Proposition de résolution sur la proposition de treizième directive du Parlement européen et du Conseil en matière de droit des sociétés concernant les offres publiques d'acquisition (n° E-598)

SENATE OF THE FRENCH REPUBLIC

FINANCE COMMISSION

REPORT

By Mr. Philippe MARINI,

Senator,

on the proposal for a thirteenth directive of the European Parliament and of the Council on company law, concerning takeover bids

(English and summarized version)

Changes in takeover regulations are currently taking place in France, the United States and the European Union, where a thirteenth directive on company law is being negociated among member states to establish common principles concerning takeover bids.

I. To lay down common principles concerning takeover bids in the European Union is necessary

A) The current diversity of takeover regulations throughout Europe

Today, in the European Union, takeover bids regulations are extremely different from one member state to another.

Firstly, all European countries have not yet provided for specific rules concerning takeover bids, especially because they do not have the same experience in this field : takeover bids are very frequent in Great Britain, whereas they are very rare in Germany.

Secondly, when such specific rules do exist, they usually are very different from one country to another.

For example, the British supervisory authority, the " Takeover panel ", has strong specificities. For instance, in most cases, its decisions are not susceptible to be reviewed by a court or a tribunal.

In addition, the percentages of voting rights that are supposed to confer control over a company and that trigger a mandatory bid range grossly from 25 % to 50 % : the French level is an average one, 33 %.

ð The criteria of competitivity of a financial market are not limited to its technical assets. Rules in force are also a key factor of attractivity to investors. On these grounds, the Paris financial market has numerous assets : a high technical level and clear and efficient rules (especially since the French Parliament voted, in 1996, a law on the modernization of financial activities). We believe that this situation can only improve with the development of a financial law at Community level.

B) The aims of this proposal for a directive on takeover bids

1- Clearer rules

Concerning takeover bids, the current situation in the European Union is not satisfactory and may lead to legal loopholes as well as conflicts of competences between supervisory authorities.

We must provide our firms with clear and efficient means to compete in the international markets : a common framework for takeover bids in the European Union is necessary.

2- Protection of minority shareholders

It is also necessary to ensure a minimum protection of the interests of minority shareholders during the conduct of takeover bids. This is why the proposal for this directive establishes, in case of changes in the control of a company established in one of the member states and whose securities are negociated on regulated markets located in the European Union, a major means of protection of minority shareholders : the mandatory bid to all shareholders for all their holdings.

II- A directive limited to general requirements : a wiser choice

Many hurdles have arisen since a proposal for this directive was mentioned in 1985.

The first proposal made by the European Commission in 1989 failed to be adopted in 1991 because the rules it set were too detailed and biding.

In 1993, the European Commission resumed its work and presented an amended version, leaving more room to subsidiarity : the directive will only provide for minimum guidelines concerning the conduct of takeover bids.

A) The content of the proposal : a limited number of general requirements

Firstly, the proposal for this directive provides minimum guidelines such as :

1- all holders of securities of an offeree company of the same class are to be given equivalent treatment ;

2- holders of securities of an offeree company are to have sufficient time and information ;

3- the board of directors of an offeree company is to act in the interests of the company ;

4- offeree companies must not be hindered in the conduct of their affairs for longer than is reasonable.

Secondly, the text provides for more detailed rules :

1- it sets an obligation to launch a take-over bid (mandatory bid) on all the shares of all shareholders, as soon as a person or a legal entity (possibly acting in concert with other persons) holds a specified percentage of the voting rights of a company which confers the control of that company ; the choice of this percentage will be determined by the regulation of each and every member state ;

2- when the securities offered in exchange are not liquid securities negociated on a European regulated market, this bid will have to include a cash alternative ;

3- minority shareholders can also be protected, during a transitional period, by any other " appropriate and at least equivalent means " ;

4- an offer document will have to be drawn up and made public ; once it is approved, it shall be recognized in the other member states.

Beyond these minimum guidelines, member states may provide for " further instruments " to regulate bids and to protect the interests of holders.

B) Member states will provide for more detailed rules

The European Commission itself aknowledges that the proposal for this directive only sets a general framework. A certain number of domestic differences may remain, as long as they do not threaten the common principles laid down in the text of the proposal.

For instance, member states shall have the responsability to provide for detailed rules about the transparency of the bid.

On two major issues, the proposal may seem too shy and leaves too wide a competence to member states :

1- firstly, the definition of the percentage of voting rights confering the control over the offeree company will be determined by each and every member state, with no minimum or maximum ;

2- secondly, member states will decide whether the decisions of the supervisory authority will be susceptible to be reviewed by a court or tribunal , or not.

III- The remarks of the Finance Commission

A. About the mandatory bid

In earlier versions of this text, a compulsory cash alternative was stipulated. This rule, which has since been alleviated, would have limited the risk of inflation in issuing of shares and, thereby, ensured a better protection of minority shareholders.

Concerning the specified percentage of voting rights required to control a company and which triggers the mandatory bid, it would have been more efficient to set a given percentage (for instance 33 % as in the French legislation), or, at least, a maximum : 50 % of the voting rights.

B. " Further instruments " and " Equivalent means "

" Further instruments " (and " additional conditions and more stringent provisions ") to protect minority shareholders and regulate bids may be provided for by member states. This situation may seem contrary to the general principle of " free flow of capital " in the European Union. As a matter of fact, these " further instruments " may rise the cost and then hinder the normal course of the bids.

" Equivalent means " will also be admitted during a period of two years after the directive is transposed. This derogation will certainly weaken the general scope of this text : there will not be any generalization of mandatory bids in the European Union before this period of two years is over.

That is why this possibility should be clearly supervised . In particular, the procedure in which the Commission shall consider existing means as " equivalent " is not clear yet.

C. A European supervisory authority ?

Lastly, it is necessary to implement a wider and deeper cooperation and coordination of the existing supervisory systems and authorities in Europe.

The minimum harmonization of financial law in the European Union is a first step and we must already be prepared to the next : a European securities commission.

Conclusion

In 1985 the European Commission suggested a proposal for a directive on takeover bids. Since then, this text has encountered many hurdles. Today, , this proposal seems close to be adopted, as a result of the Commission's decision to relaunch talks on new, though lighter, bases.

It can be hoped that this text impulses a closer harmonization of rules and coordination of the authorities in the future.

It could also give a new impulse to other proposals for directives concerning company law , which have not yet been adopted. In this case, special attention would be required to make sure that their rules are not contradictory (especially with the fifth directive on the European company and the tenth directive on cross-border mergers).