EUROPE: Commission Report on the application of the Directive on EU takeover bids

Friday July 20 2012

On 28th June 2012 the Commission published a report on the functioning of the provisions of the EU Takeovers Directive. In the report, the Commission highlighted a number of emerging issues on the operation of the Directive on EU takeover bids:

1. Concern about the legal certainty of the concept of “acting in concert” and its application by national regulators

2. The wide range of national derogations to the mandatory bid rule – the Commission believes this raises the question as to whether the mandatory bid rule adequately protects minority shareholders in situations of change of control.

3. The exemption from launching a mandatory bid where the threshold has been achieved as a result of a voluntary bid – it has come to the attention of the Commission that this exemption can be used by offerors to avoid having to launch a mandatory bid for an equitable price. It has also been argued that offerors can acquire a controlling stake without having to launch a mandatory bid by keeping their participation just below the control threshold, while de facto they are able to control the company, or by acquiring a derivative position.

4. The lack of implementation of the breakthrough provisions – only 3 Member States have transposed the breakthrough rule, and it could be argued that the Directive is not very effective in regulating the use of defensive measures.

5. Lack of safeguarding of interests of employees- representatives of employees are not satisfied with how the Directive safeguards the interests of employees. They mention that the required information is not always given in time, or is inadequate, and that takeover offers have a significant impact on working conditions and redundancies. Moreover, after the bid, they claim that there is no control over whether the offeror will do as he stated in the information disclosed in the offer procedure.

To address the issues raised with the Takeovers Directive, the Commission has proposed the following:

* the concept of “acting in concert” could be clarified on EU level, in order to provide more legal certainty to international investors as to the extent to which they can cooperate with each other without being regarded as “acting in concert” and running the risk of having to launch a mandatory bid. Clarification could be provided through the development of guidelines from the Commission or ESMA.
* further investigation will be carried out on how minority shareholders are protected when a national derogation to the mandatory bid rule applies. If, following the investigation, the protection of minority shareholders proves to be inadequate, the Commission will take the necessary steps (e.g through infringement procedures) to restore the effective application of this general principle of the Directive.
* regarding the exemption from mandatory bids where the threshold is breached as a result of a voluntary offer, the Commission will take the appropriate steps to discourage the use of this technique across the EU, such as through bilateral discussions with the concerned Member States or Commission Recommendations.
* for rights of employees, the Commission will pursue its dialogue with employee representatives with a view to exploring possible future improvements. It will also investigate further the experience gained in practice with the provisions of the Directive which require disclosure of the offeror`s intentions as regards the future business of the company and its employment conditions and the view of the offeree company`s board on this, as well as disclosure of information concerning the financing of the bid and the identity of the offeror.

The Commission has invited Member States, the European Parliament, the European Economic and Social Committee and other interested parties to submit their views on the review.