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An odd alliance of European socialists and a center-right German member of the European Parliament are gambling that a blizzard of last-minute amendments to Europe’s long-awaited Takeover Directive will preserve more defenses for companies facing hostile bids. But the 19 changes on the table are so problematic that they could kill off the takeover measure altogether — after European governments and bureaucrats struggled 11 years to craft the directive. The changes will go before the European legislature next week. The European Commission, the EU’s executive agency responsible for proposing legislation for the 15-member bloc, hasn’t hidden its frustration about what these members of parliament are trying to do. “It’s just not the time to come with them,” said a Commission expert on the directive. “We obtained a difficult compromise in the Council of Ministers, and we can’t jeopardize it now.” The EU’s Council of Ministers — made up of ministers of the member states — unanimously backed the proposed directive earlier this year before passing the legislation back to Parliament, which had balked at an earlier version in 1997. “It was already difficult to get unanimous support for some of the provisions,” the commission official said. “It’ll be even more difficult to change it.” If the EU Council and European Parliament can’t reach a compromise, the legislative process begins anew with the European Commission tabling a new proposal. The key advocate for changing the directive is Klaus-Heiner Lehne, a German member of the Parliament’s largest political group, the center-right Christian Democrats. He is the “rapporteur,” or the chairman of the discussion, in effect, on the takeover directive for Parliament’s legal affairs committee, which is vetting the measure before it goes to the floor. Lehne is also the architect of the most controversial amendment — allowing companies to take defensive measures against a hostile bid without consulting shareholders if they first obtain permission from their nation’s regulator. As the MEP for Duesseldorf, he has seen hostile takeovers close up. His city is the home of Mannesmann AG, which lost its fight against a hostile bid from Vodafone AirTouch PLC this year. That takeover was the first and only hostile bid in Germany by a foreign company. Lehne has argued that defenses must be allowed to fend off bids from American companies, which typically have poison pills to obstruct hostile offers. But his proposal to make it easier to ward off suitors has caused an uproar within the Commission. “The amendment runs completely counter to one of the original aims of the directive, which is to protect minority shareholders’ interests,” the Commission official said. The specter of a trans-Atlantic threat serves a purpose, however, says one London legal source who has followed the fight closely. “Anti-Americanism is often a unifying political weapon in Europe,” he said. Never mind that no U.S. company has attempted a hostile bid in Germany or that U.S. companies at home usually succumb to hostile bids despite their poison pill defenses if the price is attractive. In addition to Lehne’s proposals, others proposed by socialist members of the European Parliament insert protections for workers and jobs into the law at many stages. In several cases, these would seem to rewrite directors’ obligations. “Lehne seemed to have gotten into horse-trading with the socialist group” to get a majority, the London lawyer said. Lehne admits that he is playing a tactical game of political cards. If the amendments adopted in committee are passed by the full Parliament, member states and the Commission are required to go through a process known as conciliation, during which a compromise is supposed to be hammered out. Lehne hints that he would give in on some of the proposed changes, but not yet. “I don’t want to go into conciliation with a compromise from the beginning,” he says. “That’s not the way to negotiate.” That’s why many of the amendments are controversial, he said. But to critics, the amendments would be a step backward in the effort to open Europe to restructuring. The U.K. only grudgingly accepted the directive in the form agreed on earlier this year. Lawyers and regulators in London think the latest round of proposed changes are a disaster. They say some are so badly drafted that they are incomprehensible. Britain is widely acknowledged on the Continent to have the best developed and most shareholder-protective rules. On some points, however, Lehne seems to see eye to eye with the English. They both say the text that arrived for review was too vague on key points. Lehne, for example, has proposed setting a uniform standard of 30 percent for mandatory bids — the threshold at which a bidder must make an offer for the entire company. He also wants to clarify regulatory jurisdictions. In the original text of the directive, jurisdiction could be split between the company of incorporation and the country where a company’s stock is traded if they are different. This could lead to conflicts. But Lehne has proposed giving jurisdiction to the country with the greatest trading volume, an idea that people in the city find bizarre. Lehne admits that is a bargaining chip. His priority, however, is to preserve ways for companies to take defensive measures. The original directive would have forced boards to stay neutral. Other than soliciting rival bids, the law would prohibit other “frustrating” actions unless shareholders approved. “While this is fine for smaller- and medium-sized companies, it is technically impossible for larger companies to convene a general shareholders meeting in a short period of time,” Lehne said. “What I want is to increase the opportunities for shareholders to meet for practical opportunities for defensive measures.” Lehne cites influential support for defensive measures. A dozen or so interests, including Volkswagen AG and the Union of Industrial and Employers Confederations of Europe, known by its French acronym UNICE, have lobbied for the amendment, he said. No Volkswagen spokesman was available to comment, and UNICE declined to comment. It is difficult to predict how the amendments will fare in the full parliament. But a number of observers in Brussels believe that the changes regarding defenses are likely to be adopted. The committee voted 17-6 in favor of them, reflecting the fact that those amendments embodied a compromise across a broad-based group of members of parliament, which could signal the result in the full parliament. The debate on the directive, however, has been divided along national lines more than political ones. British legislators have been his strongest critics. “We are deeply unhappy with the amendments,” said Richard Inglewood of the U.K., a Conservative who is part of the same center-right coalition as Lehne’s Christian Democrats normally. “Countries that are protectionist-minded are frightened of this kind of directive and are trying to change it.” According to Inglewood, a number of legislators are collaborating with the Takeover Panel in London to propose a fresh set of amendments in plenary next week. These would be alternatives to those adopted by the legal committee. “I understand that new amendments will be proposed in plenary,” Inglewood said, declining to give further details on their substance or who might propose them in the European Parliament. The risk in Lehne’s gambit, according to the commission official, is that the full parliament gives its approval to the measures allowing defenses. The Council of Ministers will be reluctant to accept any compromise on that, she said. And if no compromise is reached, the directive will be dead for the time being. Worse still, there will be no pressure on member states to reform their own takeover laws. But Lehne is optimistic a deal will be struck. “From my memory, conciliation has never failed in reaching a compromise. I think in the end, we can always reach a compromise.” Copyright (c)2000 TDD, LLC. All rights reserved.

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