European Union rules on take-overs have failed to bring down barriers to cross-border deals but they will not be changed any time soon, the EU's executive body said on Tuesday. The rules were heavily watered down by the European Parliament and member countries such as Germany, concerned at the prospect of foreign bids for key domestic companies.
The original aim of the rules was to help create a more efficient capital market for investors and companies, improving the 27-nation bloc's competitiveness. But they offered "opt outs", enabling EU countries to skirt core provisions and keep barriers in place.
Instead of trying to change the rules, Brussels has taken legal action against countries such as Poland, Italy and Spain for their handling of foreign takeover bids for local companies.
"A large number of member states have shown strong reluctance to lift takeover barriers," a report on the rules by the European Commission said. The number of countries implementing the rules in a seemingly protectionist way is unexpectedly large, it added. The Commission said it would analyse why states were so reluctant to endorse the fundamental takeover rules.
"In the light of this evaluation, the revision of the directive scheduled for 2011 may, if necessary, be brought forward," the report concluded. Frits Bolkestein, a former EU internal market commissioner who drafted the rules, disowned their final version.
His successor, Charlie McCreevy, has said he has no desire to revisit them any time soon after the Bolkestein's "hell." "He has no intention at all to revisit these rules," McCreevy's spokesman Oliver Drewes reiterated on Tuesday. Takeover experts said France, Spain, Italy and to some extent Germany and Belgium have used leeway in the new rules. "It is clear that a number of countries have taken advantage of the wiggle room allowed in the directive to allow for 'poison pills' and let incumbent management fend off hostile take-overs," said Chris Bright, a lawyer with Shearman in London.
But he noted legal moves by the European Commission to challenge cases such as Spain's handling of a takeover bid by Germany's E.ON for utility Endesa, Italy's blocking of a Spanish bid for toll-road company Autostrade and Poland's objections to an Italian banking deal. "If you see what happened with Endesa, Polish banks and Italy, the Commission has gone from a standing start to being very active and making progress," Bright said.
On a more positive note, the report said the new rules were likely to offer better protection of minority shareholders. Shareholders may also urge companies to introduce voluntarily bans on some takeover defences that many states have opted out of, the report added.
"The directive's rules on disclosure of takeover defences will help increase transparency, thereby facilitating investors' decisions," the report said, adding that might produce a gradual boost to corporate governance standards over the long term.
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