Select Committee on European Union Minutes of Evidence

Letter from The Takeover Panel

  As you know, we have been following closely the negotiations concerning the Takeover Directive which are clearly reaching a critical stage. We understand that the Commission, the Council and the Parliament (principally through the Committee on Legal Affairs and the Internal Market) are currently engaged in active discussions which have as their aim the adoption of the Directive at a first reading.

  We thought that it might be helpful if, for clarity, we reiterated with our views on some of the major issues which are now being debated and, in particular, on one or two key matters which could affect the ability of regulators effectively to carry out their functions. Throughout, we have been very conscious of the fundamental aims of this Directive: namely, the creation of an orderly framework for takeover bids within the EU and the protection of shareholders in EU companies.

1.   Frustrating action

  The provisions of Article 3(1)(c) and Article 9 set out and implement the fundamental principles that the offeree board must not deny shareholders the opportunity to decide on the merits of the bid—ie must not engage in frustrating action. Article 9 is one of the key measures which underpins the entire Directive—any compromise proposal which removed or undermined the effectiveness of the Article would be contrary to the spirit of the Directive.

2.   Break-through

  The break-through concept is at the heart of the current debate. We have always maintained that we do not have strong views as to whether the break-through concept is, in abstract, a good thing or not. However, we have consistently pointed out that if multiple voting rights are to be included within the scope of Article 11, the Article must be drafted clearly so that it is plain from the start of any bid what constitutes the capital to be bid for and what compensation, if any, is payable. A bidder must know when he first makes his bid what he has to pay for the company and exactly what and how many securities he has to buy to exercise his break-through rights. Otherwise, if there is any uncertainty on these matters, it will mean that nobody will ever bid for companies with differential voting rights and the Article will achieve precisely the opposite effect to that intended. Protracted litigation must not be a feature of deciding either issue.

  We understand that the Council is considering proposals which leave the question of compensation to be dealt with at a Member State level. However, to date nobody has come up with a workable solution to this issue. If individual Member States are unable satisfactorily to address this question, it seems to us that there is a significant risk that wherever break-through is in point litigation will follow.

3.   Reciprocity

  As regulators, we do not have strong views on the issue of reciprocity, although we recognise the strong views that are held by participants in the debate. Our regime is clear—we apply the principles set out in the UK Takeover Code equally to all offerors, regardless of their country of origin.

4.   Powers of derogation

  Takeovers are by their very nature fast moving and innovative. One can never predict what circumstances may arise. It will therefore be important to allow regulatory bodies some flexibility in interpreting the Directive whilst requiring compliance with the key principles set out in Article 3.

  We have found that such a structure (flexibility within a framework of clear principles) has worked extremely well in practice in the UK and has been seen as one of the key attractions of our system. We would therefore be very concerned by any compromise which sought to undermine the effectiveness of Article 4(5) which sets out the general power of supervisory authorities to derogate from provisions of the Directive (provided always that the general principles are respected).

5.   Supervision of bids

  We also believe that it is critical in any takeover bid that one supervisory authority should have responsibility for administering the conduct of the bid and applying the relevant takeover rules. We have, for this reason, always opposed existing Article 4.2 which proposes shared jurisdiction where, inter alia, a company is incorporated in one EU Member State but its shares are listed in another. We believe that the regulatory authority in the EU Member State where the offeree company is incorporated should have sole jurisdiction. The Takeover Panel has always operated on this basis. There have been occasions where companies have, for example, been incorporated in the UK but listed elsewhere and the Panel has, where necessary, granted derogations from Code rules in order to ensure that takeovers for such companies can be made in an orderly way. It is critical that there is a lead or primary regulator. Shared jurisdiction is a recipe for significant regulatory uncertainty which could undermine the key objective of this Direcitve.

6.   Employee consultation

  Some parties have recently argued that the Directive should be amended in order to give representatives of employees the right to be informed and consulted in detail by the management of the company before and during the takeover. We would be extremely concerned if any amendment were introduced requiring prior consultation with all the associated implications for confidentiality at a very sensitive moment. Also, it will be important to ensure that consultation requirements during an offer do not affect the prescribed timetable and the orderly framework of takeovers.

  In any event, the Information and Consultation Directive adopted on 11 March 2002 (Directive 2002/14/EC) has already provided for extensive information and consultation rights for employees and their representatives in appropriate circumstances. The Information and Consultation Directive was adopted following much debate and consideration of all the provisions which need to be included to protect both employers and employees. In our view the Information and Consultation Directive forms a proper basis for the information and consultation rights of employees and their representatives in relation to takeovers. It is not clear why additional provisions are needed in a Directive designed for the protection of shareholders.

9 May 2003

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