Ramifications of the European Commission’s Directive on Takeover Bids

Prisme N°1 September 2003

Jean-Louis Beffa, Leah Langenlach & Jean-Phprisme1ilippe Touffut

Prisme N°1 September 2003 (262.3 KiB)

Launched in 1974, the idea of harmonizing public takeover bid legislation found its first expression in 1985 in a draft Directive. This early draft was rightly rejected in July 2001. Bolstered by 30 amendments, a second version of the Directive was adopted on December 16, 2003.

The initial objective of the Directive was to promote a common framework for cross-border takeovers, to facilitate corporate restructuring and to protect minority shareholders. In the interim between the rejection of the early draft and the adoption of the second proposal, three contentious articles generated extreme tension: the neutrality of the board of directors in the event of a takeover bid, restrictions on transfers of securities and multiple voting rights, and consultation with workforce representatives.
The amendments adopted on these questions by the legal affairs committee of the European Parliament weaken the content of the Directive. It is left to EU member states to decide whether or not to apply the articles on the neutrality of the board of directors and on the exercise of multiple voting rights in the event of a public bid. With this optional feature comes an unpublished “reciprocity” clause. Nevertheless, the spirit of the Directive is unaltered: no article was withdrawn.

One question has not received adequate consideration in this debate: should takeover bids be encouraged? Takeover bids are one of the constitutive principles of a mode of capitalism propelled by the dynamics of financial markets. In economics, theoretical studies of public bids have been complemented by econometric analyses and field research. These show that public bids do not contribute to economic growth. Over the last 30 years, more than two-thirds of public bids have led to a decrease in business productivity and have contributed to a reduction in the overall economic growth rate. In light of this fact, should a Directive on Takeover Bids comply with financial logic, to the detriment of industrial logic? Research indicates that, on the contrary, safeguards necessary to protect firms from the instability of finance should be constructed.