EU directive could cause takeover chaos

The European Union's botched attempt to smooth out the rules on cross-border mergers is threatening to plunge future takeovers into chaos.

Legal experts have warned that bids for companies with split jurisdictions face lengthy delays, millions of additional pounds in advisers' fees and months of uncertainty on the back of the new EU takeover directive, which came into force last week.

The new rules were intended to create a level playing field for companies seeking to acquire European rivals by, for example, making it harder for groups under siege to use "poison pill" tactics as a defence from an unwelcome predator.

But strong opposition from member states such as Germany and Sweden meant the directive has had the opposite effect and is instead helping to fan the flames of protectionism burning across Europe in the wake of several contentious energy deals.

There is particular confusion over which country's takeover rules will apply in bids involving companies with split jurisdictions - where one group is incorporated in one EU country but trades its shares on the bourse of another.

"The rules on which regulator has jurisdiction over various aspects of a bid in split jurisdiction cases are far from clear, so there could be real confusion," Selina Sagayam, corporate partner at Simmons & Simmons, a London law firm, said yesterday. Bids for companies operating in politically sensitive sectors from energy to defence will be most at risk, she warned.

With no firm guidelines, national regulators will have to vie with each other on a bid-by-bid basis to decide who gets to be the ultimate arbiter. Takeover rules in each member state vary wildly, which will make it very difficult to establish a precedent.

Current deals at risk include Deutsche Börse's battle with the New York Stock Exchange for control of Euronext, which may be a Paris institution but is incorporated in the Netherlands. Arcelor, which is Luxembourg-based but listed in France among other countries, is also caught up in the confusion.

The directive covers the EU's 25 members plus Norway, Iceland, Liechtenstein and Switzerland.

Ms Sagayam said: "It will be quite challenging for companies to make preparations in advance [to launch bids]."

Brussels watered down the new takeover rules to allow countries to opt out of certain clauses. Crucially, the law left member states free to ignore the core clauses on "poison pills". Some countries have moved to make it easier for companies to fend off unwelcome suitors.

In the wake of Mittal Steel's hostile bid for Arcelor, France drew up fresh legislation allowing companies facing a hostile bid to make themselves more expensive to acquire by giving them the right to issue warrants convertible to shares at a discounted price to existing shareholders.

To further complicate matters, just five of the 29 countries affected met the 20 May deadline to implement the directive.

There has been a rash of deals between companies in different EU member states so far this year.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Beverley James: Accounts Payable

£22,000 - £23,000: Beverley James: Are you looking for the opportunity to work...

Beverley James: Accounts Assistant

£30,000: Beverley James: A fantastic opportunity has arisen for a person looki...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower