The EU Commission's second attempt at a takeover directive looks set to strengthen the rights of shareholders considerably while effectively removing all defensive mechanisms such as "golden shares".
Companies like Volkswagen will lose their defensive mechanisms against possible takeovers
The European Union Commission looks set to propose measures aimed at considerably strengthening the rights of shareholders in companies facing a takeover.
An expert group set up by Internal Markets Commissioner Fritz Bolkestein on Thursday presented a new catalogue of proposals, all of which will be taken up in a new proposed pan-European takeover directive, according to Commission insiders.
The measures proposed by the group will, if implemented, give the shareholders alone the right to decide whether a takeover bid should be viewed as friendly or hostile – whether it should be accepted or whether defensive measures should be taken.
The attempts to forge a unified takeover law for the European Union are a response to criticisms from companies in the United States and Great Britain, who argue that protectionism plays too great a part in European corporate takeover practice.
In allowing this protectionism, EU states are effectively blocking investment from abroad, it is charged.
Bolkestein set up the expert committee to draw up proposals for a second pan-European takeover directive after the first was thrown out by the European Parliament in July.
Under the first directive, the management of a company faced with a hostile bid would have been obliged to consult the shareholders before enacting defensive "poison pill" measures such as the issue of cheap shares to friendly shareholders.
The German government had lobbied against the directive, arguing it would have been put at a disadvantage because its law does not provide for the kind of defense options – those afforded by the "golden share" mechanism for example or the option of issuing multiple voting rights or of limiting voting rights – that are available under the national law of other EU member-states, notably France, Spain and Italy.
In Germany, only Volkswagen AG can fall back on protection of this kind. The state government of Lower Saxony owns just under 20% of VW's shares and a special regulation prevents any other shareholder from controlling more than 20% of voting rights.
For other companies, German law offers no protection at all. But defensive mechanisms such as the so-called "VW share" or the "golden share" will cease to offer companies any protection from a takeover if the expert group's proposals are adopted.
It is not intending to abolish completely all mechanisms of this kind, but it's proposing that they be suspended once a takeover bid is presented.
The German Finance Ministry was unwilling to comment on the expert committee's proposals.
Only in November, Germany's coalition government of Social Democrats and environmentalist Greens introduced a new takeover law, which has become the focus of much criticism from international pension and investment funds.
The new law allows company management boards to take action against a hostile takeover bid even if they have not received authorization from shareholders.