The Revision of the EU Takeover Directive in Light of the 2011 UK Takeover Law Reform: Regulation and Supervision of Takeovers in an EU in Crisis

Abstract

Evidence brought forward by the financial crisis has led the business community to question the benefits that the takeover as an external corporate governance mechanism is assumed to offer and has heightened the debate on the social costs that takeovers may often create. Investors as well as EU Member States have begun to lose trust in the efficient operation of markets, which has in turn affected views on the efficacy of certain provisions of the 2004/25/EC Directive on Takeover Bids. In compliance with article 20 of the Takeover Directive the Commission is in the process of examining the Directive in the light of the experience acquired in applying it and, may, if necessary, propose its revision in time to come. The present paper will look beyond the provisions of the Directive which aim to make control over EU companies more contestable and propose an alternative reform of the Directive from a market and sustainable development perspective. It will argue in favor of improving the minimum standards set out in the Directive by encompassing more detailed provisions on certain technical subject matters and propose the redrafting of the rules on the supervision of takeovers. At a first stage it will explore whether certain of the reformed detailed provisions, as found and incorporated in the latest 10th edition of the UK City Code post the acquisition of Cadbury’s by Kraft in 2011, are worth considering as model provisions for the potential reform of the Directive. The themes that will in specific be discussed are the timeline that need be followed, the disclosure requirements and financing arrangements that need be communicated, the target board’s duties, the independent adviser’s opinion on the merits of a bid, as well as the status quo of employees and the role that short term investors play in takeover outcomes. At a second stage the paper will discuss article 4 of the Directive and assess the efficacy of the complex framework on the determination of the competent supervisory authority and the applicable law. Through the prism of modern market phenomena, such as scattered and rapid trading, it will propose alterations to the conflict of laws encompassed in article 4 of the Directive. At a final stage the paper will argue in favor of a regime conferring more powers to the European Securities and Markets Authority (ESMA) to address takeover practices in the EU and propose ways in which ESMA can work as an effective coordinator and mediator when supervising cross border takeover activity.