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Lord Sharman: I thank the Minister for his full explanation of the Government's position with regard to these amendments, and I will reflect on it. In the mean time, I beg leave to withdraw the amendment.
The noble Lord said: This is a further amendment dealing with the implementation of the opting-in and opting-out provisions. It deals with the fact that the
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takeovers directive does not require a provision prohibiting a company that has opted in from being able to opt out for at least a year. We believe that gold-plating in this instance is undesirable, as it will potentially put UK companies that have opted in at a disadvantage compared to companies in other jurisdictions, which can quickly opt out again. This is relevant, given the approach adopted in other EU member states, which intend to allow discrimination against bidders that are not subject to the opt-in or Article 11 of the takeover directive. I beg to move.
Lord Hodgson of Astley Abbotts: I have put my name to this amendment, and I would only add to what the noble Lord, Lord Sharman, has said. I agree with everything he said. The competitive position of Britain and British companies is important, and we should not be hampering them in any way. This seems to be an unnecessary bit of barnacle.
Lord Goldsmith: There is a superficial attraction to what the noble Lords have said, but there is another important consideration: there is a need for certainty in the marketplace. The amendment would delete Clause 642(6), which provides that no company can opt out within the first year of the company having taken a decision to opt in. We are required by Article 11 of the takeovers directive to permit a company that has opted in to opt out again, but we think there is a need for certainty. If a company, having carefully weighed the consequences, decides to opt in, it seems right to provide at least a limited time periodand that is all this isof one year during which the company cannot reverse that decision to opt in. That will focus minds on whether it is the right decision to have made. It is wholly consistent with the provisions of the directive, in our view. Once the 12 months has expired, the company can opt out again if it chooses to do so. I invite the noble Lords to consider that the benefits of that certainty outweigh the superficial argument based upon practice in other countries, about which I do not know at the moment. I will have to look into that.
Lord Sharman: I am grateful that the Minister is going to look at practice in other countries. Those of us who have come across it, or, like myself, have worked in other countries, will know that it is very different from what we have here. I would not want British companies to be put at a disadvantage. I will reflect on his remarks, but meanwhile I beg leave to withdraw the amendment.
We are not entirely clear what "in value" means in the Government's terms; whether they believe this is nominal value, market value or some other value. It is important to hear from the Attorney-General why the Government have decided not use the wording in the directive, which appears to offer greater clarity than the wording currently in the Bill. Amendment No. A162A therefore proposes to make that change in Clause 643(2)(b). There would be a similar change further down the page. I beg to move.
Lord Goldsmith: Yet again, when we come to implementation of a Community directive, we have the choice of whether we follow a copy-out approach, which is to take the words used in the directive, or use a different approach that may be of more help to domestic readers to understand what the obligation is about. That is the approach that has been taken in this clause.
So why not use those terms? The problem from our point of view is that that expression does not strike us as terribly helpful to the businessman or practitioner coming to it cold; nor does it sit very naturally with existing language and concepts in companies legislation. If we were going to adopt his approach we would have to go further still, because Article 11.4 of the directive is not the end of the story as far as the directive definition of "breakthrough" is concerned, and that is what one would have to look to. For example, Article 11.6 says that Articles 11.3 and 11.4,
What does that mean? To understand that, one needs to look at the definition of "securities" in Article 2 of the directive, and so the paper chase goes on. All those ideas have to be captured to ensure proper implementation.
The view taken, therefore, was that it is better to give these concepts as plain a meaning as possible for the user of the domestic legislation and language and concepts that fitted readily into common present understanding and present use in companies legislation. We think this clause does that. Regarding the specific question of the words "in value" in the clause, we think it is clear what they mean: they refer to the nominal value of shares, so to achieve the breakthrough threshold the bidder must reach 75 per cent of the nominal value of the company's voting shares.
Lord Hodgson of Astley Abbotts: It is not often that the Attorney-General leaves me speechless, but that
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leaves me speechless. A practitioner will tell you that nominal value bears no relationship to the market values we are talking about. You could have different classes of shares, some with high nominal value and some with low, and you could have a quite extraordinary outcome. I see my noble friend Lady Noakes nodding her head, and I think the noble Lord, Lord Sharman, may nod his head too. This is a serious point. If we are really saying nominal value, we are going up completely the wrong alley. This is not a political point, but a practical point from the City. We have to find a different definition of value if we are going to stay with the current phraseology. I will withdraw the amendment this afternoon, but I hope the Government will take a serious look at this. I beg leave to withdraw the amendment.
The noble Lord said: We are still on Clause 643. This amendment inserts some additional wording into subsection (3)(a). As required by Article 11 of the takeovers directive, this clause allows contractual restrictions entered into either between two shareholders of a company or between the company and a shareholder to be broken through if a bid is made from an opted-in company. A bidder will often seek in advance what are known as irrevocable undertakings to accept its offer from shareholders in the target company. The shareholders undertake that they will accept the bid, usually so long as specified conditions have been met.
In some cases shareholders are permitted to withdraw their undertaking to accept if a higher offer is made. That is obviously a matter for commercial negotiation between the parties to the undertaking. This is what is known in the trade as a "hard irrevocable" and a "soft irrevocable", the hard irrevocable being, as its name implies, an irrevocable irrevocable, while a soft irrevocable means that if you have a bid more than 25 per cent above the level at which the irrevocable has been given, the accepter can withdraw his acceptance and transfer his acceptance to the higher bid.
Where a bidder has also bought shares in the target company, the clause would permit such undertakings, which are likely to satisfy the provisions of Clause 643(2), to be broken through so that they would effectively become meaningless. Such agreements should clearly be allowed to stand, provided they do not fall foul of the mischief that Article 11 is trying to prevent; namely, that a bidder is put at a disadvantage in trying to take control of the target company because of agreements between shareholders that impose restrictions on share transfers or the exercise of voting rights. That clearly cannot be the case if the bidder is a party to such an
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agreement, and such agreements should be carved out of this clause. That is what this amendment seeks to do. I beg to move.
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