View from City Road: Voters should tread carefully

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The Independent Online
THERE may be a touch of deja vu about the resolution calling for abolition of the 5 per cent voting limit on Continental shares, due to be voted on at today's annual meeting. But shareholders should be under no illusions - today's decision is far more important than the one 15 months ago.

Then it was clear what lay behind the resolution. Pirelli wanted to force a merger on terms unattractive to Continental shareholders. And, as the German courts concluded when they overturned the vote in favour, it was passed only because Pirelli had assembled a secret concert party.

This time the motives for requisitioning the vote are far less clear. Pirelli says it is far too busy sorting out its own business to pursue further negotiations with Continental - and the scale of its problems gives that some credibility. It says it is interested in enhancing shareholder value. But, as any corporate raider knows, one of the surest ways of doing that is to stir up bid speculation.

The suspicion is that its aim is to make Continental more attractive to a rival bidder so that it can sell its 38 per cent stake without suffering embarrassing losses.

Alternatively, it could lament its failure to find a home for the shares while enforcing a de facto merger by gradually increasing its stake. Either option could be disastrous for Continental's other shareholders as Germany has no takeover code that ensures equal treatment for all.

A bidder could offer a juicy premium to Pirelli but a far lower price to the rest.

Continental insists that the lack of a takeover code is the main reason for its voting restrictions. But its executive directors - conveniently protected by the rules - have not so far been at the forefront of the campaign for tighter takeover legislation.

The affair underlines the urgent need for a European takeover code. In the meantime, however, Pirelli's past record and concern about its intentions mean Continental shareholders should reject the resolution.