X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
European Union lawmakers approved controversial amendments Wednesday to a long-awaited takeover directive. The changes are certain to open the legislation to months of political haggling and could derail the directive altogether. The directive, which has survived 11 years of political debating among the 15 EU member states, was meant to harmonize laws governing mergers, bolster protections for shareholders and make takeovers easier. However, the document that emerged from the full session of the European Parliament in Strasbourg this week was a compromise forged by a wide range of political interests. In general, the 20 amendments appeared to be a series of trade-offs among competing groups. For example, parties on the left sought to increase protection of employees during takeovers and pressed for amendments such as one that requires targets to act in the interest of safeguarding jobs. In exchange, center-right parties managed to gain support for changes that would help protect national industries from foreign hostile takeovers. Among the most controversial amendments endorsed by the Parliament is a provision that would allow targeted companies to take defensive measures against hostile bids without consulting shareholders. This would be a loophole for targets, allowing them to skirt a directive rule requiring that such moves first win shareholder approval. The loophole states management wouldn’t need shareholder approval if it secured permission from the competent national supervisory authority to enact a defensive measure. This would allow maneuvers like that of Gucci Group NV when it tried to fend off a bid by rival French luxury-products company LVMH Moet Hennessy Louis Vuitton last year without consulting shareholders on its defensive plan to issue shares to ally Pinault-Printemps-Redoute SA. The battle between the two companies is still in court. European Commissioner for the Internal Market Frits Bolkestein has criticized the proposed loophole in a statement: “As a result of this change, management could act to defend their own, potentially narrower interests rather than being obliged to act in the interests of the target company’s shareholders as a whole. Moreover, this change would allow an important source of artificial takeover barriers to remain in place, and so effectively hinder company restructuring on a pan-European level.” Before these amendments were proposed, the text of the directive restricted target companies “from completing any action other than seeking alternative bids which may result in the frustration of the bid,” unless it had consulted with shareholders. The original amendment was the brainchild of Klaus-Heiner Lehne, a center-right German Christian Democrat. Lehne was the “rapporteur,” or chairman, of the Parliament legal committee, which was responsible for formulating many of the proposals before passing the directive to a vote in the full session. Though he proposed allowing companies to take defensive measures without consulting shareholders, opposition in the Parliament committee led to the creation of the loophole — a compromise brokered between a center-right Christian Democrat and Parliament’s socialists. The measure secured the broad backing of Parliament Wednesday, with 335 votes in favor, 183 against and 16 abstentions. But now this amendment is widely expected to force the legislation into a process known as conciliation, which brings Parliament and the 15 EU countries together to hammer out a compromise. The European Commission, the EU’s executive agency and the body responsible for proposing legislation, is the appointed mediator in such procedures. The changes are sure to be rejected by the European Council of Ministers. The Council, which wants to foster competitiveness and consolidation of Europe’s industry, would oppose amendments that create barriers to mergers. Once rejected by the Council, the directive must undergo conciliation, which could last up to four and one-half months. If no agreement is reached, the entire directive must be scrapped and the legislative procedure begun anew. It is unclear whether Parliament and Council will be able to bridge their differences in conciliation. A promising sign is Lehne’s admission that some of the amendments are simply bargaining chips to get what he wants: clarification of the supervisory authorities; increased opportunities for shareholders to meet on defensive measures; and an increased level of legal harmonization. While critics say Lehne is playing a dangerous game that runs the risk of putting the entire directive in peril, Lehne says this is the only way to improve a watered-down directive. U.K. Conservatives, who are generally allied with Lehne’s political group in Parliament, have railed against the amendments. “These changes are dangerous to Britain and bad for Europe,” said Richard Inglewood, a U.K. Conservative and spokesman for his group on the subject. “European industry cannot compete in world markets. It is ring-fenced by protectionist measures.” Like the Conservatives and the Council, the European Commission — the EU’s executive agency — is also unhappy with the amendments. While Commissioner Bolkestein maintained that his agency will nonetheless “try to foster a compromise” in conciliation, he warned of the inherent risks if both Parliament and the Council fail to budge. Said Bolkestein, “We would then have to throw away more than 10 years’ work and start all over again. In other words, the European economy would have to pay the opportunity cost for several more years of being unable to restructure on the basis of clear pan-EU takeover rules.” Copyright (c)2000 TDD, LLC. All rights reserved.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.