European Union Anti-Takeover
Takeovers or mergers have been common economic activity since the wave of globalization has swept the countries. According to United Nations Conference on Trade and Development (UNCTAD), there has been increase in takeover and mergers with opening up of economies due to Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO) and others institutional factors
, Even the formation of European Union is an effort for harmonization of economic, political and social harmonization of policies to create an effective internal market for free movement of capital, people and trade. Deliberations to create a set of regulations to govern public takeovers across Europe began since the mid-1970s. However, on 21 April 2004, the European Parliament and Council passed the Directive 2004/25/EC on takeover bids (hereinafter the “Takeover Directive”). The Takeover Directive aimed at harmonizing European Union capital markets and strengthening the market competitiveness at international level. It also envisages a framework of national regulations on the topic and serve as guiding light for those who wish to involve in such take-overs.
At the outset, it is important to understand what it means by takeover - in common parlance take-over means ‘takeover can be defined as a transaction or series of transactions whereby a natural or legal person or group of persons acquires control over the assets of a company, either by becoming the owner of those assets in a direct way or indirectly through obtaining the control of the management of the company.’ Scholars consider it as one of the strongest regulatory examples of the EU market for corporate control that oversees complete interrelation between EU internal corporate governance and therefore fulfill the articles 49 and 50 of EU Treaty's principles of freedom of establishment.
This Directive aims to improve the healthy competitiveness among companies in the European Union. The European Commission hinted that the aim of the Takeover Directive is to integrate European markets, bring legal certainty, protect minority shareholders, and establish legal framework for Member States. Secondly, that takeover is one of the vehicles for the investors to create synergies between existing businesses and target. Therefore, another aim of establishing the Takeover Directive was to harmonize the company laws in the takeovers field and bring in consonance in the countries where there was no takeover regulation at all. It can also be believed that the harmonization attempt is a mean to prevent the Member States to regulate the takeover bids in a protectionist way by encumbering the access of potential investors from other Member States.
The main objective of the Directive is to establish a ‘level playing field’ for the takeovers in the EU internal market. Mergers allow corporations to allocate assets more efficiently, to ease the entrance to the new markets, to gain access to new know-how, and to replace incumbent management teams.
Prior to the Takeover Directive of the EU became effective, the rules relating to the takeover transactions varied and due to which it was difficult to conduct takeover in different EU member states. Also, general overview of the Takeover Directives is essential to get understand the subject holistically. Takeover Directive aims at harmonization of the rules relating to: -
- the takeover offers; and
- the protection of shareholder esp. minority shareholders of target companies.
The Takeover Directive is a skeleton or framework regulation which establishes minimum standards of common principles and a various general requirement that the EU member states had to formulate for a detailed implementation but in accordance with respective EU national laws of the member state. While implementation of the Takeover Directive, the EU member states had to incorporate the following general principles in its specific principles: -
- target shareholders of same class must be given same protection;
- a person has to give mandatory takeover offer when he acquires control of a company;
- the target company’s shareholders must have sufficient information before the takeover comes into effect;
- the target company’s board must make a public statement the board of the target company must with regard to its opinion about the effects of the offer on all the interests of the target company as well as on employment;
- false markets must not be developed in the securities of the target company, such that the bidder or any other company may see rise or fall in the share prices;
- a bidder must declare the takeover offer only after ensuring that he can fulfil any cash consideration in entirety and after taking all reasonable measures to secure other consideration.
- there should be no hindrance to do business for longer than reasonable by takeover for its securities.
Also, the scope of application of takeover code is applicable to:
- takeover offers;
- for the companies securities governed by the EU law.;
- where the entire or few of the securities are traded on the regulated in one or more EU member states.
Under the Takeover Directive:
- a “takeover offer” means a voluntary or mandatory public offer made to the shareholders of a company to acquire all or some of its securities, with objective the acquisition of control of the company in accordance with the national law of the respective EU member state;
- “securities” shall mean transferable securities carrying voting.
The Takeover Directive does not apply to public offers:
- Offered by the target company;
- to acquire securities that doesn’t have objective the acquisition of control;
- for EU member states’ central banks; and
- for securities issued by companies with objective is the collective investment of capital provided by the public at the holder's request, repurchased or redeemed out of the assets of those companies.
Anti-takeover measures are defined as periodic measures that the management of the company takes to discourage hostile takeovers. Anti-takeover defenses include all the actions, taken by managers of the company to discourage acquisition by the third party. The defenses are classified into categories one is pre-bid and other is post-bid.
- Pre-Bid Defense aims to prevent successful takeover or acquiring excess control
- Post-Bid Defense aims to increase the cost to acquire control.
The defense against take over as per the EU Directive are:
- Shareholder Agreements;
- Multiple Voting Right Shares;
- Non-Voting Preferred Shares;
- Golden Shares;
- Macaroni Defense; and
- Cross shareholdings.
But despite these defenses available, there are numerous provisions in the Directives to thwart the hostile takeover because the main aim of Takeover Directive is to develop integrated market.
Therefore, in conclusion it could be said that Takeover Directive leaves significant flexibility to the EU member states in various facets, hence has remained an uneven playing field for public takeovers. Nevertheless, as per the report of the European Commission released in June 2012, the law framework created by the Directive is working satisfactorily.