Outlook: Takeovers don't need an EU directive

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The Independent Online
IT SEEMS hard to believe, given the shenanigans surrounding the bidding for Telecom Italia and Gucci, but most Continental countries have made big strides in establishing proper rules and codes to govern takeover bids. Judging by the events of the last few months, there is still a way to go on implementation, but don't forget that even in Britain, with its 30-year history of takeover regulation, it is only comparatively recently that the Takeover Panel has been able fully to stamp its authority on the City.

In the mid-1980s its guiding principles of fair play and equal treatment for all went as soundly ignored as they now seem to be on the Continent - a period of abuse which culminated ultimately in the great scandal of Guinness. The Continent is undeveloped in terms of takeover practice, but it seems to be getting there. All of which makes the purpose of the EU's proposed European directive on takeovers somewhat questionable.

In theory, the directive seems a perfectly reasonable piece of harmonisation. In a single market, reinforced by a single currency, and with growing cross-border takeover activity, it might seem quite sensible to establish a common set of rules and regulations. In practice, however, the directive is a lowest common denominator piece of legislation. In terms of investor protection, it falls far short of the Takeover Code in Britain, or indeed many of the fledgling regimes to govern takeovers being setup by other members of the EU.

The German presidency nonetheless seems determined to push the directive through. In order to make it more palatable to the City, where takeover practice is self regulated, the Germans have inserted a compromise clause which would allow the courts in member countries to decline to hear legal cases brought under the directive, and instead refer them for adjudication to the relevant authority - in Britain's case, the Takeover Panel.

Unfortunately, this doesn't really solve the problem, for the directive as drafted makes a complete hash of defining jurisdiction. For company law purposes, the directive establishes jurisdiction as the target company's country of incorporation. But for "bid procedure and realisation", whatever that means, jurisdiction is defined as the place where the target company is listed. Normally these two things are one and the same, but with increased use of non national exchanges for share listing, there is a growing number of cases where they are not.

This creates considerable potential for vexatious litigation. For instance, takeovers could be stalled or halted by disputing jurisdiction. Certainly it is possible to envisage a scenario in which the Takeover Panel's advantages of speed, certainty and flexibility in policing takeovers would quite quickly be undermined. This in turn would damage the City by making its capital markets less efficient and as a consequence less competitive.

For all these reasons, the Council of Ministers must send this directive back to the drawing board when they consider it later this year. It helps no-one, but its potential for damage in the City is considerable.

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