The Directive on Takeover Bids: Unwanted Harmonisation of Corporate Governance

Abstract

The Takeover Directive (2004/25/EC) pursues a noble and worthy aim, namely how to conduct a public bid, which often involves different jurisdictions and for that reason merits regulation at a Union level. Unfortunately, it was mistaken for a company law directive at a time when it was not fully realized that corporate governance should not be subject to substantial harmonization, and consequently the Directive tried to harmonize several highly controversial issues of corporate governance. This made the Directive difficult to adopt, but unfortunately the Union legislators pressed on and ultimately succeeded.

Most would agree that the outcome of the Directive was poor. To assert that perhaps the Directive should never have been passed in this form, is not to say that the Directive should not have been passed at all. It should, and it is still necessary, if, that is, it is restricted to only deal with the issue at hart: how to conduct a public bid.

Consequently, the Directive should be stripped of its corporate governance issues in the upcoming revision. These issues are not ripe for harmonization and may never be, because differences in corporate governance among the Member States should not be seen as obstacles to takeovers but as a treasure trove of possibilities for companies to choose among.

A removal should be possible for the anti-frustration rule and the breakthrough rule because they are already optional in the present Directive and it would furthermore be a welcomed observance of the principle of subsidiarity.

The mandatory bid rule should also be removed as it too represents a certain corporate governance choice to protect incumbent management from shareholder control that is incompatible with other governance systems emphasizing such control, e.g. the Nordic regime. This, however, may prove more difficult as it benefits several strong constituencies and in stead it may be important to mitigate the detrimental effects of the rule on shareholder activism, notably by making the mandatory bid rule and its provision on parties acting in concert more precise and limited in scope so they will only apply to circumstances where a public bid has been launched, but not ordinary acquisitions or actions performed on the market as part of normal trading and normal shareholder activity before, at or after the general meeting.

Keywords: corporate governance, takeover bids, mandatory bid rule, anti-frustration rule, breakthrough-rule

JEL Classification: K22