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United Kingdom

In December last year, the European Parliament approved several amendments to the 13th Directive on Company Law concerning Takeover Bids. The amendments include allowing the board to increase the share capital of the company during the period of acceptance, as long as shareholder authorization was received at a general meeting held not earlier than 18 months before the acceptance period began, and extending the duties of the directors to consider employment when giving their opinion on a bid. It is unlikely that either the European Commission or EU governments generally will accept these amendments. At present, the European Council has until April 2001 to finish its second reading of the Takeover Directive. If the amendments are not approved, the process of conciliation will begin, by which the Commission will attempt to broker a compromise. If no compromise is reached, the European Commission will have to start the process again with a new draft.

In the UK, the implementation of the Takeover Directive and the introduction of mandatory general principles are regarded with more concern than in continental Europe, as it is perceived that (quite apart from the market abuse regime introduced by the Financial Services Authority) the UK Takeover Code will become more formal and lose its flexibility. The recent amendments have only added to this concern as they highlight the differing cultural attitudes and approaches that exist across Europe, particularly between the UK and continental Europe.

Hostile takeover bids in the UK date back to the 1960s, and led to the development of sophisticated expertise in the structuring, implementation of, and defending against, takeovers. In continental Europe, many jurisdictions have only recently seen their first high profile hostile takeover, eg Vodafone's takeover of Mannesmann in Germany, and have less developed takeover codes. For example, Italy's takeover code was introduced in 1992. The question of takeover bids brings into sharp focus the difficulty that cultural tensions within Europe present when seeking to achieve harmonization.

As well as the historical and cultural aspects, several practical differences exist between jurisdictions. The Takeover Panel, despite some inevitable criticism, is seen as being able to make rapid decisions unfettered by precedent, and adapt its rulings to the circumstances. In continental Europe courts generally regulate the takeover process and are seen as being less dynamic and not fitting well with the UK regime. Other practical differences include the use of bearer shares in many European companies, which make it more difficult to identify shareholders relevant to a bid campaign, while UK companies use a registered system; the fact that the use of 'poison pills' as a defensive measure against takeovers is permitted in several European jurisdictions but not in the UK; and the degree of discretion of the CEO in, for example, France, to recommend a bid or not, while in the UK the board must obtain independent advice.

Despite the cultural differences, many recognize that without some integration of takeover regulation, the development of the corporate market across Europe could be seriously hindered in years to come. However, the recent amendments made to the Takeover Directive by the European Parliament indicate how far apart continental Europe and the UK are in their approach to the regulation of takeovers at present.

Helen Mayfield

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