The European Union may consider expanding options available to companies to block hostile takeovers as part of a review of legislation on corporate acquisitions.
The European Commission in Brussels is examining whether firms have too little power to use defensive measures such as share-transfer restrictions or multiple voting rights to prevent a hostile takeover, according to a letter from the regulator obtained by Bloomberg News.
EU regulators have struggled to clarify how far companies can go under existing law to protect themselves against unwanted takeovers. Hermes International SCA, the maker of Birkin bags, won a waiver of French market rules to shield itself against a possible bid from LVMH Moet Hennessy Louis Vuitton SA earlier this year.
The commission will examine “control structures and barriers to takeovers,” according to the letter, sent to law firms and trade associations earlier this month. It will also examine how EU rules on issues such as treatment of minority shareholders during an acquisition compare with those in other regions.
The review is being carried out to satisfy a requirement that it assess how well a 2004 law on takeover bids is working. Under the legislation, the commission has until this year to assess the rules and propose revisions, “if necessary,” the letter says.
The commission’s review will determine how existing EU law has achieved its aims of promoting “the integration of European capital markets,” the commission said. This should be achieved through “efficient takeover mechanisms and strong rights for shareholders,” it said.
The study is part of an early fact-finding process, Olivier Bailly, a spokesman for the European Commission, said in an e-mail. The results will be available by the end of this year, he said.
The commission will examine its options during 2012 on “what needs to be done, if anything at all,” Bailly said.
“The most sensitive issue is obviously to what extent listed companies should be able to defend themselves against takeovers,” Jaap Winter, a partner at law firm De Brauw Blackstone Westbroek, said in a telephone interview.
EU nations “weren’t willing to facilitate cross-border takeovers in 2004, I don’t see any indication they’ve become more willing to do so,” said Winter, who was formerly chairman of a group of company law experts set up by the commission. “The current populist sentiments about the European Union make it unlikely that at this stage governments would opt to weaken takeover defenses.”
The U.K. Takeover Panel earlier this year proposed changes to its merger rules including a 28-day window for potential buyers to “put up or shut up” by giving their firm intention to bid.
Last year’s takeover of Cadbury Plc by Kraft Foods Inc. has been criticized by Vince Cable, the U.K.’s business secretary, who said in June that there were “too many company takeovers which reduce or destroy value and are driven by the fat fees earned by the lawyers and banks who facilitate them.” Kraft was also criticized by U.K. authorities for misstating plans to keep a plant open as part of its acquisition of Cadbury.
The commission should examine how widely voluntary rules limiting defenses in the current legislation have been applied, Winter said.
The measures include allowing a buyer who has accumulated 75 percent of a firm’s share capital to break through takeover defenses and a requirement for a target company’s board to be neutral in the face of a takeover bid unless it has been authorized to block it by shareholders.