Annexes to COM(2012)347 - Application of Directive 2004/25/EC on takeover bids - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2012)347 - Application of Directive 2004/25/EC on takeover bids. |
|---|---|
| document | COM(2012)347  |
| date | June 28, 2012 |
Member States have transposed the definition in different ways. For instance, some Member States[19] stay close to the definition given in the Takeover Bids Directive, while others[20] have included elements of the definition of "acting in concert" given in the Transparency Directive[21]. Moreover, the concept of "acting in concert" is also included in the Acquisitions Directive[22]. The broad definition of the term, included in the Acquisitions Directive's level 3 guidance,[23] is however not used by regulators in connection with takeover bids. To mitigate uncertainty around the application of the concept of "acting in concert" some national regulators[24] have issued interpretative guidelines or presumptions. However, the content of these guidelines is not the same. The existence of different definitions and interpretations on national level is a source of uncertainty for international investors who wish to cooperate with each other and might have a limiting effect on their willingness to engage actively with investee companies. This is confirmed by respondents to the Commission Green Paper on the EU Corporate Framework[25] who expressed the view that there is a need to clarify existing provisions on "acting in concert"[26].
17. Secondly, the wide range of national derogations to the mandatory bid rule raises the question as to whether the mandatory bid rule adequately protects minority shareholders in situations of change of control. Article 4 (5) of the Takeover Bids Directive allows Member States to make derogations from the rules of the Directive by providing that:
"Provided that the general principles laid down in Article 3(1) are respected, Member States may provide in the rules that they make or introduce pursuant to this Directive for derogations from those rules:
i. by including such derogations in their national rules, in order to take account of circumstances determined at national level and/or
ii. by granting their supervisory authorities, where they are competent, powers to waive such national rules, to take account of the circumstances referred to in (i) or in other specific circumstances, in which case a reasoned decision must be required.
All Member States included in the External Study have made derogations to the mandatory bid rule. Derogations can be divided into a number of categories[27]:
· Discretionary power of the national supervisory authority to grant an exemption. Only a few Member States[28] have used this possibility;
· Whitewash procedures where shareholders may decide to waive the obligation to launch a mandatory bid;
· Technical derogations, such as a derogation for open-ended collective investment schemes (which are outside the scope of the Directive), which do not limit the scope of application of the mandatory bid rule as foreseen by the Directive;
· Situations where there is no real change of control, for instance when the change of control is temporary or the acquisition has taken place within the same company group or "acting in concert" group. These derogations do not affect the objective of the directive to protect minority shareholders in situations of change of control;
· To protect the interests of the offeror or the controlling shareholder, for instance when the change of control was not caused by a voluntary act, the acquisition was indirect, or followed a personal event, such as inheritance;
· To protect the interests of a creditor, for instance in situations where the acquisition is the consequence of an exercise of financial security by a creditor;
· To protect the interests of other stakeholders, for instance when an investor is in financial distress, when control is acquired through a specific type of corporate transaction, such as a merger or scheme of arrangement, or when control is acquired following a sale of securities by the state.
Within the range of different national derogations to the mandatory bid rule, it is not always clear how the protection of minority shareholders is ensured. As follows from Article 4 (5) of the Directive Member States who provide for derogations from the rules of the Directive, must respect the general principles of the Directive. One of the general principles is that, if a person acquires control of a company, the other holders of securities must be protected (Article 3 (a) of the Directive). The Directive does not regulate how Member States should ensure that the general principles of the Directive are respected.
18. Thirdly, Article 5 (2) of the Takeover Bids Directive regulates that where control has been acquired following a voluntary bid to all the holders of securities for all their holdings, the obligation to launch a mandatory bid no longer applies. It has come to the attention of the Commission that this exemption can be used by offerors to avoid having to launch a mandatory bid for an equitable price. The advantage for the offeror is that the Directive does not regulate the price of a voluntary bid. The exemption for situations where control has been acquired following a voluntary bid assumes that the offer price was high enough to persuade a significant part of the shareholders to accept the offer, otherwise the offeror would not have acquired control through the bid. However, if the offeror already holds an interest very close to the control threshold, only a few shareholders need to offer their shares for the offeror to cross the control threshold. Therefore, even if the offeror offers a very low price, he is likely to acquire control through the voluntary bid and thus is able to make use of the exemption to the mandatory bid rule. In this case, minority shareholders are unable to share in the control premium. However, in a number of Member States this route is unavailable because national law provides that the offer must be subject to the condition that the offeror acquires a minimum percentage of the shares[29] or subsequent acquisitions of shares will trigger a mandatory bid[30].
It has also been argued that offerors can acquire a controlling stake without having to launch a mandatory bid by keeping their participation just below the control threshold, while de facto they are able to control the company, or by acquiring a derivative position[31].
19. Fourthly, with regard to the optional articles of the Takeover Bids Directive, it could be concluded that, although the board neutrality rule is a relative success[32], the breakthrough rule was not so successful, given that only three Member States have transposed it. At the moment of adoption of the Directive, the idea was that shareholders might push for the optional provisions to be applied voluntarily by companies, where Member States chose not to transpose them. However, this appears not to have been the case. It could therefore be considered that the Directive is not very effective in regulating the use of defensive measures. This is confirmed by stakeholders. However, they have also indicated that there are, notwithstanding the lack of transposition of the breakthrough rule, sufficient possibilities to break through takeover defences (see paragraph 11 of this report).
20. Fifthly, the Takeover Bids Directive requires that representatives of employees of the offeree company and the offeror must be informed in detail in the event of a takeover bid[33]. The information provided to employee representatives should include a statement of the offeror's intentions as regards the future business of the offeree company and the offeror with a view to repercussions on employment and employment conditions[34] and a statement of the view of the board of the offeree company on the offer and its likely repercussions on employment[35]. The External study shows that representatives of employees are not satisfied with how the Directive safeguards the interests of employees. They mention that the required information is not always given in time, or is inadequate, and that takeover offers have a significant impact on working conditions and redundancies. Moreover, after the bid, they claim that there is no control over whether the offeror will do as he stated in the information disclosed in the offer procedure. This is however not regulated by the Directive.
4. Conclusions
21. This review of the operation of the Takeover Bids Directive shows that, generally, the regime created by the Directive is working satisfactory. No structural compliance issues have emerged in relation to the application of the legal framework in the Member States. Stakeholders are generally satisfied with the clarity of the rules included in the Directive and the adequacy of their enforcement and consider the Directive be useful for the proper and efficient functioning of the market. The External Study considers that the Takeover Bids Directive has contributed to improvements in relation to its objectives.
22. Nevertheless, there are areas where the rules of the Takeover Bids Directive could merit some clarification in order to improve legal certainty for the parties concerned and the effective exercise of (minority) shareholder rights.
23. Firstly, the concept of "acting in concert" could be clarified on EU level, in order to provide more legal certainty to international investors as to the extent to which they can cooperate with each other without being regarded as "acting in concert" and running the risk of having to launch a mandatory bid. Clarification could, for instance, be provided through the development of guidelines, from the Commission and/or ESMA. Such clarification would give greater opportunity to shareholders to hold boards accountable for their actions and promote good corporate governance standards in listed companies in the EU. However it should not limit the ability of competent authorities to oblige control seeking concert parties to accept the legal consequences of their concerted action. Possible initiatives in this area would be in line with the goals of the Commission's Green Paper on the EU Corporate Governance Framework and its Communication "Towards a Single Market Act"[36] to promote longer term, sustainable ownership to the benefit of sustainable growth of the European market. The Commission intends to announce what measures it intends to take in this area in October 2012.
24. Secondly, the review shows that there is a wide variety of national derogations to the mandatory bid rule and that it is not always clear how the general principle of the directive, which requires the protection of minority shareholders in situations of change of control, is respected when a national derogation applies. As a possible way forward, the Commission intends to carry out further investigation on how minority shareholders are protected when a national derogation to the mandatory bid rule applies. More information is indeed needed on the scope of application of national derogations to the mandatory bid rule, on the extent to which national derogations limit the protection of minority shareholders in situations of change of control and, when relevant, what alternative mechanisms exist in national law to protect minority shareholders in situations of change of control. If, following the investigation, the protection of minority shareholders proves to be inadequate, the Commission will take the necessary steps (e.g through infringement procedures) to restore the effective application of this general principle of the Directive.
25. Thirdly, the review shows that the exemption to the mandatory bid rule included in the Takeover Bids Directive, for situations where control has been acquired following a voluntary bid for all shares of the company, has created a possibility for offerors to get round the mandatory bid rule by acquiring a stake close to the mandatory bid threshold and then launching a voluntary bid for a low price. As a consequence, the offeror would cross the mandatory bid threshold without giving minority shareholders a fair chance to exit the company and share in the control premium. This technique is clearly not in line with the objective of the Directive to protect minority shareholders in situations of change of control, although it does not appear to breach the letter of the Directive[37]. Examples in national legislation, such as additional mandatory bid thresholds[38] or minimum acceptance conditions to takeover offers[39], show that there are possibilities to prevent the use of this technique. The Commission will take the appropriate steps to discourage the use of this technique across the EU, such as through bilateral discussions with the concerned Member States or Commission Recommendations.
26. Fourthly, with regard to the optional Articles 9 and 11 of the Takeover Bids Directive the review shows that although the board neutrality rule (Article 9) is transposed by a relatively large number of the Member States, this is not the case for the breakthrough rule (Article 11)[40]. However, the lack of application of the optional rules does not seem to have been a major obstacle to takeover bids in the EU, given that stakeholders have indicated that there are sufficient possibilities to break through takeover defences. In light of this and considering also the lack of economic evidence available to justify changing the situation, it does not, therefore, seem appropriate at this stage to propose to make the optional articles of the Directive mandatory.
27. Finally, employee representatives have indicated that they are not satisfied with how the Takeover Bids Directive protects the rights of employees in a takeover situation, in particular with respect to the risk of changes in work conditions and job availability. The Commission will pursue its dialogue with employee representatives with a view to exploring possible future improvements. It will also investigate further the experience gained in practice with the provisions of the Directive which require disclosure of the offeror's intentions as regards the future business of the company and its employment conditions and the view of the offeree company's board on this, as well as disclosure of information concerning the financing of the bid and the identity of the offeror[41].
28. Member States, the European Parliament, the European Economic and Social Committee and other interested parties are invited to submit their views on the review described in this Report.
ANNEX TO THE REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS
Application of Directive 2004/25/EC on takeover bids
Figure 1: Evolution of takeovers in Europe
Source: External Study, p. 284
Figure 2: Number of Intra-EU Takeover Deals 2003-2010
Source: External Study, p. 285
Figure 3: Impact of takeover regulation (+ relationship and intensity)
Source: External Study, p.29
Figure 4: Barriers to takeovers not covered by the Takeover Bids Directive. Percentage of companies that have pyramid structures or cross-shareholdings.
Source: External Study, p. 48
[1] Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids, OJ L 142/12 of 30.03.2004, p.38. Available at: htp://ec.europa.eu/internal_market/company/official/index_en.htm
[2] See Article 3 of the Directive.
[3] Marccus Partners, in cooperation with the Centre for European Policy Studies (June 2012), Study on the application of Directive 2004/25/EC on takeover bids. Available at: http://ec.europa.eu/internal_market/company/takeoverbids/index_en.htm
[4] Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Poland, Portugal, Romania, the Slovak Republic, Spain, Sweden and the United Kingdom
[5] Commission Staff Working Document. Report on the Implementation of the Directive on Takeover Bids, 21 February 2007, SEC(2007) 268.
[6] Austria, Bulgaria, Cyprus, the Czech Republic, Estonia, Finland, France, Greece, Ireland, Italy, Latvia, Lithuania, Malta, Portugal, Romania, Slovenia, the Slovak Republic, Spain and the United Kingdom
[7] The board neutrality rule (Article 9 of the Directive) provides that during the bid period the board of the offeree company must obtain prior authorisation from the general meeting of shareholder before taking any action which might result in the frustration of the bid.
[8] Estonia, Latvia and Lithuania
[9] The breakthrough rule (Article 11 of the Directive) neutralises pre-bid defences during a takeover by making certain restrictions (e.g. share transfer or voting restrictions) inoperable during the takeover period and allows a successful offeror to remove the incumbent board of the offeree company and modify its articles of association.
[10] Belgium, Denmark, France, Germany, Greece, Hungary, Italy, Luxembourg, the Netherlands, Poland, Portugal, Slovenia and Spain
[11] Except a 'peak' in takeovers in 2007, see figure 2 in the Annex.
[12] See Figures 1 and 2 in the Annex to this Report.
[13] See Chapter 4 of the External Study.
[14] See Figure 3 in the Annex to this Report.
[15] The External Study includes the following third countries: Australia, Canada, China, Hong Kong, India, Japan, Russia, Switzerland and the United States.
[16] Pyramid structures are structures where an entity holds a controlling stake in a company, which holds a controlling stake in another company, which holds a controlling stake in another company, and so on.
[17] See Figure 4 in the Annex to this Report.
[18] See page 48 and 267 of the External Study.
[19] E.g. Austria, Cyprus, Denmark, Italy, Hungary, Ireland, Luxembourg, the Netherlands, the Slovak Republic and the United Kingdom
[20] E.g. Belgium, Finland, France, Germany, Poland, Portugal, Romania, Spain and Sweden
[21] Directive 2004/109/EC of the European Parliament and the Council on the harmonisation of transparency requirements with regard to information about issuers whose securities are admitted to trading on a regulated market. Article 10 (a) of the Directive defines "acting in concert" as: "a third party with whom that person or entity has concluded an agreement, which obliges them to adopt, by concerted exercise of the voting rights they hold, lasting common policy towards the management of the issuer in question".
[22] Directive 2007/44/EC of the European Parliament and the Council as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector
[23] Level 3 guidance to the Acquisitions Directive considers persons "acting in concert" when: "each of them decides to exercise his rights linked to the shares he acquires in accordance with an explicit or implicit agreement made between them".
[24] E.g. Italy and the United Kingdom
[25] Green Paper on the EU Corporate Governance Framework, 4 April 2011, COM (2011) 164 final. Available at: http://ec.europa.eu/internal_market/company/docs/modern/com2011-164_en.pdf#page=2
[26] See: Feedback Statement, Summary of Responses to the Green Paper on the EU Corporate Governance Framework. Available at: http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf
[27] For a table of different derogations to the mandatory bid rule and in which Member States they are available, see p. 152 of the External Study. This report summarises the most common derogations and arranges them in categories.
[28] Finland, Ireland and the United Kingdom. In Germany, Bafin has a limited discretionary power to waive a mandatory bid, while in France the Court of Appeal upheld a decision from the AMF to grant an exemption.
[29] For instance in the United Kingdom, the offer must be subject to the condition that the offeror acquires at least 50% of the shares.
[30] For an overview of national provisions defining when subsequent acquisitions trigger a mandatory bid obligation, see p. 130 of the External Study.
[31] The proposal for modification of the Transparency Directive already includes mandatory disclosure of derivative positions. See: http://ec.europa.eu/internal_market/securities/docs/transparency/modifying-proposal/20111025-provisional-proposal_en.pdf
[32] See paragraph 7 of this Report.
[33] See Articles 6 (1), 6 (2) and 8 (2) of the Directive.
[34] See Article 6 (3) (i) of the Directive.
[35] See Article 9 (5) of the Directive.
[36] Communication "Towards a Single Market Act", April 2011, COM(2011) 206 final. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0206:FIN:EN:PDF
[37] See article 5, paragraph 2, of the Directive, which explicitly exempts acquisitions following a voluntary bid for all shares of the company from the mandatory bid rule.
[38] See p. 130 of the External Study for an overview of additional thresholds.
[39] See p. 146 of the External study.
[40] See paragraph 7 of this Report.
[41] See article 3 paragraph 1 (b), article 6, paragraph 3 (i), (l) and (m) and article 9 paragraph 5 of the Directive.