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European Union

Commission proposes directive on takeover bids

The Commissioner responsible for the single market, Mario Monti, put forward a revised draft of the proposal for a 13th Company Law Directive on conduct during takeover bids. The new draft takes on most of the concerns of the European Parliament, the Economic and Social Committee and other interested parties. It entitles employees of target companies to be informed once a bid is made public and to receive a copy of the offer document.

The new draft of the proposed Directive was opposed by the UK, with the Director-General of the takeover panel, Alistair Defriez, urging the Commission to respect the principle of subsidiarity and leave national governments to regulate the conduct of takeover bids. The panel questioned the wisdom of adopting binding legislation that might lead to lengthy court cases designed to block takeovers, and instead supported a harmonized voluntary code. The Commission believes its proposed Directive now addresses the UK's concern about the use of nuisance or tactical litigation to hinder bids. It explicitly encourages the supervisory authorities of each member state to avoid administrative or judicial actions, and does not provide any new means for action to delay a bid.

Under the revised proposal a company's management would have to consider all the company's interests before it accepts or rejects a bid. If defensive measures are proposed, they must be authorized by the general meeting of shareholders during the four-week acceptance period

P&O/Stena joint venture set to go ahead for a limited period

On November 19 1997, the competition Commissioner, Karel Van Miert, called for the joint venture between Peninsular and Oriental Steam Navigation (P&O) and Stena Line for cross-Channel ferry services to be approved, if only for a limited period.

In December, the Commission will publish a 19(3) Notice inviting third parties to comment on the proposed exemption decision; and after consulting the member states, a decision will be published. The Commission informed P&O and Stena of early doubts under Article 85(3), based on the uncertain development of the market for cross-Channel ferry services, particularly in view of the ending of duty-free concessions in mid-1999.

The UK's Office of Fair Trading (OFT) also conducted its own investigations. Van Miert praised the excellent cooperation between the Commission and the UK competition authorities, confident his proposal would be compatible with the decision announced by the OFT.

Commission clears Siemens/Elektrowatt merger

On November 18 1997, at the end of a Phase II investigation, the Commission cleared the merger giving Siemens control over Elektrowatt. The decision came in the wake of an undertaking by the parties to divest the payphone manufacturing activities of Elektrowatt's subsidiary Landis & Gyr.

At the end of July, the Commission launched a detailed investigation into the proposed merger, announcing concerns about the overlaps between the parties' activities (particularly, in building control and security technology, energy metres and payphones) and their high market shares, which are at least 50% in some member states. The investigation revealed the merger would give Siemens a dominant position in the German market for public payphones, because Landis & Gyr is the only other public supplier in that market.

With reference to other markets, the Commission concluded that although the markets were still national and the parties among the market leaders in several member states, there were nevertheless strong competitors and low barriers to market entry.

Van Miert sets out guidelines on antitrust fines

On December 3 1997, the competition commissioner, Karel van Miert, released his proposed guidelines for setting fines for infringements of Articles 85 and 86 of the EC Treaty. Fines would continue to be based on the duration and gravity of the infringement, but would no longer be calculated on the turnover of the infringing parties. At the moment, fines can be as much as 10% of a firm's worldwide turnover.

In future, the gravity of the infringement would be judged by its nature, its impact on the market and the size of the relevant geographic market. Infringements would therefore fall into one of the following three categories:

  • Minor infringements, such as trade restrictions, are generally of a vertical nature affecting only part of the common market. The fine would range between Ecu1,000 and Ecu1 million.
  • Serious infringements, such as abuses of a dominant position or horizontal or vertical trade restrictions, have a wide market impact and affect extensive areas of the EU. Fines would range between Ecu1 million and Ecu20 million.
  • Very serious infringements generally comprise horizontal restrictions such as price cartels and market-sharing quotas, or abuses of a dominant position by firms holding a virtual monopoly. Fines would exceed Ecu20 million.

For an infringement of medium duration (generally one to five years), the fine based on gravity would increase by 50%. If the infringement lasted more than five years, an increase of up to 10% per year would be imposed on the fine. The increase in fines for long term infringements significantly strengthens the Commission's existing practice. Van Miert believes that the risk of larger fines based on duration will increase the incentive to denounce the infringement or cooperate with the Commission. Under no circumstances, however, would fines exceed 10% of a firm's worldwide turnover.

Under the proposed guidelines, fines could also vary according to the details of a case. Fines would be increased if there were aggravating circumstances (eg repeated infringements, refusals to cooperate, attempts to obstruct the Commission's investigations), or if a company led or initiated the infringements. Fines could be reduced if there were attenuating circumstances, (eg non-application in full of the offending agreements), or if a firm had an exclusively passive role in the infringement.

Michael Reynolds
Allen & Overy

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