The European Union Directive on Takeover Bids: Directive 2004/25/EC.
SourceInternational and Comparative Corporate Law Journal
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This article examines the extent to which the Takeover Bid Directive facilitates cross border takeover bids. The Directive should in principle contribute to cross frontier corporate mobility through takeover bids because it is based on the EC Treaty chapter on freedom of establishment. However, the Takeover Bid Directive is a compromise and watered down version of a proposal which the Commission envisaged would lead to a more effective pan-European takeover regime than that which actually proved possible. The need for compromise was the result of the very different legal and policy approaches of the Member States in the field of takeover regulation. Some provisions of the Directive are obligatory for all Member States. These provisions include the mandatory bid rule, the squeeze-out right, and the sell-out right. The mandatory bid rule requires a bidder who has acquired control of a listed company to make a bid at an equitable price for shares which remain in the hands of other shareholders. The squeeze-out right enables a successful bidder to require the holders of the remaining shares to sell them to him at a fair price. The sell-out right entitles a holder of remaining shares to require the bidder to buy these securities at a fair price. All these obligatory provisions of the Directive are in their present form open to criticism. The two key provisions of the Directive have been made optional for Member States. These are the non-frustration rule, requiring the board to obtain the prior authorization of the general meeting of shareholders before taking any action which could result in the frustration of the bidand the breakthrough rule, requiring that any restrictions on the transfer of securities or voting rights provided for in the articles of association of the offeree company or in contractual agreements between the offeree company and the holders of its securities or in contractual agreements between holders of the offeree company's securities shall not apply vis-à-vis the offeror during the time allowed for acceptance of the bid. Nevertheless, Member States, which opt out, are obliged to allow individual companies to opt in. Moreover, a reciprocity rule was also adopted, which allows Member States to permit those companies, which apply these provisions, to opt out again if they are the target of a bidder, which does not itself apply the same takeover provisions. Additionally, the non-frustration and the breakthrough rule are not fully comprehensive and even when a company applies them, it might still be able to evade their application since some corporate and financial structures remain outside the Directive's scope. The disclosure of information required by the Directive plays an important role in the market for corporate control both for bidders and target companies, but the relevant provisions of the Directive are open to criticism.