The mandatory provisions of the EU Takeover Bid Directive and their deficiencies

Abstract

The two key provisions of the EU Directive on Takeover bids, the Board Neutrality (Art.9) and the Breakthrough Rule (Art.11) are optional at Member State and individual Company level. According to the Directive's Reciprocity Rule, a target company, which applies the Board Neutrality and/or Breakthrough Rule, is able to opt-out, if the offeror company does not apply the same Board Neutrality and Breakthrough provisions. Some of the few obligatory substantial provisions of the EU Directive on Takeover Bids are the Mandatory Bid Rule (art.5), the squeeze-out right (Art. 15) and the sell-out right (Art.16). The purpose of these provisions is to protect the minority shareholders according to the legal basis of the Directive (Art.44 par.2g Treaty of the EC). However, the Directive itself provides again the possibility to evade the enforcement of these provisions: a) at the transposition of the Directive into the national law and, b) after the implementation stage, when the parties to a bid are obliged to launch a mandatory bid. Additionally, the provisions themselves are characterized by many drawbacks and problems of interpretation, which reveal their weakness to contribute to the protection of the shareholders and subsequently to the freedom of establishment through takeover bids. Furthermore, the most important mandatory provisions of the Directive are easily avoidable and become de facto optional. If this conclusion is combined with the optionality of the two key provisions and the Reciprocity Rule, the EU Directive will not have any significant effect on the integration of the European Market for Corporate Control, the promotion of cross-border corporate mobility, the protection of shareholders and the protection of freedom of establishment in general. The Directive does not really 'exist'. This Article will analyze the most important mandatory provisions of the Directive, namely the Mandatory Bid Rule (art.5), the squeeze-out right (Art. 15) and the sell-out right (Art. 16).