Takeover Bids Directive Research Articles

Polish Takeover Regulation: The Recent Chapter in the Long Story of Flawed Rules, Legislative Hesitation and Policy Mistakes

This paper presents a critical examination of recent Polish takeover regulation from a perspective of evolution of capital market law in Poland. The study is based on both legal analysis and an empirical and statistical approach. Firstly, as a starting point, it briefly describes the mandatory bid rule and Takeover Bids Directive as well as the development of early Polish provisions. Secondly, the paper elaborates on the normative model of takeovers, which was in force until 2022. Using a case study and a comprehensive statistical examination of all mandatory bids carried out between 2008 and 2017, it shows how the unusual and incorrect legislative structure of two thresholds of control (33% and 66% of votes) allowed the actual circumvention of mandatory bids, to the detriment of minority shareholders. The paper also describes political considerations and political influences on the legislative process, which led to the failure of the 2014–2015 takeover law proposal. The core of the paper is devoted to the current takeover rules. Statistical research of ownership structures in Poland shows that the threshold of control set at 50% of votes is undoubtedly too high, which entails risks to investor protection that may arise from the adopted model. Based on research on significant holdings in Polish listed companies, the paper further elaborates on the notion of control over a public company and proposes a regulatory utility function to determine the desired threshold of control. This leads to the conclusion that the optimal regulatory threshold of control, given the characteristics of the Polish capital market, is 30% of votes.

Negative Implications of Greater Access to the Courts in the Takeover Process

Abstract 358 Recent judgments of the Court of Justice of the European Union involving Austria and Italy raises the question of whether greater access to the courts makes ineffective the duty of supervisory authorities in enforcing the mandatory bid rule. This question is discussed in the context of provisions in the Takeover Bid Directive that enables Member States to avoid disruptive greater access to the courts. The overarching argument advanced in this article is that a system of takeover regulation that provides parties the ability to challenge regulatory decisions in courts is bound to cause delays and uncertainty in the takeover process. In the UK, the Takeover Bid Directive was implemented in a way that limits greater access to the courts for parties that are required to comply with the ruling of the supervisory authority. The article suggest that the UK approach may provide a benchmark for reform in EU countries. 359

The wealth effects of takeover bids regulation in the European Union

AbstractWe investigate the wealth effects of the Takeover Bids Directive, enacted by the European Union (EU), on mergers and acquisitions. The directive aims at protecting target minority shareholders by restricting antitakeovers provisions and preventing managerial entrenchment. We test the regulation impact using a treatment sample of EU public acquisitions and a control sample from outside the EU. Our results suggest diverse effects of the regulation across treatment countries: acquirers from countries with better shareholder protection engage in more value‐enhancing acquisitions postregulation that could otherwise be too costly. The regulation also increases the likelihood of firms becoming targets and raises market value.

The impact of securities regulation in the European Union on M&A: does it compensate to go beyond borders?

PurposeThe purpose of this study is to examine the impact of the transposition of the EU directive that regulates M&As on cross-border deals. Acquirers of targets located in the European Union (EU) must comply not only with takeover rules set individually by member states but also with European Council Directives. The most significant of these Directives in the context of mergers and acquisitions (M&As) is the Takeover Bids Directive (TBD). The intent of the Directive is to ensure equal treatment for all companies launching takeover bids or that are subject to a change in control, providing minimum harmonization rules in view of creating a transparent environment for cross-border takeovers.Design/methodology/approachThis study uses the event-study and difference-in-differences approaches.FindingsUsing a sample of 2,129 M&As conducted between 2000 and 2015, this paper finds positive acquisition synergy for acquirers targeting firms from countries with stronger investor protection rules compared to the average of the EU, but no evidence regarding cross-border deals. The results support the prediction that regulation makes countries diverge more depending on their ex ante level of investor protection.Originality/valueThis study examines the impact of the enactment of the TBD on announcement returns of M&As in the EU.

Response to the European Commission's Report on the Application of the Takeover Bids Directive

This paper contains the European Company Law Experts' response to the report of the European Commission of 28 June 2012 on the application of the Takeover Bids Directive of 2004 and the reform initiatives announced. For evaluating these initiatives the rationale of the mandatory bid rule is relevant (exit rationale, control premium rationale and undistorted choice rationale). On this basis the paper discusses each of the concerns raised by the European Commission: 1) The concept of acting in concert: The ECLE are of the opinion that a uniform concept for the Takeover Bids Directive, the Transparency Directive and the Acquisition Directive is not useful because of the different objectives of these Directives. As to the Takeover Directive it should be made clear that joint engagement activities of investors should not trigger a mandatory offer. 2) National derogations to the mandatory offer rule differ widely, but there are different types of derogations that pose different concerns. The ECLE recommend that the Directive should provide for a review process with respect to national derogations. 3) The ECLE believe that there are good reasons to close the loopholes against the “creep in” and the “creep on” acquisitions. 4) As to board neutrality and the break-through rule the ECLE believe that the default rules should be changed. The option rights should be given to the shareholders, not to the member states. The reciprocity rule is flawed. 5) The protection of the rights of employees should be addressed in a wider context and should not be taken up specifically for one type of transaction such as takeover bids.

The regulation of takeover bids in the UK: An evaluation of provisions for employee involvement

This article evaluates the provisions for information disclosure to employees contained in the UK Takeover Code, following the implementation of the Directive on Takeover Bids (2004/25/EC) in 2006 and further amendments resulting from the Kraft/Cadbury takeover in 2010, among other developments. It contrasts information and consultation (I&C) provisions across other EU directives on employment relations and emphasizes that the Takeover Bids Directive restricts itself to information disclosure, allowing employees merely to append their opinion to the offeree board circular. Detailed analysis reveals that very few opinions have actually been given over the past 12 years (2006–2017 inclusive), and of these almost one-third complain about lack of information. These empirical findings highlight the weakness of the UK provisions, and the article concludes by proposing areas where further regulatory reform might strengthen I&C in the takeover process.

The Non-Frustration Rule and the Mandatory Bid Rule Cornerstones of European Takeover Law?

With the non-frustration rule (“NFR”) and the mandatory bid rule, the Takeover Bid Directive contains two principles which have strongly influenced British takeover law for approximately 50 years. However, the changes of the economic and legal framework of the market for corporate control which have occurred since the adoption of the Directive call into question the legitimacy of both principles. Although the NFR is capable of disciplining board members, it generates misguided incentives and is, at the most, suitable as a disciplining tool of last resort. The idea that in the alternative we would rely on increasing shareholder activism and of trusting the shareholders to discipline the board (also in a company with dispersed ownership) is compelling in principle; however, as active shareholders often seek the short-term maximisation of returns, misguided incentives cannot be avoided in this context either. In view of these findings, the article explores the ways of structuring NFR optionality. It submits that only the shareholders should be given the option of opting out of the strict NFR – which would continue to serve as the default rule – and that such an opt out should only be possible for a limited period of time. With respect to the mandatory bid rule, its justification is becoming increasingly difficult since the exploitation of the offeree company by the controlling shareholder is more or less excluded by obligations to disclose information, by shareholder activism and by the reform of the Shareholder Rights Directive. In view of the foregoing, this paper argues for reform of the Directive’s mandatory bid rule, making it a mere default rule.

Non-frustration Rule and Mandatory Bid Rule – Cornerstones of European Takeover Law?

With the non-frustration rule and the mandatory bid rule, the Takeover Bid Directive contains two principles which have strongly influenced British takeover law for approximately 50 years. However, the changes of the economic and legal framework of the market for corporate control which have occurred since the adoption of the Directive call into question the legitimacy of both principles. Although the non-frustration rule is capable of disciplining board members, it generates misguided incentives and is, at the most, suitable as a disciplining tool of last resort. The dominant idea of relying on increasing shareholder activism and of trusting the shareholders to discipline the board (also in a company with dispersed ownership) is compelling in principle; however, as active shareholders often seek the short-term maximisation of returns, misguided incentives cannot be avoided in this context either. In view of these findings, the article explores the ways of structuring NFR optionality. It submits that only the shareholders should be given the possibility to opt out of the strict NFR – which would continue to serve as the default rule and that such an opt out should only be possible for a limited period of time. With respect to the mandatory bid rule, its justification is becoming increasingly difficult since the exploitation of the offeree company by the controlling shareholder is more or less excluded by obligations to disclose information, by shareholder activism and by the reform of the Shareholder Rights Directive. In view of the foregoing, this paper argues for reform of the Directive’s mandatory bid rule making it a mere default rule.

Acting in Concert in EU Company Law: How Safe Harbours can Reduce Interference with the Exercise of Shareholder Rights

The legal notion of “acting in concert” is used in the Transparency and Acquisitions Directives to widen the scope of notification requirements, and in the Takeover Bids directive to stretch the subjective boundaries of the mandatory bid rule. If these definitions are not adequately selective, they could interfere with the exercise of shareholder rights and lead to a sub-optimal level of management monitoring in listed companies. Over-reaching regulation of acting in concert, in other words, would harm the very shareholders it is designed to protect, potentially hindering monitoring of management and reducing enterprise value. This risk arises from the fact that both acting in concert to sidestep legal obligations and exercising shareholder rights to discipline the management depend on shareholder cooperation. This article examines ways in which these interferences might be reduced. In order to do so, it separately analyses different EU legal notions of acting in concert that can be found in the Transparency, Acquisitions and Takeover Bids Directives and their respective transposition by member states. It argues that these definitions need to be clarified, and that this should be done by (i) reconciling existing umbrella notions of acting in concert, and (ii) adding a list of safe-harbour provisions at the EU level that outline a number of cases in which shareholder cooperation does not amount to “acting in concert”. ESMA has recently issued a statement on the subject; however, this does not seem to be the best course of action to take, as it does not reconcile existing notions of concert, and, given its lack of binding force, ultimately aggravates the complexities of the conundrum of acting in concert.

Reassessing the Rationales for the Takeover Bids Directive’s Board Neutrality Rule

This article evaluates the Takeover Bids Directive's board neutrality rule, in light of the European Commission's option to propose the revision of the Directive and a recent suggestion put forward by some commentators to make the rule, which is optional, harder to opt-out. It does so by reassessing the two rationales behind the Commission's original intentions for the rule to be mandatory: (i) disciplining the management of listed companies with dispersed ownership, and (ii) wealth creation. It finds that the first rationale continues to lack relevance to European 'coordinated market economies', whilst empirical evidence is not conclusive that hostile takeovers are more wealth creating than friendly ones, but could be particularly damaging for European coordinated market economies. Arguments that have been put against a more permissive approach to board defences are also contested.

Infringements of Fundamental Freedoms within the EU Market for Corporate Control

This article examines the EU market for corporate control and seeks to identify possible infringements of EU fundamental freedoms, and more specifically of freedom of establishment and of free movement of capital, at this segment of the internal market. This examination will take place in the context of the various financial mechanisms, tensions and clashes of interests with in the EU market for corporate control. Takeover bids and the fundamental freedoms are closely related. Since the Takeover Bids Directive is based on the chapter on freedom of establishment (Arts 49 and 50 TFEU-ex Arts. 43 and 44 EC Treaty), it should, in principle, contribute to cross-frontier corporate mobility in the internal market through takeover bids.This was certainly the aim oft he European Commission in its various proposals. After analyzing in detail recent tendencies on horizontality, we will then focus on horizontal relationships within the framework of the EU market for corporate control. This is the relationship between the shareholders and the board of the offeree company and the offer or company. This article will scrutinize whether discriminatory and non-discriminatory provisions in the corporate constitution and the defensive conduct of the offeree company’s board against a takeover bid constitute barriers to EU fundamental freedoms. It discusses primarily the extent to which obstacles to cross-border takeovers addressed by the Directive, or indeed left intact by the Directive, are to be regarded as restrictions on the right of establishment stricto sensu, or simply as obstacles in practice to making a successful takeover bid. More specifically, its aim is to analyze the extent to which conduct of the board and articles in the corporate constitution might be said to constitute restrictions on the freedom of establishment and on the free movement of capital.

The Case Against Reform of the Takeover Bids Directive

Does the Takeover Bids Directive need revision? The answer to this question will most likely affect the Commission's assessment of the Directive in 2011 and could initiate its revision. Proponents of such a revision urge the Commission to redress the shortcomings of the Directive's implementation in two ways: 1) revising the mandatory provisions of the Directive making them less easily avoidable; and 2) creating new provisions that would weaken incumbent managers' lock on control that would make corporate control more contestable. In this short essay, however, we show that the Commission's opt-out strategy has proved, in practice, to be remarkably popular with Member States and does not need any further discussion.

European Takeover Law: The Case for a Neutral Approach

This article argues that in revising the Takeover Bid Directive, EU policymakers should adopt a neutral approach toward takeovers, i.e. enact rules that neither hamper nor promote them. The rationale behind this approach is that takeovers can be both value-creating and value-decreasing and there is no way to tell ex ante which kind they are. Unfortunately, takeover rules cannot be crafted so as to hinder all the bad takeovers while at the same time promoting the good ones. Further, contestability of control is not cost-free, because it has a negative impact on managers' and block-holders' incentives to make firm-specific investments of human capital, which in turn affects firm value. It is thus argued that individual companies should be able to decide how contestable their control should be. After showing that the current EU legal framework for takeovers overall hinders takeover activity in the EU, the paper identifies three rationales for a takeover-neutral intervention of the EU in the area of takeover regulation (pre-emption of "takeover-hostile," protectionist national regulations, opt-out rules protecting shareholders vis-à-vis managers' and dominant shareholders' opportunism in takeover contexts, and menu rules helping individual companies define their degree of control contestability) and provides examples of rules that may respond to such rationales.

European Takeover Law: The Case for a Neutral Approach

This paper argues that in revising the Takeover Bid Directive, EU policymakers should adopt a neutral approach toward takeovers, i.e. enact rules that neither hamper nor promote them. The rationale behind this approach is that takeovers can be both value-creating and value-decreasing and there is no way to tell ex ante whether they are of the former or the latter kind. Unfortunately, takeover rules cannot be crafted so as to hinder all the bad takeovers while at the same time promoting the good ones. Further, contestability of control is not cost-free, because it has a negative impact on managers’ and block-holders’ incentives to make firm-specific investments of human capital, which in turn affects firm value. It is thus argued that individual companies should be able to decide how contestable their control should be. After showing that the current EC legal framework for takeovers overall hinders takeover activity in the EU, the paper identifies three rationales for a takeover-neutral intervention of the EC in the area of takeover regulation (pre-emption of “takeover-hostile,” protectionist national regulations, opt-out rules protecting shareholders vis-a-vis managers’ and dominant shareholders’ opportunism in takeover contexts, and menu rules helping individual companies define their degree of control contestability) and provides examples of rules that may respond to such rationales.

Does the Takeover Bids Directive Need Revision?

Does the Takeover Bids Directive need revision? The answer to this question will most likely affect the Commission’s assessment of the Directive in 2011 and could initiate its revision. Proponents of such a revision urge the Commission to redress the shortcomings of the Directive’s implementation in two ways: 1) revising the mandatory provisions of the Directive making them less easily to avoid; and 2) creating new provisions that would weaken incumbent managers’ lock on control that would make corporate control more contestable. In this short essay, however, we show that the Commission’s opt out strategy has proved, in practice, to be remarkably popular with Member States and does not need any further discussion.

The Takeover Bids Directive: An Opportunity for Europe or Simply a Compromise?

The European Directive on takeover bids (2004) (henceforth, the Directive), was a highly debated piece of law and the opposition raised by the Member States was so strong that it took more than 30 years to reach agreement over the text now in force ( ). There was full awareness that the matter under discussion was one of the most important to define the structure of the European financial market and to intervene, at the European level, in the development of the market for corporate control.

European Takeover Law: The Case for a Neutral Approach

This paper argues that in revising the Takeover Bid Directive, EU policymakers should adopt a neutral approach toward takeovers, i.e. enact rules that neither hamper nor promote them. The rationale behind this approach is that takeovers can be both value-creating and value-decreasing and there is no way to tell ex ante which kind they are. Unfortunately, takeover rules cannot be crafted so as to hinder all the bad takeovers while at the same time promoting the good ones. Further, contestability of control is not cost-free, because it has a negative impact on managers’ and block-holders’ incentives to make firm-specific investments of human capital, which in turn affects firm value. It is thus argued that individual companies should be able to decide how contestable their control should be. After showing that the current EU legal framework for takeovers overall hinders takeover activity in the EU, the paper identifies three rationales for a takeover-neutral intervention of the EU in the area of takeover regulation (pre-emption of “takeover-hostile,” protectionist national regulations, opt-out rules protecting shareholders vis-a-vis managers’ and dominant shareholders’ opportunism in takeover contexts, and menu rules helping individual companies define their degree of control contestability) and provides examples of rules that may respond to such rationales.

The Supervision of Takeover Matters in the European Union - The Austrian Part

This paper investigates the effect of the rules contained in the Takeover Bids Directive on the supervisory practice of the Austrian Takeover Commission as part of the European takeover authorities’ network. The Takeover Bids Directive created a system of cooperation of national takeover authorities. It did not establish a centralized European regulator and/or supervisor, i.p. for cross border takeover bids. By evaluating and categorizing the takeover cases handled by the Austrian Takeover Commission, the paper aims to prepare the ground for a focused policy debate in view of the upcoming revision of the Takeover Bids Directive, to be proposed by the European Commission. It does not analyze the still ongoing policy debate, in particular, with respect to anti takeover defense measures. The paper ascertains certain procedural and substantive elements of European takeover law. It provides (i) an empirical study of the cases decided by the Austrian Takeover Commission between its establishment in 1999 and 2008, based on (ii) an outline of the Takeover Bids Directive as transposed into Austrian law and (iii) an outline of the structure of the Austrian Takeover Commission.

Harmonization of Takeover Discipline: A Comparative Law and Economic Overview

In May 2004, the European Council of Ministers has eventually adopted the 2004/25/EC Directive, conventionally known as Takeover-Bid Directive. That has been the result of a compromise reached after about 30 years of negotiations. Despite the strong resistance expressed by Member States belonging to the civil law tradition, the Directive has been inspired by the City Code of London directed towards a more liberal conception market for corporate control. This paper shall focus the attention on key provisions such the neutrality, break through, freeze out, sell out and mandatory bid rules in order to understand the workability and efficiency of their implementation. In fact, the analysis aims at providing a clear and useful overview of these norms that shall allow realizing how they meet with the legal and economic European culture. The investigation will set forth the heterogeneousness of the corporate structures and the extent to which these affect the market for corporate control and of course its discipline. In particular, the solutions adopted in the US, UK and Germany will be examined through the comparative law method. The discussion dealing with the similarities and the differences will shed light on the spirit and the rationale vested in the provisions contained in the Directive. In the face of the harmonization of European law, the 13th Directive seems not to have reached the purpose of steering takeover practises up. This is probably due in part to the strong path-dependency that keeps continental corporations from dispersing their ownership structure and in part to the opt out character of some of the above mentioned provisions.

The Takeover Bids Directive: An Opportunity for Europe or Simply a Compromise?

The European Directive on takeover bids (2004) (henceforth, the Directive), was a highly debated piece of law and the opposition raised by the Member States was so strong that it took more than 30 years to reach agreement over the text now in force ( ). There was full awareness that the matter under discussion was one of the most important to define the structure of the European financial market and to intervene, at the European level, in the development of the market for corporate control.