Make it or Break it: The Break-Through Rule as a Break-Through for the European Takeover Directive?
30 Pages Posted: 8 Sep 2003
Date Written: August 2003
The break-through concept is the most recent idea to break the deadlock with respect to EU takeover legislation. As devised by the High-Level Group of Company Law Experts, chaired by the Dutch Jaap Winter, the break-through concept would do away with two of the most important types of impediments to takeovers within EU member states. The first part of the paper explores the break-through concept in some detail, particularly with respect to its premises, its two guiding principles - exclusive shareholder decisionmaking and proportionality, - and the justifications given by the Group for the proposed interventionist rules. The second part of the paper is dedicated to an analysis of the economic effects of the two guiding principles, and in particular of the proposed "one share one vote" - regime. While there is good reason to support the principle of exclusive shareholder decision-making with respect to takeovers the rationale for a strict "one share one vote" - regime is more difficult to defend given the mandatory bid rule as an another core element of European takeover legislation. In all, the economic analysis presented in this paper supports the view that given a mandatory bid regime there is no need for European takeover regulation to incorporate an all-encompassing break-through concept based on "one share, one vote." On the other hand, apart from raising some difficult new problems the analysis does not identify any compelling argument against the introduction of such a rule either. Thus, it remains to be seen whether the break-through rule dead-ends all efforts of introducing a European takeover regulation or, on the contrary, acts as a catalyst that enables the EU finally to break through to the adoption of a Takeover Directive. The EU Commission, at least, because of strong political resistance from various interested parties only adopted a somewhat watered-down version of the break-through concept in its most recent proposal for a takeover directive of 2 October 2002.
Keywords: European takeover directive, break-through rule, mandatory bid, "one share one vote", Report of the High-Level Group of Company Law Experts on Issues Related to Takeover Bids, anti-takeover defenses, shareholder vote, multiple voting rights
JEL Classification: G32, G38, K22
Suggested Citation: Suggested Citation