Examination of Witnesses (Questions 1-19)|
WEDNESDAY 12 FEBRUARY 2003
1. Gentlemen, good afternoon. May I, on behalf
of the Committee, thank you all very much indeed for taking the
time this afternoon to come and help us with the new Takeover
Directive proposals. I know you are all very busy and we are very
grateful to you for the time you have taken to come. May I start
by inviting you each for the purposes of the record just to introduce
(Mr Remnant) I am Philip Remnant, Director
General of the Takeover Panel.
(Mr Hinton) I am Noel Hinton, deputy Director General
of the Takeover Panel.
(Mr Armitage) I am Roderick Armitage. I am head of
company affairs at the CBI.
(Mr Oliver) I am Michael Oliver. I am Chairman of
the CBI Companies Committee.
2. Thank you all very much indeed. You will
know that this Committee under Lord Hoffmann, who was then the
chairman, looked at proposals for a Takeover Directive in 1996
and took evidence from individuals in all the institutions that
you represent or that you are members of and published a report
which queried whether a European Union Takeover Directive was
really necessary or justified. One of the particular fears was
that if there was such a Directive implemented by legislation
it might be expected to lead to tactical litigationwhich
is not a feature of the takeover scene in this country at the
moment. I wonder if you have a view as to whether a Directive
now, some seven years on, in 2003, is justified or necessary having
regard to the way in which the takeover controls, the regulatory
system, works in this jurisdiction?
(Mr Remnant) Perhaps I could make one or two comments
on that. Certainly, there is nothing in the Directive that I would
say enhances the system of takeover regulation in the UK. We have
the most sophisticated and developed system of takeover regulation
in Europe, which has proved itself over the last thirty years
or so and I do not think that it is in any way enhanced by the
very basic requirements of the Directive, which is a minimum standards
Directive. However, being a minimum standards Directive, it does
enable Member States to have more detailed and more rigorous rules,
which of course we have and which will mainly not be impacted
by the Directive. If you are looking at the Directive with perhaps
a wider UK hat on, then you have to weigh up what benefits may
be gained by UK investors in European companies and indeed UK
companies wanting to help in the consolidation of European markets
and indulge in takeover activity. There are some provisions in
the Directivenotably I would say the Article which deals
with the requirement for mandatory bids, which is Article 5, and
indeed Article 9 which deals with management not being able to
take action which might frustrate a bid without the approval of
shareholderswhich are provisions which will be important
in helping protect UK investors and UK companies in Europe. But
the Directive is very thin on substantive detail and even those
Articles I have referred to are not ideal; they are fairly weak.
For instance, the mandatory bid Article does not actually define
a common threshold for control. It has, however, been improved
now in terms of providing a minimum equitable price. I think overall
there is a balance to be struck between potential advantages that
would be derived from UK companies/investors in Europe against
potential disadvantages with the potential for increased litigation
in the UK. What we would not want to see is the provisions of
the Directive, as it stands at the moment, diluted in any way,
specifically as regards Article 9, and there are certain other
improvements that we would want to see.
3. I will come back to the improvements you
would like to see in a moment, if I may. Lord Hoffmann's report
referred to what he called "soft harmonisation", by
which I understand him to mean harmonisation which is not directed
by some sort of legislative instrument, which he expected to happen
in the ensuing years after the publication if his report. As I
say, we are some seven years on. Has there been any significant
degree of soft harmonisation in this area that might make the
intervention of legislation unnecessary?
(Mr Remnant) I think there definitely has been such
soft harmonisation. The position now is very different from what
it was fourteen years ago, when there were the first discussions
on the Directive, and I think through market forcesalthough
it is certainly not uniform in any way through the EU and of course
we are just about to have a number of additional countries added
to the Community who perhaps are not as sophisticated in terms
of takeover regulation as perhaps the existing Members of the
EUover that time a number of countries which either did
not have any takeover regulation before now have such regulation,
or indeed those countries which did have some form of takeover
regulation have strengthened their provisions. I think that now,
for instance, the majority of countries within the EU do have
a mandatory bid provision.
4. That being so, what is your professional
experienced view as to the justification now of legislative intervention
in this particular field?
(Mr Remnant) We have believed for some time, especially
since the UK signed up to the Common Position four years ago,
that there was likely to be a Directive and therefore the Takeover
Panel's views and efforts have been very much focussed on working
with the DTI and with MEPs, and speaking to authorities in other
Member States, in trying to make the text of the Directive as
acceptable as possible. Our view when the last Directive failed
by one vote in the European Parliament just short of two years
ago was that, if it had been passed in that form, it would have
been "liveable with" and there have definitely been
some improvements to the Directive that have now been introduced
by the Commission; equally there are still certain areas that
we feel are in need of improvement for the Directive at the end
of the day to be acceptable.
5. Would any other of you like to comment on
those preliminary matters?
(Mr Oliver) I really have very little to disagree
with what has been said. It is our view that the Directive is
better than nothing, that there is a need for the Directive, that
it achieves potential benefits for UK companies and for UK investors,
UK companies wishing to make bids in Europe and all those who
do invest in Europe already and have minority shareholdings. We
would wish it to go further in that we would wish it to cover
multiple voting rights, although we accept there are difficulties
in doing so.
6. In what way would you like to see it cover
multiple voting rights?
(Mr Oliver) As a general rule we do not believe in
multiple voting rights being there and we think the breakthrough
provision should cover multiple voting rights. That does, however,
beg a lot of questions that are not answered because the issue
is not raised and that is the issue of compensation.
7. You mean you would like to outlaw multiple
(Mr Oliver) That is our view.
8. One share, one vote?
(Mr Oliver) One share, one vote.
(Mr Armitage) In the circumstances of breakthrough
of a takeover bid. I do not think we are going so far as to say
outlaw multiple voting rights.
9. I understand in Germany that is the position.
(Mr Armitage) It is indeed and that, of course, is
why the Germans are so annoyed with that, coupled with the fact
that although the Directive allows multiple voting rights to continue
it does away with voting caps, which the Germans still have, and
of course applies to some quite significant companies such as
(Mr Oliver) But we do agree that there are some significant
issues that are raised by abolishing multiple voting rights and
principally the question of should people be compensated for the
loss of those multiple voting rights.
10. Are there any particular points of substance
in respect of which the City Code and the Takeover Panel's present
arrangements would have to be changed if the Directive in its
present form came into effect?
(Mr Remnant) Not in detail. The principles of the
Directive that are set out are based very much on the principles
of the City Code and, as I have mentioned, because it is a minimum
standards Directive, then Member States are allowed to have more
detailed provisions into which a lot of the rules that we have
would fall. I think particularly we would have to look at something
as fundamental as the jurisdiction provisions because the scope
of the directive applies to companies which are both incorporated
and traded within the EU. The jurisdiction of the Takeover Code
relates to incorporation and place of central management, rather
than listing, so that will have to be looked at but I do not believe
that this would throw up any particular problems. We do have one
major concern in terms of a change which has been made to the
Directive this time, which involves the nature of the consideration
that is offered in a mandatory bid. That is in two respects. First,
an offeror would be allowed to offer listed securities alone in
such circumstances in a mandatory bid.
11. You mean by liquid securities?
(Mr Remnant) Yes, apologies, liquid securities alone,
which I think is meant to relate to listed securities, whereas
of course the Takeover Code stipulates that this is not sufficient
and requires him to offer cash. Secondly, if a bidder offers illiquid
securities, cash consideration as an alternative would be optional
now rather than mandatory, as it was before, and those changes,
if they remain, we believe would undermine the benefits of a mandatory
bid to minority shareholders who should be offered the opportunity
of a clean exit for cash from a company where control has already
12. To get out, yes. Leading on from there,
one of the features of the proposal is that the Commission should
have power to make rules which would be binding on all Member
States in relation to the cash part of the consideration, among
other things. Do you have a view on the suitability of that? I
think that is 5(4), is it not?
(Mr Remnant) Yes, we do. I think the procedure is
set out in Article 17, which is referred to as the comitology
13. That just means subordinate legislation
really, does it not?
(Mr Remnant) Yes. There are two principal issues,
I would suggest, with that. One is that that procedure (i.e. using
the European Securities Committee to assist the Commission effectively
to make legislation) is actually only permissible in the field
of securities and not company law issues into which category this
Directive falls. I am not sure whether you call that a constitutional
issue but I think that is an issue which is going to be raised,
certainly by the Parliament, so I am not sure that that will actually
at the end of the day stay as it is. I think there is also an
issue as to how that procedure works with a minimum standards
Directive without imposing wider requirements and additional rules
through that procedure which are specifically the preserve under
the Directive of individual Member States. So our preference would
be to go back to what was in the last draft, which was a Contact
Committee which was responsible for proposing future amendments
in the light of practical experience, but those amendments would
go through the normal legislative procedure involving the Parliament
and the Council.
14. You described the contents of the Directive
as imposing minimum requirements so the consequence would be that
each Member State would have to have a regulatory authority which
would lay down rules which would at least come up to this minimum
standard but subject to that, and again subject to the comitology
point, it would be open to Member States to decide what rules
they thought appropriate in their own jurisdiction so there would
not in fact be harmonisation across the European Union of the
Takeover scheme. Is that something to welcome or to regret?
(Mr Remnant) My view is that, if one is working towards
a Directive which applies across Europe, the extent to which that
harmonises the procedures must be a good thing. However, as far
as looking at what I believe is a very effective form of UK regulation,
a minimum standards Directive, whilst perhaps not achieving harmonisation
throughout Europe and therefore perhaps not inherently a good
thing, does have the advantage of enabling the UK to preserve
its own very effective takeover regulation: it does allow more
scope for the UK to keep the detailed rules which are tried and
tested, which otherwise might not be the case.
15. One of the main fears, and I think I have
referred to this already, expressed in Lord Hoffmann's report
was that the introduction of legislation as the platform on which
regulation is built would meant that disputes would potentially
be justiciable in the courts and the fear was that this would
lead to tactical litigation designed to buy time, designed to
produce some publicity and have some publicity advantages, and
so on. My understanding is that Article 4(6) has been particularly
designed to try to allow individual Member States to prevent tactical
litigation of the sort I have described. Is this something you
have directed your mind to? I wonder to what extent 4(6) is satisfactory
for the purposes of achieving the end I have described or whether
anything more might be needed. Do you have a view about that?
(Mr Remnant) We have directed our minds to it over
the years and in fact I think it is largely as a result of the
UK efforts that that provision is in the Directive. Most of our
attention, to be frank, was directed at it more than a couple
of years ago because it was in the last draft of the Directive:
and the starting point for the way the Commission has brought
forward the new Directive is essentially to take the Directive
which just failed in respect of its existing provisions and to
put in some additional amendments in the light of various recommendations
which had been made in the meantime. We are by and large satisfied
that Article 4(6) is as good as could be expected. We do think
that it is going to be very important that the implementing legislation
in the UK specifically takes account of what is in Article 4(6)
to make sure that, to the extent there is the possibility of litigation,
it is very much a defined procedure with defined safeguards including
time limits in order to limit as far as possible the amount of
16. That is helpful. Thank you. One of the amendments
which I think was made in the European Parliament when the previous
proposal was still alive was to add a provision giving employees
certain rights to information. I think the original proposal had
been to the effect that the bidder, the offeror, had to state
its intentions towards the employees but there was nothing specific
giving them a right to information. That has now been added and
is now in Article 13 of the current proposal. Are you content
with that or are there any potential problems arising out of this?
(Mr Remnant) I do not want to hog the floor from my
colleagues from the CBI but perhaps I could kick off on that.
Article 13 does no more than reflect the existing position (i.e.
it refers to other European Directives). Of course, one of those
Directives is commonly referred to as the Information and Consultation
Directive, which has passed through Brussels and now needs to
be implemented by the Member States. I think there will be public
consultation on that within the UK promoted by the DTI some time
this year, and that in itself may well have an impact upon what
happens in takeovers. We are happy with what is in the Directive
at the moment because it basically confers rights of receipt of
information on employees but it does not confer rights of consultation
or decision making. We would not support extensions of the Directive
into those areas and it is possible there will be various amendments
proposed, especially from within the Parliament, in that regard.
We think that it is unrealistic to seek to harmonise laws of Member
States on such a sensitive topic as employee rights in a Directive
on takeovers which is designed for the protection of minority
shareholders not employees.
(Mr Armitage) If I could just make one point on that.
At the CBI we are very concerned that there is no obligation on
companies to consult, etcetera, before the bid is made public
and that is there in paragraph 2 of Article 6. I take what has
been said on the Information and Consultation Directive and that
of course is open for debate in the future but Article 13 also
contains wording about information for and consultation of employees'
representatives and it is not entirely clear what the combination
of the two is because I understand that one of the Directives
listed in Article 13 does use some terms like "as soon as
possible", which is possibly in conflict with "when
it is made public".
17. With 6(2), yes.
(Mr Armitage) So it is something that we are not entirely
sure about. We have spoken to the rapporteur, to ECOSOC). It is
not a point which has been raised by anybody else so far and we
are doing a bit of research into it.
18. Thank you, Mr Armitage. While you are, as
it were, on the floor does the CBI have any comment on the tactical
(Mr Armitage) Yes, we do. We do not think that tactical
litigation is to be encouraged in any way. It is one of the main
noteworthy features of our system that it has not been a feature.
I think there have been one or two cases in the past but they
are few and far between. I think one of the problems here is that
it does appear that as there are particular powers under the Directive
which are going to be foisted on the national authorities, like
the Takeover Panel, that is possibly going to take them from being
an entirely private body into something a bit more than that.
I was talking to Philip about that before we came in and that,
I believe, could be one of the reasons why there could be more
19. Do you mean on the footing that the Takeover
Panel at the moment is private?
(Mr Armitage) Yes.
Chairman: For my part, I rather doubt whether
that would make any difference.