After 14 years of on-off discussion surrounding the issue of a common EU wide takeover code that only got off the buffers post its grounding in 2001 once member states agreed they could opt out of the most contentious clauses, implementation is around the corner. Having agreed to the Directive in principle early last year, May 20 this year is the implementation date for the EU Takeover Directive, although some member states are farther ahead than others in implementing the directive into their national laws and so a full picture of which states will opt in or out is unlikely to emerge before the end of this year. Lisa Bushrod reports.
The table across gives a snap shot of where some of the member states are positioning themselves, but given that many are still discussing the impact in their national legislatures it will be some time, before the landscape becomes clear. Member states have been given the option of choosing whether or not the restriction on frustrating actions such as poison pills, weighted voting rights and restrictions on share transfers and ownership (Article 9), and/or the enforceability of restrictions on the transfer of securities and certain voting and other rights, which in essence boils down to the fact that once an acquirer holds 75% of the share capital of the target, that target cannot then enforce any restrictions on voting rights as stated in its articles of association (Article 11) will be applied to companies headquartered in their state.
Those that choose to opt out must still allow companies the ability to apply Articles 9 or 11 if they wish, although this ability is reversible at the request of a target company if it is being bid for by a company domiciled in a country that has not signed up to the reciprocity option (Article 12.) Even if countries choose to opt out they may still decide to impose limitations on the extent of the opt out through their national legislatures.
This, according to a paper titled Implementing the Takeover Directive in the EU produced by Freshfields, could prove to be an area of legal contention (which in layman’s terms means potentially time consuming and a great deal of legal fees). Freshfields’ paper notes: “The reciprocity issue is causing a certain amount of debate in some member states, for example France and Italy. The reciprocity provisions in the Directive are not entirely clear, for example, can they be applied against non-EU bidders (probably not) and do they only apply if a company applies the relevant article voluntarily rather than because it is required to do so by national law? (France, for example, is taking the latter view.) There are concerns therefore that litigation will be more likely during hostile offers in member states that allow target companies to take reciprocal action over questions of the correct interpretation of the Directive.”
As the table shows, many countries are likely to opt out of Article 11 (the enforceability of restrictions on the transfer of securities and certain voting and other rights, or the breakthrough clause), which means that structures specifically designed to make a company an unattractive takeover target can remain in place, although some of these will have been removed by those member states that have chosen not to opt out of Article 9. However, Freshfields’ paper states in this regard: “There may be an advantage for a company to opt back in to Article 11 because if it is a bidder, this will prevent a target taking reciprocal action against it (where Article 11 applies to the target and it is permitted by its jurisdiction to take reciprocal action against bidders that are not subject to the same restriction).” As the paper goes on to point out, companies will not be clear on which course of action is likely to be in their best interests, in any given situation, until all EU member states have taken their version of the EU Takeover Directive onto their statute books.
Companies subject to the EU Takeover Directive (defined as those with a registered address within the EU and with shares trading on a regulated market), will have to publish information relating to the Articles 9 and 11, even if they are subject to an opt out, within their annual report, something made mandatory by Article 10 of the EU Takeover Directive. So, while EU mergers won’t be on a level playing field overnight, a goal probably long ago conceded by those promoting this Directive over its 14-year life span, they will at least be subject to a fair degree of transparency, which should assist those attempting to assess the legal issues of a particular deal.