The Thirteenth Directive and the Contrasts between European and U.S. Takeover Regulation: Different (Regulatory) Means, Not so Different (Political and Economic) Ends?

Abstract

Cross-border acquisitions, especially through hostile takeovers, represent one of the most dramatic consequences of the growing integration, both within Europe, and when considering the economic balance of power between the U.S. and the European industries. This Article focuses on the single most important piece of legislation on European takeover law, the Thirteenth Directive of the European Union on Takeover Regulation, which was approved on April, 21 2004 and must be implemented by Member States before the end of 2006.

Passage of the Thirteenth Directive is no minor event. Earlier versions were embroiled in arresting political controversies that generated significant Member State antipathy toward European regulation of the area. As a result, several earlier versions were rejected, causing many experts and observers to question whether any takeover directive would be adopted at the EU level. Also as a result of the political controversies, the final version of the Directive represents a significant compromise, most strikingly for the flexibility it affords Member States in adopting its various provisions. For all these reasons, final passage of the Directive represents a significant legislative accomplishment, worthy of attention not only for its substantive effect, but also for its contribution to the on-going debate over the desirability of harmonization versus regulatory competition.

Consistent with prevailing European perspectives, but differently from the U.S. approach, the core premises of the Thirteenth Directive involve significant restrictions on the freedom of both the raider and of the target corporation. Under the Directive, corporate raiders are generally obliged to obtain control only through the launching of a public tender offer on all the outstanding shares, at a fixed minimum price.

Meanwhile, the directors (and/or the controlling shareholders) of target companies are limited under the Directive regarding the defensive measures that they can employ to repel a hostile bid. Meanwhile, in the United States, these restrictions are almost completely absent, as would seem in keeping with its more market-oriented approach to regulation of various categories of economic activity.

Taking as its starting point U.S. rules and assumptions regarding takeovers, this Article identifies the fundamental features of the European approach to takeovers in a comparative and critical perspective. I examine extent of and rationales for the discrepancies between the two systems, discrepancies that, in the next few years, will play an important role in shaping the international takeover scenario, and therefore the cross-Atlantic economic landscape.

Two common risks of comparative analysis are a tendency to over-emphasize superficial differences and a temptation to evaluate one system as inherently superior to another. Through my analysis, I show that, even if manifested through different rules, the distance between U.S. and European takeover regulation might be considered less extreme than most scholars and experts presume, especially if, instead of looking at the means of the regulation (the specific rules adopted ), we look at its ends, meaning the underlying policy (and political) goals pursued and some of the economic effects of those rules.

Keywords: Takeover, Thirteenth Directive, Control, Ownership, Tender Offer, Passivity