One frequently asked question runs along the lines of "Where are we with the proposed European take over code?" This new Euro-law has been in contemplation since the late 1980's. Its introduction to the EU Parliament in February 1996 as a draft directive seemed then to make it an imminent reality. So what's happened and how - and when - will the new law affect us?
The 13th EU company law directive is progressing inexorably, if slowly, towards the statute books. The Council of Ministers agreed the key principles in June 2000. The EU takeover code is now due for its second reading in the European parliament this Autumn. Its just possible that the directive will be adopted as law in spring 2001 leaving member states to implement it within their domestic law. The draft directive allows four years for implementation, but some commentators believe the period could be shortened prior to enactment.
This is a framework directive. It lays down principles for member states to apply through their own more detailed rules. The impact of the new law will be greatest within the less sophisticated jurisdictions. There, the establishment of a proper takeover regulatory regime will be required for the first time.
This is all part of a larger plan to achieve a truly single market throughout the EU in financial services by 2005. However, because this is only a framework directive the offeror may still find there to be considerable differences between the rules of its own jurisdiction (with which it is most familiar) and the rules that it must follow to implement the bid, namely the rules of the principal jurisdiction in which the target's shares are listed. For example, the directive requires an offer to remain open for acceptance for a minimum period but allows member states to stipulate periods of anything between four and 10 weeks. In England, on another point, the mandatory bid provisions apply once the acquiror has obtained 30% of target. The threshold in other countries varies considerably and will not be harmonised by the directive.
That said, the principles contained within the directive should provide some modest assistance to those engaged in cross border public consolidation work. For one thing, there will be a set of take over rules in target's jurisdiction that are not there at present or that have been developed in response to the directive. In addition, bids will be underpinned by the same tenets of fair play whatever EU jurisdictions are involved in the deal. The introduction of higher standards of fairness in those other regimes should diminish the scope for incumbent management to take measures to defeat the hostile bid.
The principles contained within the directive require: equal treatment for all voting shareholders, sufficiency of time and information to evaluate the bid, proper regard by offeree board to interests of shareholders, avoidance of false markets in shares of either party, offeror to ensure it can implement bid and payment before announcing, and bid not to distract offeree from normal business for longer than reasonably necessary. Provision is also made for the mandatory bid as mentioned earlier and to restrict frustrating action on the part of target.
As will be apparent, for purely domestic bids covered by the City Code on Takeovers and Mergers the new directive will not radically alter our understanding of what can, cannot and needs to be done.
The information and opinions contained in this publication are provided by national law firm Hammond Suddards Edge. They should not be applied to any particular set of facts without seeking appropriate legal or other professional advice.