New Merger Directive Passes Euro-Parliament

by Ulrika Lomas, for LawAndTax-News.com, Brussels

12 May 2005

The EU Commission's proposal for facilitating cross-border mergers by allowing merger partners to use domestic merger procedures has taken a step forward, with a successful first reading under the co-decision procedure in the European Parliament.

MEPs backed, with a number of amendments, the Commission proposal to facilitate cross-border mergers between EU companies with share capital. The directive aims to increase transparency and legal certainty, by approximating cross-border merger procedures with domestic ones, which are already familiar to operators. By approving a report by Klaus-Heiner LEHNE (EPP-ED, DE), MEPs agreed on the general principle of the application of national law for mergers between companies of different Member States.

Members of the European Parliament were particularly concerned about the protection of employees' rights to information, consultation and participation. They adopted amendments to ensure that if a new merged company fails to give workers the same rights as one of the merging companies, the participation of employees is subject to negotiations according to rules provided in the rules of the European Company Statute.

The proposed directive would especially help small and medium-sized businesses (SMEs) looking to operate in more than one Member State but not throughout Europe. Each company taking part in a cross-border merger would do so in accordance with the laws of its own Member State, although if the merged company were created in a Member State which has rules on employee participation, it would be governed by those rules. Even if the merged company is to operate in a state which does not have employee participation rules, they might come to apply under a conciliation procedure. The United Kingdom's Confederation of British Industry's Digby Jones said the requirement that a company adopt the most restrictive consultation practices operating in the two merging organisations could "put employee representatives on UK company boards, giving them an effective veto over management decisions."

The new merger directive is being debated while the EU's last set of changes to cross-border merger rules, pushed through under Mario Monti, are still undigested. "The new law will equip the European Union with a modern, more flexible and efficient legislation to cater for the interests of 450 million consumers from 1st of May of this year," said Competition Commissioner Mario Monti in 2004 when the revised Merger Regulation was introduced.

The new version of the Merger Regulation aimed to introduce more flexibility into the investigation timeframes for mergers, reinforced the 'one stop shop' ethos of the previous Regulation, and clarified that the EC has the power to investigate all types of harmful scenarios in a merger that might harm the interests of European consumers.

However, speaking to the Legal Week news service recently, Herbert Smith competition partner, Stephen Kinsella observed that: "There is a feeling so far that the procedural changes are working pretty well but there have not yet been many difficult or contentious cases to test the new rules."

Competition partner at Allen & Overy, Alistair Lindsay supported this reading of the situation, telling Legal Week that: "The new guidelines have been widely welcomed by the market and seem to have led to improved decisions, but it remains fairly early days and everyone is keeping a close eye on developments."

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