if they hold on to their shares for more than two years. 'The system is useful because it allows a company to have long-term shareholders to offset the high volatility in share prices these days,' he says. In any event, a takeover directive should not be a tool to restructure and harmonise a series of European business models which have so far prospered thanks to their regional, national and cultural specificity. He has a point.

A recent debate hosted by the Saint-Gobain Centre for Economic Studies also left little doubt over the strength of opposition to the directive. A Dutch Socialist member of the European parliament questioned the premise that hostile takeovers were financially profitable. An executive board member of the Bundesbank asserted that two-thirds of recent takeover bids caused a fall in production by the new combined entity. A French independent member of the European parliament said he would not support a directive opening the door to US raiders. And so on...

Even a UK Liberal-Democrat member of the European parliament, who argued in favour of the directive, ended up accepting that the proposal was incomplete, partial and failed to cover many distortions. He concluded that he 'certainly would not shed a tear if the directive did not pass'.

Nor, it seems, would a good number of other people across the continent of Europe - except perhaps Mr Bolkenstein

© FT plc