Hostile path for EU takeover law

The European Parliament has put the breaks on takeovers

Ten years of work to introduce a new European directive on takeovers may have been wiped out by a vote in the European Parliament.

As a result of this change, management could act to defend their own, potentially narrower interests, rather than being obliged to act in the interests of the target company's shareholders as a whole

Fritz Bolkestein
EU common markets commissioner

The original directive set out to protect minority shareholders during takeovers and had been developed in response to a growing need for takeover legislation in Europe.

The changes proposed by parliament could mean an end to hostile takeover bids, where a predator firm approaches a target company's shareholders rather than its board with an offer.

The directive in its current form could now be scrapped - despite strong opposition from the UK and many European Commission members to the parliament's changes.

The parliament voted on Wednesday for a series of amendments to the takeover directive that would shift the balance of power away from shareholders, and towards directors and staff.

Power sharing

The commission and the parliament share decision making power on the issue.

The directive will now return to the debating table, where the two bodies must hammer out a political compromise early in 2001.

If they fail to do so, the EU may have to start from scratch on a new takeover directive.

Crucial change

The parliamentary vote changed the crucial principle in the proposed directive, according to the European Union's Commissioner for the Internal Market, Fritz Bolkestein.

The changes would give the boards of target companies more ammunition when faced with takeover bids, and release them from the need to consult shareholders first.

Workers would gain the right to be consulted before a bid could be accepted, and their employer would be responsible for safeguarding their jobs when considering a bid.

"As a result of this change, management could act to defend their own, potentially narrower interests, rather than being obliged to act in the interests of the target company's shareholders as a whole," he said in a statement.

The directive's intended goals were to protect minority shareholders and make cross-border takeovers easier, so accelerating company restructuring in Europe.