CHAPTER 4: Conclusions
76. Since we last looked at the proposed Takeovers
Directive it has undergone a number of changes. The Directive
remains a minimum standards measure, laying down general principles
to be applied, basic procedures to be followed and standards to
be met. But in a number of respects it has been improved. For
example, a mandatory bid rule is now obligatory. But we cannot
yet give the Directive our unconditional support.
77. A major concern from the UK standpoint has
been that the Takeover Panel should be able to carry on its role
of enforcing the City Code as it has done, most effectively and
successfully, for over thirty years. The Directive would allow
the Panel to be appointed as the supervisory authority for the
UK. The Takeover Panel was generally positive about this. Subject
to a small number of changes (for example, the jurisdiction rule)
the general principles and minimum rules in the Directive can
be accommodated within the UK system of supervising takeover bids.
Some amendments to our company law would also be needed, but the
Government does not believe that these would be problematic.
78. However, in one major respect the Directive
has not changed and remains a potential source of difficulty for
the UK. The Takeover Panel and the City Code would have to be
put on a statutory footing. That would inevitably increase the
risks of litigation, including tactical litigation aimed at disrupting
a takeover bid. The Government has negotiated a special provision
(Article 4(6)) designed to enable it to maintain, so far as is
possible, the present position when implementing the Directive
in UK law. It is generally agreed that there must be minimal scope
for litigation. Article 4(6) is helpful, but is only part of solution.
Any lack of clarity in the Directive and in its subsequent implementation
may also lead to litigation.
79. Looked at from the narrow view 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.
We already have an efficient and effective system. The Directive
would not necessary lead to any significant improvements. Indeed
it could simply provide more opportunities for tactical obstructive
litigation. There is, however, a wider UK interest to consider.
80. There is, we believe, a clear UK interest
in the Directive improving the position in other Member States,
and in particular opening up markets for UK companies and making
more secure the position of UK investors in Europe. Accordingly
in assessing the balance of advantages in relation to the Directive
one must look outside the UK and towards the rest of Europe to
try to ascertain whether the Directive would introduce certain
minimum standards which are not currently observed in some other
Member States which are important markets. All our witnesses believed
that the Directive could have some positive and beneficial effects.
It 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. But that support
for the Directive was not unqualified. Some provisions of the
Directive need to be improved. Others must not be diluted.
81. There are three places where we believe the
Directive contains serious defects or shortcomings. There should
be a common minimum threshold for triggering a mandatory bid (Article
5). The rules on jurisdiction need simplifying, giving precedence
in all cases to supervisory authorities in the State of incorporation
of the target company (Article 4). Contractual arrangements between
shareholders should not be overridden and thus should be excluded
from Article 11 (the breakthrough rule). The present provision
overriding multiple voting rights needs to be retained, but with
the addition of common rules on compensation (Article 11).
82. There is no doubt the successful negotiation
of the Directive is going to be difficult, not least in relation
to those matters listed in the previous paragraph. It has been
reported that when the Directive was discussed at the recent Competitiveness
Council no agreement could be reached.
A number of Member States indicated readiness to accept the latest
text with the omission of Articles 9 (shareholder control of defensive
measures) and 11 (the breakthrough rule). Other countries considered
that the notion of common rules would be lost without the inclusion
of those Articles. We agree with those countries and hoped that
the UK Government will be arguing most strongly for the retention
(and indeed strengthening) of both Articles 9 and 11. If these
provisions are not included the UK should firmly reject the proposal.
83. In summary, the Directive requires a difficult
judgement to be made, balancing the potential advantages that
would be derived from UK companies/investors in Europe against
potential disadvantages with the risk of increased litigation
in the UK. If that balance is to tilt in favour of the Directive,
there are some important changes which need to be made. Further,
key provisions, such as Articles 9 and 11, must not be given up
Summary of detailed conclusions
84. Our detailed conclusions and recommendations
are as follows:
It is important that the Takeover Panel
and the City Code should be able to continue to police takeover
bids in the UK (para 33).
It is not possible to remove [entirely]
the risk of tactical litigation. Consultation on implementation
of Article 4(6) should not be delayed (para 38).
Article 5(1) should set down a minimum
threshold for mandatory bids. Member States would be free to set
a lower threshold but the Directive would stipulate a minimum
level of shareholder protection across Europe (para 42).
It is regrettable that the Directive
does not establish, as a minimum standard to be applicable in
all Member States, the right of all shareholders to be offered
a cash consideration (para 46).
The Government should stand firm on Article
9. The requirement that the board of the target company should,
without shareholder approval, be prohibited from taking action
which could frustrate the bid, is an indispensable provision of
any directive on takeover bids (para 49).
It is not desirable to have split jurisdiction.
Supervision should be the responsibility of the authorities of
the State of incorporation (para 53).
There should be no uncertainty as to
the position of the UK's golden shares under Article 11 (para
We agree with the Government that contractual
rights should not be overridden and therefore that they should
be taken out of Article 11 (para 61).
The Directive should provide for multiple
voting rights to be overridden. It is for consideration whether
more should be said about compensation rights in the Directive.
Ideally, the basic principles should be spelt out. The Directive
should expressly provide that disputes over compensation should
not be permitted to delay or frustrate the bid (para 67).
Employee consultation provisions should
not be allowed to frustrate the process of takeovers. Consultation
of employees in advance is, we believe, impractical and would
seriously jeopardise any necessity to keep negotiations secret
There is no place for a comitology committee
in this Directive (para 75).
85. The Committee considers that the Commission's
proposal for a Directive on takeover bids raises important questions
to which the attention of the House should be drawn, and recommends
the Report to the House for debate.
35 EUobserver.com, 20 May 2003. Back