Select Committee on European Scrutiny Second Report


COM(01) 77

Joint Text approved by the Conciliation Committee regarding the proposal for a European Parliament and Council Directive on company law concerning takeover bids ("the Takeovers Directive").

Legal base: Article 44 EC; co-decision; qualified majority voting
Document originated: 6 June 2001
Deposited in Parliament: 29 June 2001
Department: Trade and Industry
Basis of consideration: EM and Minister's letter of 28 June 2001
Previous Committee Report: None; but see (22206) 6367/01: HC 28-xii (2000-01), paragraph 4 (25 April 2001)
To be discussed in Council: No further substantive discussion expected at this stage
Committee's assessment: Legally and politically important
Committee's decision: Cleared


13.1 The proposed Takeovers Directive has two main objectives:

  • to harmonise national rules on takeover bids, particularly regarding the information to be provided about a bid, the period for acceptance of a bid, disclosure to the market, obligations of the board of the target company (including restrictions on defensive measures in the case of hostile bids), and the conduct of bids; and

  • to set minimum standards across the EU for the protection of minority shareholders in companies where there is a change in control of their company by requiring that a "mandatory bid" be made for all remaining securities.

The Directive, originally issued in 1996, was considered a number of times by the previous Committee. On 25 April 2001 the Committee cleared the Council's common position and the European Parliament's 15 amendments. The conciliation process was triggered when the Council rejected the European Parliament's amendments.

The document

13.2 The joint text was agreed on 6 June 2001 by the conciliation committee comprising representatives from the Council and European Parliament. As noted below, the European Parliament has since rejected the joint text.

The Government's view

13.3 In her letter of 28 June 2001, the Parliamentary Under-Secretary of State for Competition, Consumers and Markets (Miss Melanie Johnson) says:

    "The joint text represents an acceptable outcome on this dossier, and in the light of the amendments adopted by the European Parliament in December, a very good outcome. No significant concessions were made on the two key issues during conciliation — 'frustrating action' (where Parliament had sought to fatally undermine the restrictions in the Directive), and the role of employees (where Parliament had sought to introduce extensive rights to information and consultation during a takeover which could have been enforced through the courts in tactical litigation)."

13.4 In her Explanatory Memorandum the Minister comments on the individual amendments agreed in conciliation. A number of those sought to clarify the text of the common position. Article 9(1) and the European Parliament's amendments 17 and 20 represent the most controversial aspect of the text.[34] The Minister said:

    "Parliament's adopted amendments [17 and 20] would have given Member States much greater discretion to allow defensive measures to frustrate a hostile takeover bid without the consent of shareholders. They would have required Member States to give the courts an explicit role in deciding whether the board of the offeree company had acted properly. These amendments were totally unacceptable to the Government because they would have fundamentally undermined one of the key principles of the Directive — that shareholders should decide on the merits of a bid, and should not be denied the opportunity to do so. They would also have introduced the courts into the process in a way the Government has sought to avoid. This issue proved the most difficult to resolve in conciliation. A number of changes to Article 9(1) were proposed by the Council and accepted by the Parliament. Sub­paragraph (a) was reworded to make it clearer that the board of the offeree company is not prevented from taking any action that might frustrate a hostile bid, but that it would need the specific consent of shareholders to do so. A new sub­paragraph (b) was inserted making clear that company decisions taken before a bid was made may still be carried out, but would require approval or confirmation of shareholders if the decision was outside the normal course of business and its implementation could frustrate the bid. A new sub­paragraph (c) was added making clear that Member States may allow convening at short notice of general meetings of shareholders to approve frustrating action. These changes are, in the Government s view, clarifications of what the common position already allowed and do not constitute substantive concessions. By themselves, they were not sufficient to gain the support of a majority of MEPs on the conciliation committee. The Council therefore agreed to allow Member States the option of postponing compliance with Article 9 for one year after entry into force of the Directive — see Article 15(1). It is understood the German Government intends to take up this option. Ideally the Government would have preferred not to include this option in the Directive, but it considers it an acceptable price to pay in order to secure agreement of a joint text in conciliation.

    "EP amendment 20 also included a provision requiring the board of the offeree company to enclose any separate opinion of the employee representative body with its own opinion on the bid. The joint text requires that where the employees' opinion on the effects of implementation on employment is made available in sufficient time, it should be enclosed with the board's opinion. In addition, the board s opinion must include its views on the offeror's strategic planning for the offeree company and the likely impact of the takeover on jobs and locations as set out in the offer document. The board must also communicate its opinion to the employees when it is published. These changes constitute a further response to the Parliament's proposed amendments relating to employees (see paragraph 17 above). The requirement to communicate the board opinion to employees was a UK proposal tabled at the end of the negotiation to see off a proposal by MEPs to bring employee information rights within the general principles in Article 3, something the Government could not have accepted. None of these requirements impose significant additional burdens on companies, and seen in the light of the amendments proposed by Parliament concerning employees, can be regarded as a very good outcome."


13.5 The previous Committee cleared both the draft Directive and the Council's common position. The Conciliation Committee agreed the joint text on 6 June. However, the joint text was voted down in the European Parliament on 4 July. A controversial aspect of the joint text concerned the scope for companies to undertake defensive measures in the event of a hostile takeover bid. Opponents of the joint text in the European Parliament argued that it left European companies unprotected and open to hostile bids, especially from United States companies. On the other hand, proponents of the joint text argued that defensive measures could be taken with the support of shareholders. The joint text required a simple majority of Members of the European Parliament present for adoption, but in the event the vote was tied (273 in favour, 273 against and 22 abstentions). This meant that the proposal, which had been under consideration for 12 years in one form or another, was deemed to have been rejected. Given this situation, and the fact that the joint text is similar to the common position which was cleared earlier, we clear the document.

34  The references below to European Parliament amendments are to those adopted by the Parliament on 13 December, and to which amendments agreed in conciliation are intended to respond. Back

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Prepared 2 November 2001