Takeover Lawyers In Despair Over Failure Of EU Directive

by Robin Pilgrim, LawandTax-News.com, London

28 May 2003

The European Commission appears ready to give up its 14-year fight to instal an EU-wide Merger and Acquisition Directive, leading many top takeover lawyers, suffering from a dearth of business as equity markets reel, to start checking the distance from their windows to the concrete below. But such angst may be premature, given that the European Court of Justice (ECJ) appears ready to complete the single market agenda regardless of elected governments or the European Parliament.

On 19 May European ministers said they had failed to reach agreement on the directive, which seeks to ban poison-pill defences, multiple voting rights and other curbs on the unfettered operation of capital markets. Defying the Commission, the Greek EU Presidency had produced a version of the draft directive which called for EU member states to be able to ban takeovers of EU companies by their non-EU counterparts, arguing that a lack of reciprocity between the EU and countries such as the United States make this a necessary move.

However, just the previous week the ECJ had banned 'golden shares' in the UK and Spain, announcing that such rules represent an unjustified restriction of the free movement of capital as enshrined in the EC Treaty.

Following the ECJ's ruling, Germany (which has been the most recalcitrant member state during Takeover Directive negotiations) asked for an extension of the deadline given by the European Commission for the government to justify the so-called 'Volkswagen law' which protects the company from takeover. Although the Commission allowed a pause until 20th June, the German authorities will probably be unable to maintain the law, which caps the voting rights of shareholders at 20%, requires the support of more than 80% of shareholders for any important decisions, and guarantees the state of Lower Saxony voting rights of 20% no matter what the size of its stake.

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