The European Takeover Directive and its implementation

1
The European Takeover Directive and its
implementation

• Jaap Winter
• ABA New York
• 6 April 2006

2
Introduction

• The Good
• Mandatory bid, equitable price
• Squeeze-out and sell-out
• The Bad
• Jurisdiction provisions
• The Ugly
• Takeover and defence
• Implementation

3
The Good mandatory bid and equitable price

• Art. 5 key element of Directive
• Mandatory Bid to protect minority shareholders
• Part of company law in all but two MS
• Threshold control (to be determined by MS)
• Equitable price highest price paid by offeror
  over 6-12 month period (determined by MS) prior
  to bid,or higher price paid during bid
  adjustments possible by supervisory authority
• Share in control premium certainty for offeror

4
The Good squeeze-out and sell-out

• Art. 15 and 16
• Holding 90 - 95 (determined by MS) after bid,
  or acquiring 90 of capital comprised in bid
• Class-by-class basis
• Within three months of offer period
• Fair price consideration of bid or cash.
  Consideration of voluntary bid presumed fair if
  90 acceptance, consideration of mandatory bid
  presumed fair.

5
The Bad jurisdictions provisions

• Art. 4
• Necessary, but complex and ambiguous
• Competent authority
• Registered office, or first listing, or choice by
  target, or agreement by relevant competent
  authorities
• Authority includes
• Price, bid procedure, information, offer document
• But not
• Employee information and company law matters,
  including threshold mandatory bid, defensive
  measures
• Always authority of registered office

6
The Ugly dealing with defence against takeover
bids

• Art. 9 -12
• Level playing field for takeover bids
• Disclosure of defences (art. 10)
• Post-bid (art. 9) and pre-bid (art. 11) defences
• Portuguese compromise (art. 12) double staged
  grandfathering (opt-out by MS, opt-in by company)
  plus reciprocity
• Five paradoxes

7
Paradox 1 Level playing field

• Key argument against 2001 proposal no level
  playing field (post-bid, but pre-bid defences
  unaffected)
• Opt-out/opt-in both post-bid defences and
  pre-bid defences are part of choice menu for MS
  and companies
• Exactly opposite of level playing field
• Level playing field eufemism for national
  interests We all want to go to heaven but nobody
  wants to die.

8
Paradox 2 Art. 9 agreed, but optional

• In 2001 14 out of 15 MS agreed to art. 9
  shareholders decide on bid and on defence, not
  the board
• Germany pulled out, but without EP art. 9 would
  have been binding on all MS
• Now MS can opt-out of art. 9 as well. NL will
  probably do so (to allow for temporary post-bid
  defence), others may follow
• Precisely the unintended effect

9
Paradox 3 Emmenthaler break-through

• Art. 11 deals only with some pre-bid defences
• Transfer restrictions, voting right restrictions,
  special rights to appoint directors
• Outside scope of break-through
• Non-voting (depository receipts of) shares
• Special rights to initiate or veto special
  resolutions
• Transfer and voting restrictions in shareholder
  agreements in existence before 21 april 2004
• Company can voluntarily accept art. 11 and
  maintain rigorous defence

10
Paradox 4 Haunting reciprocity

• Art. 12 par. 3
• MS can exempt company, applying art. 9 and/or 11,
  in case of bidder who is not subject to art. 9
  and/or 11 itself
• All non-listed offerors
• All non-EU offerors
• Bad law unnecessary, unworkable (competing
  bids), manipulative, unlawful (WTO/EU Fr of
  establishment)
• Perverse incentive to apply art. 9 and 11 for
  companies that want to be players in
  consolidating markets rather than victims?

11
Paradox 5 Compensation for what? And how?

• Shareholders losing rights are to be compensated,
  arrangements to be set by MS (art. 11 par. 5)
• Loss of something the holder was not supposed to
  have as a matter of public policy choice?
• Leave it to target companys articles of
  association if target has opted in?
• What is value of loss and how to compensate?

12
Implementation by Member States

• Implementation by 20 May 2006
• Most if not all MS opt out of 11, some out of
  both 9 and 11
• National protectionism, national champions
• UK and Sweden opt-in art. 9, opt-out art. 11, no
  reciprocity
• Germany and the Netherlands opt-out art. 9 and
  11, accept reciprocity
• France opt-in art. 9, opt-out art. 11, accept
  reciprocity
• Greece, Estland, Hungary opt-in art. 9 and 11.

13
Effects of the Directive

• Market pressure to accept art. 9 and 11?
• Will analysts and investment banks include art. 9
  and 11 choices in their valuations?
• Can and will investors force companies to opt-in?
• Different for companies with controlling
  shareholders?
• Outcomes of takeover disputes different?
• Manipulating art. 9 and 11 choices
• Compensation and reciprocity showstoppers?