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The fate of the European Union’s takeover directive remained undecided after a crucial meeting of legislators failed to reach an agreement on a proposed directive harmonizing rules for takeovers across the 15 EU member states. A special 13-member delegation of members of the European Parliament, the European Commission and the European Council met Tuesday to try to hammer out an accord increasing shareholder protection and facilitating takeovers. It also requires target companies to consult with shareholders when enacting defensive measures. The directive, which has been 12 years in the making, is jeopardized by last-minute concerns raised by Germany over a particular clause dealing with defensive measures. The clause — Article 9 in the directive — would ban so-called “poison pill defenses” unless shareholders have first given their consent to such actions. Poison pills seek to dilute a potential hostile takeover bid by issuing additional shares to shareholders at a discount. Tuesday’s stalemate resulted primarily from a division in Parliament. One key member of European Parliament, German Christian Democrat Klaus-Heiner Lehne, is arguing against Article 9. He refuses to cede ground out of concern that Article 9 would put German companies at further risk of being takeover targets and would create an unlevel playing field within the EU’s corporate landscape. This is primarily because when the current German government took power, it legislated a “one share, one vote” principle by eliminating all types of defensive measures in order to further open the German market to M&A. In contrast, all other member states have provisions within their national legislation allowing for certain defensive measures. Should the EU takeover directive pass, German companies would be at a disadvantage in cross-border takeovers. But not all is lost. While most were looking to Tuesday’s meeting for a conclusion, legislators technically have until June 6 to reach an accord. Another meeting is likely to be held June 5. According to several officials attending Tuesday night’s session, even if a meeting is not logistically possible for all parties, negotiations can continue in writing. In the meantime, a few options will be explored in an attempt to bring parties closer to reaching an agreement. One of these is a proposal to adopt the directive now and eventually add Article 9 after a number of years. This idea will be developed in further detail and presented to a weekly ambassadorial meeting of the 15 EU member states later this week. But it is uncertain whether such a proposal would be acceptable, since implementing a directive without such a point as crucial as defensive measures would be seen to undermine the objective of the legislation. This plan was in response to a final bone thrown by the commission to implement the directive, but review Article 9 after a period of three years. Parliament remained so narrowly divided on the proposal, however, that it could not reject the commission’s proposal outright, resulting in Tuesday’s stalemate. Despite the increasingly dim outlook for the legislation, some officials expressed optimism that a deal could still be reached. “We are going to use every means possible to try to get agreement on Article 9,” said MEP Jimmy Provan, a U.K. Christian Democrat who chairs the European Parliamentary delegation in conciliation. If there is no agreement by the June 6 deadline, the directive will have to be scrapped and the legislative process begun anew. Copyright (c)2001 TDD, LLC. All rights reserved.

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