Takeover Directive

Speech by Chris Huhne MEP delivered to the European Parliament on Tue 16th Dec 2003

I am not going to make any great claims for this draft directive. I fully sympathise with those who say that it will not create a level playing field in cross border takeovers in the union. Member states will still be able to sanction their companies to take anti-bid measures with the approval only of the board, and not of the shareholders. Therefore it fails to deal with a major potential obstacle to cross border takeovers and restructuring. The choice of whether to apply the rules is only a figleaf to disguise the reality. Many member states - including some like Germany who proclaim themselves in favour of more political integration - are against foreigners taking over their own companies. In Britain, we have many hang-ups but fortunately not that one. We have been losing foreign direct investment due to our failure to join the euro, but the signal that this part of the directive sends out about France and Germany may help to sustain Britain's share. For the euro-area in particular, this failure is a serious own goal.

Why then is this draft is worth supporting? The provisions in this text to protect minority shareholders are important, and will encourage more cross-border portfolio share ownership.

By ensuring that there is a threshold in each member state at which someone taking control of a company has to launch a full bid for the other shares, this directive stops creeping control of a company. It therefore means that a new shareholder with perhaps only 30 per cent of the stock cannot decide to pay themselves special dividends, or to sell off assets cheaply to another private company that they happen to control. And by reassuring investors about those practices - by no means unknown in many union financial markets - the directive will encourage more cross-border ownership. That is crucial to the efficiency and returns on pension funds for the support of the retired, and of insurance funds for the compensation of the distressed.

It is, in short, a modest measure. It does no harm, and some good. Calling it a takeover directive is a misnomer, and probably a breach of the trades descriptions act. But it is all that is politically attainable at present. And for those of us who would like to see more radical opening up of cross-border mergers, there is also the promise of a review during the next parliament. And there is the prospect that the markets themselves can add to the pressures on companies to apply best practice in consulting their shareholders. We must not let the best be the enemy of the good.

[By Chris Huhne MEP, joint rapporteur (with Klaus-Heiner Lehne)].