Select Committee on European Union Twenty-Eighth Report


TWENTY-EIGHTH REPORT


24 JUNE 2003

By the Select Committee appointed to consider European Union documents and other matters relating to the European Union.

ORDERED TO REPORT

IF AT FIRST YOU DON'T SUCCEED … TAKEOVER BIDS AGAIN

12846/02  Proposal for a Directive of the European Parliament and of the Council on takeover bids

Un-numbered  Council Presidency compromise proposal for a Directive of the European Parliament and of the Council of 14 February 2003 concerning takeover bids

Un-numbered  Council Presidency compromise proposal for a Directive of the European Parliament and of the Council (OTNYR) of 28 April 2003 concerning takeover bids

SUMMARY

The Takeovers Directive lays down general principles to be applied, basic procedures to be followed and standards to be met in the conduct of takeovers in the Union. The Directive is an important element of the Financial Services Action Plan agreed at the Lisbon Summit in March 2000 and scheduled for completion by 2005.

From the narrow viewpoint of the domestic impact of the Directive on the conduct of bids in the UK, there seems to be little, if any, advantage to be gained from the Directive. The UK has, in the Takeover Panel and City Code, an efficient and effective system. The Directive would not necessary lead to any significant improvements. But it would require the Panel and the Code to be put on a statutory footing. This could provide more opportunities for legal challenge, which could be used tactically to obstruct a bid.

The Committee's analysis of the Directive also reveals serious defects or shortcomings. The Committee recommends that:

(1) there should be a common minimum threshold for triggering a mandatory bid (Article 5);

(2) the rules on jurisdiction be simplified (Article 4); and

(3) the "breakthrough" rule be amended (Article 11).

On the other hand, the Committee finds that the Directive would introduce a significant measure of harmonisation, with the potential for increasing shareholder protection and opening up markets in other Member States for UK companies.

The Directive requires a difficult judgement to be made, balancing the potential advantages that would be available for UK companies/investors in Europe against potential disadvantages with the risk of increased litigation in the UK.

The Committee concludes that if the balance of advantage is to tilt in favour of the Directive, some important changes need to be made and certain key provisions must not be given up or weakened.


 
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