Letter from The Takeover Panel
As you know, we have been following closely
the negotiations concerning the Takeover Directive which are clearly
reaching a critical stage. We understand that the Commission,
the Council and the Parliament (principally through the Committee
on Legal Affairs and the Internal Market) are currently engaged
in active discussions which have as their aim the adoption of
the Directive at a first reading.
We thought that it might be helpful if, for
clarity, we reiterated with our views on some of the major issues
which are now being debated and, in particular, on one or two
key matters which could affect the ability of regulators effectively
to carry out their functions. Throughout, we have been very conscious
of the fundamental aims of this Directive: namely, the creation
of an orderly framework for takeover bids within the EU and the
protection of shareholders in EU companies.
1. Frustrating action
The provisions of Article 3(1)(c) and Article
9 set out and implement the fundamental principles that the offeree
board must not deny shareholders the opportunity to decide on
the merits of the bidie must not engage in frustrating
action. Article 9 is one of the key measures which underpins the
entire Directiveany compromise proposal which removed or
undermined the effectiveness of the Article would be contrary
to the spirit of the Directive.
The break-through concept is at the heart of
the current debate. We have always maintained that we do not have
strong views as to whether the break-through concept is, in abstract,
a good thing or not. However, we have consistently pointed out
that if multiple voting rights are to be included within the scope
of Article 11, the Article must be drafted clearly so that it
is plain from the start of any bid what constitutes the capital
to be bid for and what compensation, if any, is payable. A bidder
must know when he first makes his bid what he has to pay for the
company and exactly what and how many securities he has to buy
to exercise his break-through rights. Otherwise, if there is any
uncertainty on these matters, it will mean that nobody will ever
bid for companies with differential voting rights and the Article
will achieve precisely the opposite effect to that intended. Protracted
litigation must not be a feature of deciding either issue.
We understand that the Council is considering
proposals which leave the question of compensation to be dealt
with at a Member State level. However, to date nobody has come
up with a workable solution to this issue. If individual Member
States are unable satisfactorily to address this question, it
seems to us that there is a significant risk that wherever break-through
is in point litigation will follow.
As regulators, we do not have strong views on
the issue of reciprocity, although we recognise the strong views
that are held by participants in the debate. Our regime is clearwe
apply the principles set out in the UK Takeover Code equally to
all offerors, regardless of their country of origin.
4. Powers of derogation
Takeovers are by their very nature fast moving
and innovative. One can never predict what circumstances may arise.
It will therefore be important to allow regulatory bodies some
flexibility in interpreting the Directive whilst requiring compliance
with the key principles set out in Article 3.
We have found that such a structure (flexibility
within a framework of clear principles) has worked extremely well
in practice in the UK and has been seen as one of the key attractions
of our system. We would therefore be very concerned by any compromise
which sought to undermine the effectiveness of Article 4(5) which
sets out the general power of supervisory authorities to derogate
from provisions of the Directive (provided always that the general
principles are respected).
5. Supervision of bids
We also believe that it is critical in any takeover
bid that one supervisory authority should have responsibility
for administering the conduct of the bid and applying the relevant
takeover rules. We have, for this reason, always opposed existing
Article 4.2 which proposes shared jurisdiction where, inter
alia, a company is incorporated in one EU Member State but
its shares are listed in another. We believe that the regulatory
authority in the EU Member State where the offeree company is
incorporated should have sole jurisdiction. The Takeover Panel
has always operated on this basis. There have been occasions where
companies have, for example, been incorporated in the UK but listed
elsewhere and the Panel has, where necessary, granted derogations
from Code rules in order to ensure that takeovers for such companies
can be made in an orderly way. It is critical that there is a
lead or primary regulator. Shared jurisdiction is a recipe for
significant regulatory uncertainty which could undermine the key
objective of this Direcitve.
6. Employee consultation
Some parties have recently argued that the Directive
should be amended in order to give representatives of employees
the right to be informed and consulted in detail by the management
of the company before and during the takeover. We would
be extremely concerned if any amendment were introduced requiring
prior consultation with all the associated implications for confidentiality
at a very sensitive moment. Also, it will be important to ensure
that consultation requirements during an offer do not affect the
prescribed timetable and the orderly framework of takeovers.
In any event, the Information and Consultation
Directive adopted on 11 March 2002 (Directive 2002/14/EC) has
already provided for extensive information and consultation rights
for employees and their representatives in appropriate circumstances.
The Information and Consultation Directive was adopted following
much debate and consideration of all the provisions which need
to be included to protect both employers and employees. In our
view the Information and Consultation Directive forms a proper
basis for the information and consultation rights of employees
and their representatives in relation to takeovers. It is not
clear why additional provisions are needed in a Directive designed
for the protection of shareholders.
9 May 2003