Supplementary memorandum and letters
Memorandum by the CBI
1. We consider that the draft Directive
sets out many of the appropriate principles that should be followed
in takeovers in Europe, and the CBI broadly supports the Directive
as far as it goes in seeking to provide some minimum rules for
protection of investors and minority shareholders in companies
subject to bids.
2. The Directive should not have a major
impact in the UK, because of our well developed Takeover Code,
but the Directive will presumably require some legislation to
underpin the Takeover Panel as the supervisory authority and the
arrangements in that regard.
3. However the proposed Directive does not
necessarily make it easier for UK companies to make acquisitions
in Europeone example being companies with multiple voting
rights who are not included within the application of the break-through
rule for the purposes of Articles 9 and 11, which was a key recommendation
in the Experts' Report of January 2002.
This issue is also of concern to German business,
and it was the lack of support from Germany which caused the previous
Directive to fail in 2001.
4. If full application of the break-through
rule to include multiple voting rights is not addressed in amendments
to this Directive, we strongly recommend that this issue is kept
under review by the European Commission with a view to the matter
being satisfactorily addressed when the Directive comes up for
review after five years under the provisions of Article 18. It
might also be appropriate if the five year period was somewhat
shorter, say three or four years.
5. We set out overleaf our detailed comments
on particular provisions of the proposed Directive.
Article 3General principles
6. The CBI broadly supports the general
principles set out in Article 3.
7. However, one particular concern relates
to phantom type bids, when a potential bidder announces the possibility
of a bid, but it remains unclear whether and when any such bid
might be made, or that the potential bidder has decided not to
bid, thus leaving the target company in play, and uncertain as
to its future. There is also the burden of management time being
diverted and the costs incurred by the target company in dealing
with a potential but uncertain bid. The Directive should therefore
require that Member States set down clear rules as to what constitutes
a bid, and for a time limit on making an actual bid following
any initial announcement of a potential bid. If the potential
bidder fails to make an actual bid by the deadline, the potential
bidder should be prohibited from subsequently launching a bid
for a specified period, such as one year.
8. It is therefore important that the
general principles and the provisions of Article 6 make clear
what constitutes a bid, and when a potential bidder must "put-up
9. The rules need to be clear as to the
applicable law and the appropriate supervisory authority where
the offeree company is listed in a member state which is not its
country of incorporation, or is listed in more than one member
state. The present provisions of Article 4.2 seek to distinguish
between company law issues and bid procedures in setting the rules,
and the resulting position is left very unclear and uncertain.
10. We consider the simplest and most
appropriate solution is for the bid to be regulated in accordance
with the rules and by the regulatory authority of the offeree's
country of incorporation.
Article 5Protection of minority shareholders;
mandatory bid and equitable price
11. We broadly support Article 5, subject
to the comments below.
12. A mandatory bid should normally be made
at not less than the highest price paid by the offeror.
13. Where the consideration consists of
liquid securities traded on a regulated market in the EU, there
should normally also be a cash alternative.
In particular, where any part of the consideration
consists of illiquid securities, there must always be a full cash
alternative, and never a partial cash alternative. The term liquid
securities should also be defined.
Article 6Information on the bid
14. We support the provisions of this Article,
including the provisions for providing information to employees
after the bid is announced, informing them or their representatives
of the bid, and any consequences for future employment. We agree
that employees should not have the power to veto a bid approved
by the company's shareholders.
We also support the provisions of Article
13 on information for and consultation of employees' representatives.
Article 9Obligations of the offeree company
board, including the provisions regarding defensive measures
15. We strongly support the provisions
on Article 9, which is fundamental to an effective Directive providing
minimum rules for the conduct of takeovers.
16. Shareholders should decide whether or
not to accept an offer.
The offeree company board, and other stakeholders
such as employees, should not be able to deprive them of that
Defensive measures proposed by a target board
must be specifically approved by the shareholders after an actual
bid is launched.
17. This Article could also be strengthened
by application of the Expert's Group break-through rule on the
one share one vote principle according to the proportionate amount
of risk bearing capital held by shareholders, and not in accordance
with voting rights in existence before the bid.
We discuss this further in connection with Article
Article 10 regarding information on companies
18. This is one of the areas of change from
the previous text and we can broadly support many of the additional
19. However regarding Article 10.1(g)
and disclosure of transactions among shareholders, we are
not clear how companies will know what transactions may have taken
place unless they are a party. We therefore consider that Article
10.1(g) should either be deleted or be limited to transactions
to which the company is a party.
20. The reference in Article 10.1(k)
to "employees" should be deleted, as not appropriate.
The sub-clause should only be concerned with the position of directors.
21. The provisions of Article 10.3 also
need reconsideration. Disclosure to shareholders, rather than
a decision by shareholders, should be sufficient, with a shareholder
vote only necessary in accordance with the provisions of Article
9 if the offeree board seeks to invoke defensive measures.
Article 11Unenforceability of restrictions
on the transfer of securities and voting rights
22. We support the principle promulgated
in the Experts Group report of January 2002 that a bidder who
has acquired 75 per cent of the risk bearing capital should have
proportionate voting control and the ability to pass special resolutions
changing the constitution of the company. Risk bearing capital
would be shares carrying unlimited rights to participate in profits,
or in the surplus on a liquidation.
23. The CBI supports the principle of
one share one vote.
Accordingly our major concern with Article
11 is that this Article does not prohibit or disapply the use
of multiple voting rights in application of the break-through
rule, as recommended in the Experts Group report of January 2002.
24. The failure to include such structures
within the application of the break-through rule provisions in
Article 11 continues to leave an unlevel playing field for UK
companies, where multiple voting rights are now rare amongst listed
companies, compared with the situation in a number of other countries
This issue is also of concern to Germany, and
German business, and it was the lack of support from Germany which
caused the previous Directive to fail in 2001.
25. We also believe that there may be difficulties
in extending the break-through rule to contractual agreements
referred to Article 11.2, such as whether compensation should
be payable. This may be appropriate in the case of existing contracts,
but perhaps not if the shareholders adopt defensive measures under
Article 9. At the least contractual arrangements between shareholders
to which the offeree company is not a party should be excluded.
In particular these provisions should not affect
the enforceability of an irrevocable undertaking by some shareholders
to accept an offer, which is often fundamental to the making of
an offer in the first place.
Articles 14 and 15Squeeze-out rights and
26. We broadly support these provisions.
27. However it may be appropriate to include
a time limit for the exercise of such rights, and for notification
to the holder of a sell-out right that it has arisen.
Article 17Committee procedureComitology
28. It is not clear how the comitology procedure
would operate with a minimum standards directive, such as this
Directive, without imposing requirements and additional rules
which are specifically the preserve of individual Member States.
29. Particularly if this Directive is not
amended to include multiple voting rights within the break-through
rule for the purposes of Articles 9 and 11, it might be appropriate
to set the review date earlier than five years, perhaps after
four or even three years.