Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 55-59)




  55. Good afternoon, Minister. Thank you very much indeed for coming here this afternoon to help us with our investigations of the proposed takeovers directive. We all know there has been a recent amendment to the text which has been deposited with us, dated 7th of this month. It has made a number of changes and some are perhaps significant, particularly those relating to multiple voting. I wonder if you could help us with an indication of where negotiations on the proposal now stand and what the status of the new text is?
  (Miss Johnson) I do not think I want to comment too much, if I may. Perhaps first of all I could just complete the courtesies of the afternoon, as it were, and introduce Mike Edbury and Alissa Bell. Alissa is a legal advisor in the DTI and Mike is the assistant director for company law and investigations in the Department, just to be aware of who you have before you. On the next text, I have not had the chance myself to study this in detail. We actually received it on Friday and I think your clerk was advised accordingly and sent a copy and officials are still looking at it. Obviously we have not yet submitted an EM on it so we will need to take a more considered view of it. Perhaps I could just talk a little bit about the overriding aspect of it, if that would be helpful, but I do not think I can comment more generally than that because I certainly do not have the detail to provide you with at the present time on that. Perhaps if I could say that our approach has been to be broadly supportive of the possibility of achieving a more liberal Directive generally, which obviously would have the effect of overriding multiple voting rights following a successful takeover and that is exactly the issue which has been picked up in the re-draft, the current state of drafting which you have seen just recently. The issue of override of multiple voting rights following a successful takeover has of course invoked quite a lot of discussion within the City and within business. A wide variety of differential share structures are possible in the UK but I recognise that there are those in the UK who have argued cogently in favour of retaining the flexibilities of the existing system. I think it is fair to say that differential share structures have been generally been disapproved of by the markets, particularly the institutional investors, and such structures are now rare among our listed company community. Institutional investors have viewed positively the possible override of multiple voting rights and indeed on balance it is considered that the disadvantages resulting from the impact domestically through override of multiple voting rights are outweighed by the possible openings elsewhere in Europe for UK companies that will result. So overall we are pleased to see the addition in the new draft.

  56. Our understanding has been that Germany in particular was anxious to have an amendment to the proposal in this form so as not to allow rights multiple voting rights to stand in the way as a defensive measure of a proposed takeover or merger but that Sweden, with the interests of the one vote dynasty in mind, was in favour of them. Do you have any insight into how the negotiations on this might go when it comes to being discussed in the Council?
  (Miss Johnson) I do not think it is always difficult to guess what the basic position of Member States is on these matters because you have only got to look at what the provisions are Member State by Member State to see where people will be coming from to the debate and in terms of multiple voting shares, Sweden, Finland and Denmark all have multiple voting share arrangements is my understanding of it, so they have different classes with different voting rights. There are other forms of structure of a similar kind in terms of pre-bid defensive measures in a number of other Member States. I cannot say how exactly the discussion will go. We often wish we knew how the discussion was going to go at forthcoming meetings. Unless Mike has more insight from his recent discussions with colleagues.

  57. I think perhaps in a way it might be more important to know what the Government's view was as to the importance of this amendment and whether they would be pressing hard for it to be accepted.
  (Miss Johnson) We certainly believe that this is a positive development and one that we would like to see. Our overall position on this is that it is helpful overall that we have a level playing field and that this is helpful in terms of achieving a level playing field.

  58. Thank you. Minister, I expect, as you know, the question of a European measure on takeovers and mergers was looked at by this Committee in 1996, when it was under the Chairmanship of Lord Hoffmann and, evidence was taken then from people in the City, from the Panel and the CBI and the question was raised whether any Directive was really justified or necessary. Does the Government have a view as to whether there is a case here for action at Union level? The report which was published by the Committee spoke of the possibility of there being a movement towards what was called "soft harmonisation" of the laws of Member States, by which I think it was meant that they would come together by natural development rather by being constrained to do so by a European Directive. Is it necessary to have a Directive in this area in the Government's judgment?
  (Miss Johnson) First of all, the Commission has stated that there is a two-fold objective in terms of the aims of the Directive, first of all a single market objective of providing a legal framework for takeovers across the EU and secondly adequate legal protection for shareholders and we support both of those broad aims for the Directive. We also think that there is a case in terms of the role of the Directive in terms of the financial services action plan and rolling that out to provide a more level playing field across Europe and the possibility of increased integration of financial services markets and that therefore deserves attention at EU level. Of course most Member States now have relatively developed takeover procedures and mandatory bid provisions, many of which do echo the provisions of our takeover code here in the UK. The talks on the Directive of course over the years—and indeed we know the talks on this Directive have gone on for an awful long time—may indeed have eased quite a lot of work of the soft harmonisation kind which you were talking about earlier on but I think it is fair to say that the balance at the moment, in our view, is that there is still a case for a Directive and that there would be gains to be had out of a Directive. That is a balance and it is always going to be a balanced decision.

  59. There is a balance. One of the particular fears which was expressed the last time round, and to some extent was expressed also when we had the advantage of hearing from City people this time round, was that to replace self-regulation by legislation would be likely to lead to some increase in litigation. At the moment self-regulation has a degree of judicial supervision by a judicial review, but the fear is that there might be litigation creeping up in the wake of legislation for the purpose of delaying takeovers and raising points for tactical reasons, and so forth.
  (Miss Johnson) As I said a moment ago, it is always a balance and of course the simplest way of making sure that there would be no issues around that would be for there to be no Directive at all. That is indisputably the case. Nonetheless, as I said in my explanatory memorandum, it remains the case that the only way of avoiding that is this and that does remain my position, but we have worked very closely with the Takeover Panel on it in relation to the conciliation text and the current proposal and indeed we are very grateful for both the work and the expertise that the Panel have been able to offer us on this. I believe that Philip Remnant has actually said in his evidence to you last month that the Panel on balance are satisfied that they can live with the risk. It is essential, I think, that we implement the legislation properly.

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