GHENT UNIVERSITY LAW SCHOOL

Department of Business Law

LLM Programme: Master of Advanced Studies in European Law

PETER RIZMAN

Student no.: 01008870

Promoter: Prof. Dr. Hans De Wulf

Academic year: 2010 – 2011

Submitted: 16 May 2011

THE MANDATORY BID RULE AND PROTECTION OF MINORITY

SHAREHOLDERS DURING TAKEOVERS UNDER THE EUROPEAN

UNION LAW

(Master Dissertation)

2

Abstract

Aim of this Thesis is to examine the sufficiency in the protection of minority shareholders during takeovers in the light of mandatory bid rule. The main statutory source is the Directive 2004/25/EC of The European Parliament and of the Council of 21 April 2004 on takeover bids.

The beginning of this thesis contains general principles of takeover bids, which are in my opinion closely connected with protection of minority shareholders during takeovers. I consider the general principles important, because they determine the margin for interpretation of the protection of minority shareholders and shareholders in general. The Chapters after it contains certain issues of takeover bid procedure, where I want describe the possible action of shareholders in general. It is important, from my point of view, to describe certain action of shareholders during the takeover bids, for complex picture about shareholders protection. The core part of the thesis should examine the effects of mandatory bid rule, if this rule meets presumed expectations, effectiveness and fairness in the treatment of shareholders.

This Thesis should also examine the hypothesis, that MBR protects minority shareholders during value-decreasing takeovers, but on the other hand it has negative effect on value-increasing takeovers. Important issue is also question whether is better pure rules of the market without interference or regulator or it is better to have regulated rules in the area of protection of minority shareholders during the takeovers. This topic may be perceived also from economical point of view and lots of articles are also containing mathematical analysis of effectiveness of this rule. This thesis perceives MBR only from legal point of view and does not include mathematical analysis of the takeover bids.

Key words: protection of minority shareholders, takeover bids, takeovers, mandatory bid

rule, controlling share, value-increasing takeovers, value-decreasing takeovers, takeover bid procedure, takeover bid principles, takeover bid directive, offeror (bidder), company board, frustration of takeover, efficiency, fairness, equity.

3

List of Abbreviations CJ EU – Court of Justice of the European Union DPB – Dissipative Private Benefit EC – European Commission MBR – Mandatory Bid Rule MS – Member State NBS – National Bank of Slovakia PBC – Private Benefit of Control TBD – Takeover Bid Directive (Directive 2004/25/EC of the European Parliament and of the Council on takeover bids) TFEU – Treaty on Functioning of European Union UK – United Kingdom US – United States

4

Content Abstract ........................................................................................................................................ 2 List of Abbreviations ................................................................................................................... 3 Content ......................................................................................................................................... 4 1. Introduction ............................................................................................................................. 6

1. 1. Way to takeover directive ................................................................................................ 7 2. General Principles of Mandatory Bid Rule ............................................................................. 9

2. 1. Principal of Equal Treatment ........................................................................................... 9 2. 2. Principle of Transparency .............................................................................................. 10 2. 3. Principle to Act in the Interests of the Company ........................................................... 11 2. 4. Principle of not Distortion of Market ............................................................................ 12 2. 5. Principle of fulfillment of the cash considerations ........................................................ 12 2. 6. Principle of Protection of Offeree Company ................................................................. 14

3. Applicability of the mandatory bid rule ................................................................................ 15 3. 1. Friendly and Hostile Takeovers ..................................................................................... 15

3. 1. 1. What is it friendly takeover? ................................................................................. 15 3. 1. 2. What is a Hostile Takeover? .................................................................................. 16

3. 2. Securities to which is Mandatory Bid Rule applicable .................................................. 17 4. Takeover Bid Procedure ........................................................................................................ 18

4. 1. Pre-bid Defence ............................................................................................................. 18 4. 2. Information about the Bid and Contents of Public Bid ................................................. 22 4. 3. Supervisory Authorities ................................................................................................. 23 4. 4. Content of disclosed information .................................................................................. 25 4. 5. Board of the Offeree Company and Employees of the Offeree Company .................... 26 4. 5. Disclosure Requirements of the Companies .................................................................. 27 4. 6. Application of the Mandatory Bid Rule ........................................................................ 29

4. 6. 1. Need for Protection of Minority Shareholders ...................................................... 30 4. 6. 2. Threshold ............................................................................................................... 31 4. 6. 3. Equitable Price ....................................................................................................... 32 4. 6. 4. Is MBR sufficient in value-decreasing and value-increasing Takeovers .............. 34 4. 6. 5. Expenses for MBR in case of one Bidder .............................................................. 35 4. 6. 6. Auctions and MBR ................................................................................................ 36

5. 7. Negatives of MBR ......................................................................................................... 37 5. 7. 1. MBR and Income of the Bidder. ........................................................................... 39 5. 7. 2. Too much discretion for Member States. .............................................................. 39

6. Selected Issues from the MBR at Slovak Republic ............................................................... 41 7. Conclusion (Mandatory bid rule yes or no?) ......................................................................... 44 Bibliography .............................................................................................................................. 46

5

6

1. Introduction

Mandatory bid rule is part of so called 13th company directive (2004/25/EC on takeover bids). ‘The mandatory bid rule requires a bidder who has exceeded a threshold in relation to control the company to offer to buy all the rest of the rest of the shares in the target company as a means of protecting the minority shareholders of that company.’1

Legal basis for this directive is article 45 Treaty on Functioning of European Union (TFEU) so also the aim of directive is harmonization, which helps to achieve higher level of freedom of establishment and also to achieve high degree of competitiveness. Next aim of the Takeover Bid Directive is also investor protection and protection of minority investments through mandatory bid rule. It is applicable to the acquisition of control of a company governed by the law of a Member State and which securities are all or in part admitted to trading on a regulated marketing the European Economic Area. Mandatory bid rule applies regardless of the price, it applies also when the price is below market price.2

Mandatory bid must be made whenever natural or legal person acquires percentage of voting rights, which gives him control over company. Shares of that company must be traded on a regulated market in a Member State. ‘This rule enables the holders of securities to decide on a ideal solution without any pressure, as equal terms will be granted, no matter whether they sell their share immediately or not until the end of the period of the bid.’3

The main purpose of the mandatory bid rule (MBR) is protection of minority share holders and gives them possibility to sell their shares for equitable price in certain time period to bidder, or retain their shares. There is still big debate about efficiency of this rule, because on one hand MBR can sufficiently protect minority shareholder in case of value decreasing takeovers, but on the other hand it causes certain problems in value increasing takeovers.

Minority share holders do not have always have noticeable impact on decision making process in company. Decisions taken by majority shareholder can be sometimes harmful for the minority shareholders. Problem can arise also when the majority shareholders decides to sell his majority stake. New owner can have totally different aim with company, what can also decrease value of shares and harm minority shareholders and their investments. Point is that they have to have possibility to choice whether or not they want to continue keep their shares also under new leadership.

Mandatory bid rule is connected only with acquiring control over company which has registered office in the Member State. The MBR in the Takeover Bids directive does not define any threshold or any percentile, which would define how much shares would mean acquiring the company. It is on the discretion of Member States to do it.4 For example the Takeover Directive defines control as: ‘holding a specified percentage of voting rights in the

1 B Sjafjell, ‘The Core of Corporate Governance: Implication of the Takeover Directive for Corporate Governance in Europe’ (2010) UCD Working Papers in Law, Criminology and Socio-Legal Studies Research Paper 27/2010 <http://ssrn.com/abstract=1598298> accessed 19 February 2011, p. 62.

2 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP, Cambridge 2008) p. 16.

3 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 24.

4 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 25.

7

offeree company’. There is no exact provision also from political reason. MS can provide also more stringer measures, than those in Takeover Bids Directive (TBD). These measures can be also including partial bids.

1. 1. Way to takeover directive

The firs attempt to harmonize takeover regulation in European Community was in 1970. Member States (MS) showed lack of interest to support such idea. Next attempt to have united takeovers rules in Europe was in 2001, this was blockaded by European Parliament in very close vote 273 to 273. Mainly Germany opposed, the problematic part in was “strict neutrality rule”. Objection was, that by extending London City Code rule would be asset for American companies, for which would be then easier to gain control over European companies. Strong value of the dollar against the Euro was in favour of it.5 European Commission did not give up its effort to unify takeover rules in Europe and appointed on September 2001 a “High level Group of Company Law Experts” under chairmanship of Jaap Winter, so called Winter Group.6

They prepared a Report on the new Thirteenth Directive on January 2002, which was present by Commission I October 2002. Report makes a lot of recommendations regard company law. Group stresses, that:

Particular attention should be given to the elimination of obstacles for cross-border

activities. Responses to the consultation confirm the high importance of cross-border issues. … Where mechanisms established so far to protect shareholders and creditors appear to be inappropriate impediments, they should be replaced by ones that are at least as – and preferably more – effective, and less cumbersome. … Where various alternative systems exist in Member States for elements of the company’s organisation and structure, the EU should as much as possible facilitate freedom of choice for companies across Europe. … Listed companies should be subjected to a certain level of uniform and compulsory detailed rules, whereas closed companies should benefit from a much higher degree of autonomy. The balance may be somewhere in between for open companies.7 The Report proposes new solutions as is for example the Breakthrough rule, which faced

a great opposition. The rule says, that in case of takeover bid it ‘would nullify and void

5 R Painter, C Kirchner, ‘Takeover Defense under Delaware Law, the Proposed Thirteenth EU Directive and

the New German Takeover Law: Comparison And Recomendation Reform’ (2002) Illinois Law and Economics Working Paper Series Working Paper No. Le02-006 <http://papers.ssrn.com/pape.tar?abstract_id=311740> accessed 19 February 2011, p. 10.

6 M Brukart, F Panunzi, ‘Mandatory Bids, Squeeze-out, Sell-out and the Dynamics of the Tender Offer Process’ (2003) ECGI Working Paper Series in Law10/2003 <http://ssrn.com/abstract=420940 or doi:10.2139/ssrn.420940> accessed 16 December 2010, p. 2.

7 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 5, 6.

8

preferential positions of certain shareholders’8. The Report also defences strict “neutrality rule” and proposes that it should be voided differential voting power of shares in votes on defensive measure. With regard to MBR directive defines the equitable price to be paid in a mandatory bid: it is the highest price paid by the new controlling party in the 6 or 12 months preceding the mandatory offer. Directive implements recommendation of Winter Group Report regard squeeze-out and sell-out rights.9 New Directive modified a ‘regime that allows MS to adopt protectionist opt-outs which are hard to reconcile with the aims and scope of the freedom of establishment’10 (art. 45 TFEU).

Finally after 27 years from the first proposal and 15 years after it was tabled European Parliament in spring 2004 enacted the Directive 2004/25/EC of the European Parliament and the Council on takeover bids.

8 R Painter, C Kirchner, ‘Takeover Defense under Delaware Law, the Proposed Thirteenth EU Directive and

the New German Takeover Law: Comparison And Recomendation Reform’ (2002) Illinois Law and Economics Working Paper Series Working Paper No. Le02-006 <http://papers.ssrn.com/pape.tar?abstract_id=311740> accessed 19 February 2011, p. 18.

9 M Brukart, F Panunzi, ‘Mandatory Bids, Squeeze-out, Sell-out and the Dynamics of the Tender Offer Process’ (2003) ECGI Working Paper Series in Law10/2003 <http://ssrn.com/abstract=420940 or doi:10.2139/ssrn.420940> accessed 16 December 2010, p. 2.

10 T Papadopoulos, ‘The mandatorz provisions of the EU Takeover Bid Directive and their deficiencies’ (2007) Law and Financial Markets Review Academic Analysis <http://ssrn.com/abstract=1088894> accessed 20 February 2011, p. 525.

9

2. General Principles of Mandatory Bid Rule

Article 3 of the Thirteenth Directive defines the general principles of the Takeover Directive. MS ‘may lay down additional conditions and more stringent provisions than those required by this directive for regulating bids,’ (art. 3(2) Takeover Bids Directive), so we deal with minimal harmonization here. Directive sets only minimal conditions for protection of minority share holders and MS can go further and also apply mandatory bids on other types of shares. Nationally supervision authorities may decide about certain derogations in their national rules on the basis of reasoned decision. ‘In other words, MS may allow their supervisory authorities to decide, case by case, that the mandatory bid rule does not apply in certain special circumstances, whether specifies by the national rules or not.’11

2. 1. Principal of Equal Treatment

Principle of equal treatment means, that the takeover bid must be made to all holders in the same manner and with the same condition. It is based on notion of fairness of shareholders for its own sake. Differences can only be justified by different classes of securities - with different rights and obligations. Mandatory bid rule requires, that the remaining securities holders must all be allowed to tender their securities and they have possibility of withdraw.12

De facto we can say that there is additional cost for bidder by acquiring shareholders generated by application of such rules. Mandatory bid rule has in this sense so called distributory effect, because it causes the transfer of wealth from the acquiring to target shareholders. Also MBR has efficiency effect and question is whether positive or negative, because it can chill quite profitable deals. MBR can cause obstacles regard operations of the market, mainly in case of value increasing takeovers, because the cost of acquiring control are increasing and it can discourage some profitable transactions. Efficiency of MBR is discussed a lot and there are many voices that this rule causes disincentives regard efficiency.13

Reason why with MBR is connected equal treatment is that: ‘A number of commentators argue that, although the aim of equality rules is to ensure that the premium of control is not paid only to one or more of the target’s shareholders but is equally shared among all the target shareholders,’14 From practical point of view it means, that bidder has to pay much more even he needs lesser percentage to achieve control over the company, this is then in minimizing number of potential bids. Bidder can in many cases overpay, due to paying for non-controlling shares as well.15 ‘Offering the same price to all shareholders may mean for majority owners

11 G Ferrarini and others, Reforming Company and Takeover Law in Europe (OUP, Oxford 2004) p. 774. 12 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP,

Cambridge 2008) p. 8. 13 A Kouloridas, The Law and Economics of Takeovers: An Acquire´s Perspective (Hart Publishing, Portland

2008) p. 212, 213. 14 Ibid. p. 215. 15 Ibid, p. 215, 216.

10

that they are deprived of a control-premium and thus, they may be more reluctant to accept offer.’16 Advantage for bidder can be that the he can sell the non-controlling shares, after successful acquisition. This can be very beneficial mainly by value increasing shares. Problem with equal treatment during MBR can be also on the side of acquires shareholder. Acquirer shareholders are giving their right to approve the acquisition, but after completion the MBR, the acquirer can be much stronger as it was expected on the beginning.

Equal treatment is not in this case only for minority shareholders, but also toward management. ‘An independent adviser to the offeror must state publicly that, in its opinion, any other forms of ongoing incentive offered to members of management of the offeree company to ensure their continued involvement in the management of the business after completion of the transaction are fair and reasonable.’17

2. 2. Principle of Transparency

The duty to provide information to holders of securities is what I consider as principle of transparency of MBR. Also one of the main aims of the Takeover Directive is to increase the transparency in takeovers, because the holders of securities have rights for certain information. ‘This principle ensures that sufficient information is made available to holders of securities so that they are able to make an informed assessment of the bid.’18 Shareholder should have certain time to make decision about their shares supported by sufficient information.19 The Winter Group in its report states about transparency in this was:

It is necessary to create Community-wide clarity and transparency in respect of

legal issues to be settled in the event of takeover bids and to prevent patterns of corporate restructuring within the Community from being distorted by arbitrary differences in governance and management cultures.20 Offerree company shall give report what are their intention with targeted company and

how would be the employees effected by the bid. Reason to have a good transparency rule is also, that on the basis of provided information the minority shareholders can make proper decision and also form their defense.

Employees have also ‘right to be informed about the board’s opinion and have their own opinion included in the document made public, and the disclosure of the bidder’s intention

16 Ibid, p. 214. 17 Ibid, p. 211. 18 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP,

Cambridge 2008) p 9. 19 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its

implementation in the Member States (Memento Verlag, Freiburg 2008) p 15. 20 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts

on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 83.

11

with regard to effect on employment’21. This information can be for example also about relocation, which is for employees very important. The Takeover Directive itself says about disclosure of information in this way:

Member State shall ensure that a bid is made public in such a way as to ensure

market transparency and integrity for the securities of the offeree company, of the offeror or of any other company affected by the bid, in particular in order to prevent the publication or dissemination of false or misleading information.22

About the transparency principle would be more dealt in part about MBR procedure.

Equal treatment together with transparency plays important rule in protection of minority shareholders during takeovers and ‘ensures that holders of securities receive sufficient information’23.

2. 3. Principle to Act in the Interests of the Company

It is up to shareholders to decide, if the bid will be successful and for which price they will offer their shares. After the bid was announced general meeting of shareholders may charge board to issue risk-bearing share capital as a post-bid defence. Board has duty publicly set out its opinion, together with explanation and reasoning. This public document should illustrate the effects of implementation of the bid on the interest of company, on the future of company and strategic planning, impact on employees of company and employment in that location.

The system in US is following:

However the US Courts generally impose the burden of proving that the measures taken by board were genuine in the best interest of the company upon the directors and the obligations which arise are vigorously enforced by shareholders.24

Court in US also more specifically described this loyalty rule:

This function as “a presumption that in making a business decision the directors of

a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.25

21 B Sjafjell, ‘The Golden Mean or a Dead End?’ (2005) Paper presented on 23 September @))% at the CECL

Conference ‘European Company Law in Accelerated Progress’ Leiden University, the Netherlands <http>//ssrn.com/abstract=866184> accessed 22 February 2011, p. 16.

22 European Parliament and Council directive 2004/25/EC of 21 April 2004 on takeover bids [2004] OJ L 142/27, art. 9.

23 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 15. 24 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 40.

12

This principle gives duty to board to act in the interest of the company as whole and not

deprive shareholders of the possibility to decide about the bid. Their report about the impact of the bid has to be therefore objective. They can not incline to one or the other side.

The burden of proof for breach of the fiduciary rule is than up to shareholder. According the Directive, directors should act in the interest of the whole company, but for example in UK common law act in the interest of the company means to act in the interest of shareholders. This may in future cause conflict between companies acting according the terminology, which they are used to and MS eager to ensure proper enforcement of company law. According UK law duty of directors to act in the interest of employees is enforceable only by a company, but according the Directive MS should ensure the compliance with this principle.26

This principle is closely connected with requirement of board-neutrality rule, which applies right after a bid has been announced, ‘targeted at preventing defensive actions by the management without shareholder approval’27. The board neutrality rule will be than in the paper discussed later.

2. 4. Principle of not Distortion of Market

Aim of this principle is to ensure, that market is not distorted by artificially influencing the rise and fall of the prices of the securities, ‘or that a flase market is not created during trade with the offeree company’s securities’28. The result should ‘to avoid disturbance of the market by eliminating market mechanisms by, for example, manipulation’29.

2. 5. Principle of fulfillment of the cash considerations

The bidder is required to make offer to all shareholders at price equal to the pre-share consideration received by the incumbent controller. According this principle bidder must ensure that, he satisfies all cash considerations. That means, that he has to really analyze, if he is able to satisfy also requirements of minority shareholders during MBR.

This mandatory bid has to be offered for all shares, so it might happen, that bidder can face financial problems and would be forced to concentrate more funds to make the takeover successful. He can be forced to buy much more shares, than he would need for acquiring the 25 G Tamburrini, ‘Harmonization of Takeover Disciplen: a Comparative Law and Economic Overview’ (2009) La Sapienza <http://ssrn.com/abstract=1423762> accessed 16 March 2011, p. 3. 26 B Clarke, ‘Takeover Regulation: Through the Regulatory Looking Glass’ (2007) CLPE Research Paper 18/2007 Vol. 03 NO. 05 Special Issue: EU Governance <http://ssrn.com/abstractid=1002675> accessed 16 March 2011, p. 15. 27 E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010] (10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010, p. 5. 28 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 16. 29 Ibid.

13

control over the company. It increases the takeover costs and secondly it creates a barrier for potential acquirer, who would otherwise focus only on a controlling block.30

Directive 2004/25, art. 3 par. 1(e):

an offeror must announce a bid only after ensuring that he/she can fulfill in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration;

The real price of takeover can due to MBR extremely increase what the bidder has to

take into consideration. This consideration or analysis of the bid may result, that the takeover would be for the offeror not profitable, might cause him serious economical problems or would be require concentration more economical funds in the investment. According some critics, this may discourage the value increasing takeovers.31

There are in some MS, which were using mandatory bid rule also before the Takeover Directive, provisions regard consideration, which have binding character, in other MS this provisions were only as recommendations. But majority of MS adopted detail provision regard consideration to be offered in MBR, but the nature and criteria are different. So there is necessary certain level of predictability to make the takeover efficient. Also the Winter group report state:

If mandatory bid had been made, the mandatory bid price should be rebuttably

presumed to be a fair price in the squeeze-out procedure even if the mandatory bid has not been accepted by shareholders holding 90% or more of the relevant share capital. In all other situations, the consideration should be determined by expert(s). Cash, or a cash alternative, should be offered if it was offered in takeover bid.32

As was already stated, the offeror has to be flexible and have clear financial plan for the

takeover and has to predict approximate price or ideally predict the total equitable price. What is the equitable price and how the offeror can calculate it, we will discuss later. The method of quantification of compensation is essential for the offeror in order to secure enough capital and to finance the bid. After it the bidder fully complies with Article 3 (1e) of Takeover Directive.

Cash offers can be associated with debt-servicing costs or underwriting fees. The total price of the bid can hugely increase, but some economical commentators have pointed out, ‘high premia may discourage business combinations that would have failed anyway’33. For conclusion we can say, that there is no doubt, that bidder can overpay.34 On the other hand the

30 A Kouloridas, The Law and Economics of Takeovers: An Acquire´s Perspective (Hart Publishing, Portland 2008) p. 215. 31 S M Sepe, ‘Private Sale of Corporate Control: Why the European Mandatory Bid Rule is Inefficien’ [2010] (10-29) Arizona Legal Studies Discussion Paper <http://ssrn.com/abstract=1086321> accessed 16 December 2010, p. 27. 32 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 12. 33 A Kouloridas, The Law and Economics of Takeovers: An Acquire´s Perspective (Hart Publishing, Portland 2008) p 216. 34 Ibid.

14

main idea of this principle is to protect offeree company, shareholders, and the market from artificial bids.35

2. 6. Principle of Protection of Offeree Company

Takeover bid influences the progress and running of the company. Takeover bid lasting longer than is necessary to meet qualified decision of present subjects, may indirectly interfere to the inter affairs of company and conduct of company. Mainly operations, which can be considered as bid frustrating, but those operations or conduct can be on other hand necessary for normal functioning of the company. It is not excluded, that the offeree company may ask for reparation from offeror in case of economical losses due to unreasonably long time of bid.36

To protect the target company before insufficient inappropriate restriction, the directive sets the time limit, during which is the bid valid. The principals stated in the Directive are the minimal requirements. MS can make more stringent criteria according their internal needs. Stringent criteria are usually imposed with aim of protection of minority shareholders and protection of non liquid capital markets.37

This principle is also important, because once a bid has been made, decisions by the board, if the duty of neutrality is applicable, require the approval of general meeting of shareholders if they affect areas outside the normal conduct of affairs. The negative effect can be that, bids could, therefore, possibly be used to adversely affect of weaken a competitor, and it is necessary to prevent this.38

Part of the principle is also that, the publications of the decision of the announcement of a bid should happen as early as is possible.39 The targeted company gets into very harmful position during the bid period, therefore it is necessary to ensure, that everything what happens during this time period, would be fair and regular. The aim of offeror should not damage the targeted company. Offerer should be serious in his intentions. Problem from my point of view is, that in case of damage to the targeted company the Takeover Directive says nearly nothing about any punishment mechanism, in case, that such situation happens. Lot of criticism about mandatory bid rule says that the rules are too general and gives too much discretion for MS to apply the MBR. Probably more specific condition should have been taken, to better hit the target of the Directive.

35 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 16. 36 Peter Cavojsky, ‘Basic principles according the Takeover Directive’ (Economic Newspaper, Slovakia) <http://hnonline.sk/ekonomika/c1-21902695-zakladne-principy-podla-smernice-upravujucej-ponuky-na-prevzatie> accessed 30 March 2011. 37 Ibid. 38 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 16 39 Ibid. 17.

15

3. Applicability of the mandatory bid rule

In this part we will have look on type of takeovers and type of securities, to which is the MBR applicable. We distinguish in company law friendly takeovers and hostile takeovers. The MBR applies to both friendly and hostile one. The MBR concerns but only transferable securities carrying voting rights in a company.

3. 1. Friendly and Hostile Takeovers

As was already state above, we distinguish hostile and friendly takeovers. The Mandatory bid rule applies to both of them.

3. 1. 1. What is it friendly takeover? Transaction of a sale control is usually the result of direct negotiations, which are done

outside of stock exchange between the current owner of a controlling block and the interested buyer. Negotiations has some order, there is negotiated price and other conditions. This two parties usually sign the letter of intend and confidentiality, because most of information, which they use are private and business secret. Last thing, which they negotiate, is the price and if they reach an agreement they sign the acquisition paper.40 This kind of business is considered as friendly. Another opinion on friendly takeovers is that:

Schwert points out that many “friendly” acquisitions are such only in name.

Indeed, several acquisitions, which are perceived as friendly once the successful completion of negotiations is publicly announced, would have been considered hostile should they have been disclosed to the public during the early stage of negotiations.41

When the potential acquirer is interested in the company his first strategy is usually try

the friendly acquisition of the control of the block. If the price, which is negotiated, is too high for him, he may use second strategy and that is the hostile takeover. Many hostile takeovers are value decreasing what is quite profitable for the acquirer, because in hostile takeover the incumbent loses the dissipative private benefit and compensation for it.

40 S M Sepe, ‘Private Sale of Corporate Control: Why the European Mandatory Bid Rule is Inefficien’ [2010] (10-29) Arizona Legal Studies Discussion Paper <http://ssrn.com/abstract=1086321> accessed 16 December 2010, p. 6. 41 Ibid., p. 6.

16

3. 1. 2. What is a Hostile Takeover? Hostile takeover means, that the company is acquired without the previous agreement of

the targeted company, the managers are unwilling to agree on takeover. Sometimes the board of directors can also reject the offer, but the bidder continues to pursue the takeover. They ways how the takeover can proceed are those:

A hostile takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. Tender offers in the United States are regulated by the Williams Act. An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough shareholders, usually a simple majority, to replace the management with a new one which will approve the takeover. Another method involves quietly purchasing enough stock on the open market, known as a creeping tender offer, to effect a change in management. In all of these ways, management resists the acquisition but it is carried out anyway.42

If there is a hostile takeover is very difficult for managers to protect the company investments and than also the asset of shareholders. ‘If managers face the risk of being ousted following a hostile takeover, they will tend make less human capital investment of this kind.’43

Hostile takeover are usually successful on market where are the cross-border acquisition more frequent. According the surveys, hostile takeovers mostly occur in companies, which are not in very sufficient conditions and are underperforming.44 Hostile takeovers as uninvited element have mostly negative effect on long term company performance. Of course not all have negative effect; we distinguish as well the good and bad takeovers. Consequence of many takeovers is company restructuring, what has sometimes positive sometimes negative effect on market. Problem of takeovers is that they might be connected with empire building, what can have a negative consequence on the structure of the market and also at the competition in the European Union.45

According research mentioned in article about Nordic & European Company Law, long term investments relating to research and development and the trust necessary in long term implicit contracts are endangered by hostile takeovers. Next element which might be negatively affected is the trust on the capital market relating to long term relations. Hostile

42 E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010] (10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010, p. 18. 43 L. Enrique, ‘European Takeover Law: The Case for a Neutral Approach’ [2010] (45) Nota di Lavoro, Institution and Market Series, Fondazione Eni Enrico Mattei. P. 7. 44 Ibid. 45 B. Sjafjell, ‘Political Path Dependency in Practice: The Takeover Directive’ (2009) 10 LSN Research Paper, Nordic & European Company Law, Oslo, University of Oslo. P. 399.

17

takeovers are in continental Europe not so common, as we can see on the graph most of the takeovers took place in UK.46

47

3. 2. Securities to which is Mandatory Bid Rule applicable

MBR concerns only securities, which are share carrying the voting rights, including securities, that give access to securities with voting rights (convertible bonds, warrants, options issued by the target company …). Directive specialises, that MBR involves securities of companies governed by the laws of MS, where all or some of those are admitted on regular market.48

This Directive shall not apply to takeover bids for securities issued by companies,

the object of which is the collective investment of capital provided by the public, which operate on the principle of risk-spreading and the units of which are, at the holders´ request, repurchased or redeemed, directly or indirectly, out of the assets of those companies.49

46 M. Ventoruzzo, ‘Takeover Regulation as a Wolf in Sheep’s Clothing: Taking Armour & Skeel’s Thesis to Continetal Europe’ (2008), Bocconi University, Institute of Comparative Law „Angelo Sraffa“, Draft January 2008, p. 13. 47 M. Ventoruzzo, ‘Takeover Regulation as a Wolf in Sheep’s Clothing: Taking Armour & Skeel’s Thesis to Continetal Europe’ (2008), Bocconi University, Institute of Comparative Law „Angelo Sraffa“, Draft January 2008, p. 13. 48 T Papadopoulos, ‘The mandatorz provisions of the EU Takeover Bid Directive and their deficiencies’ (2007) Law and Financial Markets Review Academic Analysis <http://ssrn.com/abstract=1088894> accessed 20 February 2011, p. 525 49 European Parliament and Council directive 2004/25/EC of 21 April 2004 on takeover bids [2004] OJ L 142/27, art. 1 par. 2.

18

There are also excluded the securities issued by the central bank of Member State. The Member state can further extend the scope of applicability.50

4. Takeover Bid Procedure

We distinguish during the takeover bid two stages. 1. Stage is when the bid is announced. Shareholders has to than consider their reactions

how to respond and whether they will undertake some defensive measures. 2. Stage is when the bid is successfully completed. Bidder may be frustrated from

exercising the control over acquired company by post-bid defence and also by per-bid defence (barriers, which are in place before the bid is announced)51

In this part of LLM Paper we want to focus on the pre-bid and post-bid barriers and on the exact procedure of MBR.

4. 1. Pre-bid Defence

Pre-bid defence means, that, there are created certain barriers, which should immunize companies from take-over. General aim is that those defence tactics should improve the terms of bid of frustrate it if there is not wealth maximization. Mainly if the bid price does not meets the expectations of shareholders, but they accept the bid out of fear of being left with low-value of minority shares, if the bidder gains control of the company. However this danger was excluded by the mandatory bid rule. According prof. Hopt (Capital Market and Company Law), there still remains a pressure on shareholders to tender their shares. MBR brought new correction and that is equal treatment and equitable price, what should forbid the bidder from discrimination.52

Defences motives are according some economist also connect with cash flow theory. That means, managers can frustrate bids by replacing excess cash or borrowing capacity with debt. Many legislations demand for previous approval of shareholders before managers undertake actions frustrating the bid (e.g. art. 21 of Takeover Code, United Kingdom; also the Takeover Directive). Problem is that takeover deterrence motives may be well hidden and it is very difficult to identify precisely a defensive action.53

50 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 12. 51 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 26. 52 K. J. Hopt and E. Wymeersch, Capital Market and Company Law (Oxford University Press, Oxford, 2003) p. 248. 53 A Kouloridas, The Law and Economics of Takeovers: An Acquire´s Perspective (Hart Publishing, Portland 2008) p. 16.

19

The offeror, may according the takeover directive use the breakthrough rule to break certain pre-bid defence, e.g. certain departures from the principle one share one vote, certain restrictions on the transfer of the shares, … So the action of managers, which frustrate the bid are in EU law strictly forbidden, it is only allowed to search for another bid (seeking the white knight) and completion of actions within the company, if they already started before the bid. There is necessary to apply the Board Neutrality Rule for action of managers. This neutrality status for management actions starts from the moment, when the board of targeted company receives information about the bidder decision to make a bid.54 ‘Managers requesting authorization for the use of additional powers will be well understood by their shareholders as, in fact, asking permission for defend „defend“ the company‘55.

The common practice shows, that when there start to be rumours about possibility of takeover, shareholders give the power to board to quickly raise finance for the company and they try to avoid any delays in decision process concerning pre-emption actions. Management usually tries to obtain approval to issue more shares at a time when company is not considered as potential takeover target. This kind of defensive tactic is quite successful as meaning to avoid the hostile takeover. This kind of actions also presupposes sophisticated shareholder body, which can efficiently manage collective actions in shareholders decision making process.56

Another defensive tactic, which can management try to do is conditional sale of the company asset. Sale is conditional on success of the takeover and will be executed only if the bidder acquires the company. By selling the ‘crown jewels’ the company looses attraction for the bidder. Such kind of action of management is considered as action in accordance with principle to act in the interest of the company, of course, if the interest of the company is to fail the bid.57

Winter group report of experts has divided the pre-bid defense into those categories: ‘BARRIERS TO THE ACQUISITION OF SHARES IN THE COMPANY • Ownership caps • Golden shares (some types) • Restrictions to the transferability of shares (applicable to non-listed shares; listed shares

may be subject to limitations in shareholders’ agreements) • Lack of access to the underlying shares (where depository receipts are traded instead of

underlying shares) • Dilution of the shares acquired by bidder or potential bidder (poison pills; certain classes

of poison debt) • Reduction of available shares by means of: acquisition of own shares; cross shareholdings;

pyramiding. BARRIERS TO EXERTION OF CONTROL IN THE GENERAL MEETING • Voting caps • Shares with double or multiple voting rights

54 P. Davis, E-P Schuster and E. van de Walle de Ghelcke, ‘The Takeover Directive as a Protectionist Tool?’ (2010) ECGI Working Paper Series in Law <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1554616> accessed 18 April 2011, p. 6 55 Ibid. p. 6. 56 Ibid. 57 Ibid.

20

• Shares with limited or non-existent voting rights; participation rights carrying no votes • Time lapse voting schemes • Discriminatory quorum requirements • Irrevocable proxies • Binding voting agreements; voting trusts • Supermajorities • Golden shares (some types) BARRIERS TO EXERTION OF CONTROL IN THE BOARD OF DIRECTORS • Co-determination • Other corporate structures that limit shareholders’ control of the board (sociétés en

commandite) • Shares with special rights to appoint directors • Staggered boards • Fixed-term appointments for board members • Qualifications for board membership (e.g. prior shareholding for a specified period) • Golden parachutes • Supermajority required to dismiss and/or elect the board BARRIERS TO EXERTION OF CONTROL OVER THE ASSETS OF THE COMPANY • Sale of assets (“scorched earth”) • Spin-offs • Lock-ups of corporate assets (“crown jewels”) • Change of control clauses in non-financial agreements CREATION OF FINANCIAL BURDENS AS A CONSEQUENCE OF THE TRANSFER OF CONTROL • Poison debt • Golden and tin parachutes • Change of control clauses in loan agreements CREATION OF REGULATORY PROBLEMS • Defensive acquisitions creating antitrust problems or businesses subject to special

regulation • Defensive acquisitions invoking cross-holding rules’58

There is not possible to deal with all kinds of those actions in detail. The list above was worked out by the Winter group of experts in company law.

Each company can freely act and till moment the bid is announced each of the action mentioned above is allowed, of course, if it there is not restriction from other legal aspect. Those actions are considered as pre-bid actions only after announcement of the takeover bid. Rumours about possible bid are not considered as the announcement of the bid. The breakthrough rule give possibility to offeror after the bid was announced to break certain pre-

58 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p 74, 75.

21

bid (also post-bid) action, which would otherwise make final obtain of company impossible. The Takeover Bids Directive deals with this rule in article 11.59

When is the bid made public any restrictions on the transfer of securities shall not apply vis-à-vis the offeror during the time allowed for acceptance (art. 11 (2)). Also restriction on voting rights shall not have effect at the general meeting of shareholders, which decide about defensive measures (art. 11 (3)). The breakthrough rule is many time criticized, that does not cover lot of categories of pre-bid defences. For example pyramid structures are not covered by breakthrough rule.

‘Pyramids structure enables the ultimate shareholder to exercise control over a company trough a cascade of listed and/or unlisted holding companies.‘60 There are often minority shareholders in every holding company in the chain. ‘The more holding companies in the pyramid, the smaller economic investment the ultimate shareholder may have in company controlled by ultimate shareholder.’61 Although pyramid structures are not prohibited by EU law, they may have the same effect as multiple voting rights. They cause the disproportion between ownership of risk-bearing capital and the control rights.62

Another aspect, which is a takeover barrier and is not covered by the breakthrough rule is cross-shareholding .

Cross-shareholding have the effect of concentrating control rights in the hands of

the statutory board or managers, because voting rights attached to shares owned by a company are generally used by board members or managers representing the company. Cross-shareholdings can also concentrate control rights in the hands of minority shareholders where minority shareholders control board in their capacity as the ultimate owners of the company.63

Cross-shareholding was partially modified in Second Company directive, but otherwise

it is allowed under EU. Also for this reason is the Takeover Bids Directive (TBD) criticised. There happened also a case in Netherlands, where company issued risk-beraing voting

shares to a trust or administration office, which in turn issues listed non-voting depository receipts to investors. The company experts in Winter group proposes, that depository receipts for risk bearing shares are listed, they should be freely exchangeable into the underlying shares in the event of a general takeover bid.64

The breakthrough rule is applicable also regard to the golden shares. That means the shares of national champions. National champions are companies in which state owns

59 T Papadopoulos, ‘Legal Aspects of the Breaktrough Rule of the European Takeover Bid Direcitve’ [2007] (1) Law and Financial Markets Review-LFMR 525 <http://ssrn.com/abstract=1088894> accessed 16 December 2010 60 P. Mantyssari ‘The Law of Corporate Financ: General Principles and EU Law’ (Springer, Heidelberg 2010). P. 284. 61 Ibid. 62 Ibid. 63 Ibid. 64 R. Painter and C. Kirchner, ‘Takeover Defenses under Delaware Law, the Proposed Thirteenth EU Directive and the New German Takeover Law: Comparison and Recommendation for Reform’ [2006] (2) Illinois Law and Economic Working Papers Series Working Paper No. LE02-006 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=311740 > accessed 19 April 2011. P. 19.

22

majority of shares, or companies with special public interest and special public importance. With breakthrough rule we will deal more later on.

Takeovers are nightmare mainly for the managers, which are often after successful takeover changed, so they loose their places. Therefore mainly management is trying to the best to avoid takeover. Pre-bid defence can sometimes successfully protect the company and also the asset of shareholders from unwanted takeover. On the other hand the TBD gives some possibilities to offeror to break the defence. As I mentioned above, the breakthrough rule is very limited and does not covers many areas of possible defence. Managers usually try to do all defensive steps before the announcement of the takeover bid, because after it the offeror can use the breakthrough rule. In my opinion it is right, that company de facto has large scope of defensive means, which it can use against takeover. If shareholder according shareholders, the takeover is not in the interest of targeted company, they should try to defend. Defensive measures can be sometimes mischievous and make the change of the control impossible. Therefore I think it is right to have also breakthrough right.

Defence and breakthrough should be in mutual balance and should be proportionate, as well. If the defence measures are too strong unbreakable, they can make the takeover impossible. On the other hand if the breakthrough right would be too wide, targeted company management and shareholders would be de facto pure puppet in the hands of offeror.

4. 2. Information about the Bid and Contents of Public Bid

The rules in the Takeover Directive should ensure, that bid process is followed correctly and that shareholders receive sufficient information. Uniform rules in Europe require a view to information of the bid, time allowed for acceptance of the bid and making the bid public. According the article 6 of TBD: Member States shall ensure that a decision to make a bid is made public without delay.

The information disclosure pursues three functions: ‘Firs, if facilitates the decision making of the acquirer’s shareholders, when it is up to

them to approve a takeover.’65 Information condition is fundamental element for shareholders approval right or of other expression of their voice.66

Secondly, sufficient information increases market confidence in the acquisition and facilitates the operation of capital markets.

Thirdly, information provision externalizes the duty of care of the targeted company directors. The standard of the duty of care is required during the preparation of the takeover documents or the listing particular documents, which may constitute an early alert mechanism for targeted company directors to avoid misjudgments, but they also, serve as an objective account of the directors’ care and diligence in takeovers.67

The requirement to publicize a number of critical details about the acquisition means, that offeror, who wants to pursue an acquisition for his own benefit have to openly lie or,

65 A Kouloridas, The Law and Economics of Takeovers: An Acquire´s Perspective (Hart Publishing, Portland 2008). P. 63. 66 Ibid. 67 Ibid.

23

exaggerate the potential benefits of the transaction. Also the Member State supervisory authority, should control over self-interested acquisitions through controlling the quality of the information that the offeror have to produce in relation to takeover.68

The content and type of information published must be of use to the acquiring shareholders, irrespective of whether it is directly addressed to them or not. There has to be also sufficient quality control. Breach of relevant requirements should be accompanied by sanctions and liabilities, which can discipline the acquiring directors. Mainly the sanctions are up to discretion of MS. The elaboration of procedural rules is up to discretion of MS, but it has to be within the standards of directive.

The TBD says about these general requirements:

- early disclosure of the bid - consultation of the target board and of employee representatives - the precise conditions of the bid, including irrevocability - minimum-maximum time for acceptance of the bid - prohibition false or misleading information - all markets to be informed equally - more generally: national rules have to be provided realating to competing bids,

revision of bids, lapsing bids, publication of the outcome of the bid, etc.’69 As early as it is possible, the affected parties make aware that a decision has been made

to make a bid. Publication to make a bid should reduce the possibility of insider trading. Publication of bid also means, that national supervisory authorities are informed about the bid. In some Member states supervisory authorities has to be informed before decision is made public.70

4. 3. Supervisory Authorities Each MS designates authority competent to supervise takeover bid. It can be public

authority or a private body recognised by national law or by public authorities as expressly empowered for that purpose under national law. There can be also designated also more authorities, each being competent for a portion of the review required by the Directive.71

Measures must be taken to ensure, that the competent authority exercises its functions impartially and independently of all parties to a takeover bid, including the offeror, members of the offeror’s board, the offerre company holders of securities of the offeree company, board members of the offeree company and any persons actin in concert with such parties. Persons 68 Ibid. 69 E. Wymeersch, ‘The Takeover Bid Directive, light and darkness’ [2008] (1) Financial Law Institute Working Paper Series WP 2008-01 < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1086987 > accessed 20 April 2011. P. 4. 70 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 29. 71 D.van Gerven, Common Legal Framework for Takeover Bids in Europe (Cambridge University Press, Cambridge 2008). P. 10.

24

acting in concert are considered all those who co-operate with the offeror or the offeree company on the basis of an agreement (express or implied, oral or written) aimed at acquiring control of the offeree company or at frustrating the successful outcome of the bid, including any persons controlled by any such persons.72

The supervisory authority must meet criteria of strict independence standards and may not hold shares in listed companies. Those standards may form part of an ethics code applicable to the authority. Member States must inform the European Commission of the authority they designate. If there is designated more than one authority E. Commission has to be informed about all of them and about their competences and division of functions amongst them.73

The competent authority, which supervises a takeover bid, will depend on where the securities of the targeted company are. Respective authority is authority where, if the securities of the offeree company are admitted to trading in the MS where its registered office is located, those authority of MS will be competent to supervise the takeover bid. If there is difference between countries, where the securities are admitted to trading on regular market and company registered office, competent is authority in country, where securities are admitted to trading on regular market. If the securities are admitted in more countries, competent is the authority, where the securities were first admitted to trading will be solely competent. If the securities were admitted to trading on the regular market simultaneously in more MS, then company has to determine the supervisory authority. The choice of supervisory authority will be then be made public in MS of relevant market.74

The supervisory authority shall be vested with all powers necessary to carry out their duties und the legislation implementing the Directive. National law should than define powers of the supervisory authorities to require the parties to a takeover bid to provide information concerning themselves, at all times. National law may also designate judicial or other authorities, in additional to the competent authorities, to supervise takeovers bids, deal with disputes and rule on irregularities committed in the course of such bids. Decision of supervisory authorities should be subject of jurisdiction of independent court.75

The TBD requires that the national supervision authorities shall cooperate and supply one another with information. Duty to cooperate is especially important during cross-border takeover bids. Aim of co-operation is to prevent needlessly to protracted preparation and undesired effects on the offeree company and the markets.76

The supervisory authority is bound by strict rule of confidentiality, with respect to information exchanged and received. All persons working for this authority are bound by this rule. Information covered by this obligation shall be treated as confidential and may not be disclosed to any person or authorities except under, and in accordance with the applicable statutory provision.77

72 Ibid. 73 Ibid. 74 D.van Gerven, Common Legal Framework for Takeover Bids in Europe (Cambridge University Press, Cambridge 2008). P. 10. 75 Ibid. 76 Ibid. 77 Ibid.

25

4. 4. Content of disclosed information Anyone intending to launch a tender offer shall publicly disclose this intent and inform

investors of the terms and conditions of the offer so that they can make informed decision about whether or not to accept it. That information can not be false or misleading. The manner of publication shall be determined by national law. This public notification should contain essential elements of the bid, such as the proof that the funds have been blocked with a bank, or in case of share for share exchange, that the bidder has those securities. MS can require that the offer document be subject to a prior approval by the supervisory authorities.78

One of the optional choice of the is that national law may require that, the supervisory authority should be informed of the bid before it is made public to reduce the risk of insider trading. Board of the offeree company and of the offeror must inform the representative of their respective employees, or the employees themselves, bout the bid as soon as the bid has been made public. The offeror is responsible for providing certain information.79

When the supervisory authority has approved the document then it shall be translated in any other MS in which the securities of the offeree company are admitted to trade. Supervisory authority of another MS may just ask for supplementation of some additional information. The TD requires those minimum information for the takeover:

(a) the terms of the bid; (b) the identity of the offeror and, where the offeror is a company, the type, name and registered office of that company; (c) the securities or, where appropriate, the class or classes of securities for which the bid is made; (d) the consideration offered for each security or class of securities and, in the case of a mandatory bid, the method employed in determining it, with particulars of the way in which that consideration is to be paid; (e) the compensation offered for the rights which might be removed as a result of the breakthrough rule laid down in Article 11(4), with particulars of the way in which that compensation is to be paid and the method employed in determining it; (f) the maximum and minimum percentages or quantities of securities which the offeror undertakes to acquire; (g) details of any existing holdings of the offeror, and of persons acting in concert with him/her, in the offeree company; (h) all the conditions to which the bid is subject; (i) the offeror's intentions with regard to the future business of the offeree company and, in so far as it is affected by the bid, the offeror company and with regard to the safeguarding of the jobs of their employees and management, including any material change in the conditions of employment, and in particular the offeror's strategic plans for the two

78 E. Wymeesch ‘The New Belgian Law on Takeovers’ [2008] (4) Financial Law Institute Working Paper Series WP 2008-04 < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1109048 > accessed 21 April 2011. P. 6. 79 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008). P. 31.

26

companies and the likely repercussions on employment and the locations of the companies' places of business; (j) the time allowed for acceptance of the bid; (k) where the consideration offered by the offeror includes securities of any kind, information concerning those securities; (l) information concerning the financing for the bid; (m) the identity of persons acting in concert with the offeror or with the offeree company and, in the case of companies, their types, names, registered offices and relationships with the offeror and, where possible, with the offeree company; (n) the national law which will govern contracts concluded between the offeror and the holders of the offeree company's securities as a result of the bid and the competent courts.80

When the supervisory authority approves the document, than it shall be subject of

translation to languages required by MS and shall be recognized in any other MS in which the securities of the offeree company are admitted to trade. There is no necessary additional approval of the authority in another MS. This MS authority may require additional information, but only if such specific information are required for to the market of a MS in which the securities of the offeree company are admitted to trade. Those information are mainly concerning formalities to be complied with to accept the bid and to receive the consideration due, as well as to the tax matters applicable to the consideration offered to holders of the securities.81

4. 5. Board of the Offeree Company and Employees of the Offeree Company

Next important issue for protection of minority shareholders is, that the board of the offeree company shall draw up and make public document, which h sets out their opinion about the bid and their reasons for the conclusion, about the bid. This document should explain the reasons for its opinion, its views on the effects of implementation of the bid ‘on all the interests of the company, including employment, and the offerors strategic planning for the offeree company and its likely impact on jobs and locations’82. Of course board has to act in accordance with all principles mentioned in the first chapters. Mainly, they have to act in accordance with principle to act in best interest of the company. Any non-expert or misleading information may harm the minority shareholders. 80 European Parliament and Council directive 2004/25/EC of 21 April 2004 on takeover bids [2004] OJ L 142/27, art. 6. 81 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 31. 82 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 37.

27

According the opinion of the board minority shareholders can assume what will happen with company after successful takeover, if they investment will have tendency to rise or fall, if there will be big organizational changes in company or not, if the takeover will be connected with reduction of employees and so on. In my opinion this opinion of board construes an important tool for protection of minority shareholders, because they will dispose with important information, which can influence their opinion if to accept the bid or not. The opinion of the board must be public and all other content requirements will be specified by national rules of Member States.

Also employee’s opinion is not trivial in this case. Board has to communicate their opinion with representatives of the employees, if there is no such representative, then with employees themselves. Employees can also draft separate opinion from the opinion of board and this opinion has to be appended to the documents. Reason for this is that employees may be also directly concern by the takeover, because the reduction of employees may follow. Although in fact employees can not influence this significantly.

After obtaining all the information, the holders of securities are free to tender. MS may allow companies to ‘voluntarily opt out, in the case of a takeover bid by a company that does not impose such restrictions on its board’83. The board of offeree company must receive a previous authorization of the general meeting of shareholders before frustrating the bid. By frustrating the bid it is meant, that they can seek alternative bids (the so called white knight). Such operation is connected also with issuing of new shares, which could impede the offeror’s acquisition of control of the offeree company. ‘If the company has a two-tier management structure the term ‘board’ shall be construed to mean both the management board and the supervisory board.’84 Board can always seek alternative bids if it is in general interest of the shareholders. The requirement of prior shareholder approval applies from the time the board is first time informed about the takeover bid until the result of the bid is made public or the bid expires.85

4. 5. Disclosure Requirements of the Companies

Listed companies have in general duty to disclose their capital and control structures. Disclosure requirement is also essential for protection of investors in order to enable them to assess the value and risks related to their investments. Only after full disclosure can the market properly judge the efficiency of the companies with different capital and control structures. The Winter Group proposes that companies should disclose their capital and control structures in annual reports, ‘in their listing particulars and in prospectus required to be published on the issue of new securities.’86 Most efficient medium for providing information for shareholders would be mainly internet website. 83 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP, Cambridge 2008) p. 27. 84 Ibid. 85 Ibid. 86 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 25.

28

Disclosure requirement already exists in different ways under national legislation. Plus there is also a directive about disclosure of major shareholdings and some requirements are also in first, second, fourth and seventh company law directive. Winter Group proposes to make those requirements more coherent.87 ‘Disclosure requirement obligation applies to all companies which are governed by laws of a Member State, and whose securities are totally or partially admitted to trading on regular market in a MS.’88 De facto all companies based in EU are subject of disclosure duty, whether they are target of bid or not. National law then gives more specific rules about the rule.

Art. 10 of the Takeover Bids Directive (2004/25/EC) require that information to disclose:

‘Capital structure – It covers various area types of shares into which the nominal capital of company is divided.

Restriction with regards to the transfer of securities – All restrictions connected with transfer of securities shall be stated.

Significant direct or indirect shareholdings – E.g. pyramid structures or reciprocal shareholdings. Rule covers direct and indirect shareholding

Special control rights – Owners with special control securities must be identified. Special control rights are rights, which make control of company easier or enable control of the company to be obtained (veto right, nomination rights, rights connected with golden shares).

System of control of any employee share scheme – Any type of control of voting right over an employee shareholding must be known

Restriction on voting rights – E.g. limitation of the number of votes, timing restriction … Vote trust agreements – Agreements between shareholders, which can hinder the transfer

of securities. Appointment of board members, amendment of the articles – There has to be disclosed

procedures regarding appointment or replacement of board members. Powers of board members – Mainly powers concerning issuing or buying a new shares.

Or there has to be disclosed any authorization, which can hinder offeror in a successful takeover.

Agreement relating to change in control of the company – It can be agreements concerning loans, which can be terminated upon change of control; employee contracts, which allow part of employees, leave the company in case of change in the control of the company.

Golden parachutes and tin parachutes – They are agreements, between the company and members of the board concerning compensation, in case board members should resign or are made redundant without valid reason, or if their employee ceases because of a takeover bid.’89

Disclosure requirement provides on the other hand also protection to potential investor, because he should also have sufficient information and know the background of company. That information is published in annual report and they must be subject to audit. Board then

87 Ibid. p. 26. 88 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 35. 89 Ibid. p. 40

29

present’s explanatory report to annual general meeting. Aim of the report is that the shareholders are informed about existing structures and defensive measures.90

4. 6. Application of the Mandatory Bid Rule

The strongest tool to protect the interests of minority shareholders is the Mandatory Bid Rule. The essence of this rule is that if somebody (private or legal person) acquires control over the company, shall extend offers to the holders of any class of equity share capital and also to the holders of any other class of transferable securities carrying voting rights. As was mentioned already on the beginning the offer must be cash offer, or with a cash alternative, and at the highest price paid by the offeror or a member of his concert party within the period of not less than six months and not more than 12 before the bid. The mandatory bid must not contain any conditions other than it is dependent on acceptances resulting in the bidder acquiring the company.91

The MBR is many times criticized, because it gives a big discretion to MS to decide about some exact issues, for example the threshold which determines the acquirement over the company. Much criticism is also, because it is many ways to general.

On the other hand the possessiveness is that it has some impact on undistorted shareholder choice.

‘Without the MBR it may be, that a shareholder will be more inclined to accept the

offer, fearing that once the bidder has control it will be stuck in the target company and the value of its shares may have declined since the bidder will have no obligation to make a general offer at that point.’92 MBR makes impossible for bidder acquire control over the whole company by partial

purchasing only a proportion of shares. Mainly in dispersed ownership, the minority shareholders may suffer loss in his investments. The losses for minority shareholders may be also structural, other than when the company becomes a member in a group when it used to be an independent company. Another minority shareholders protection tool is the squeeze out rule, which allows the last 10 pre cent of shareholder to exit the company at a fair price where the bidder has acquired the other 90 per cent, where that percentage has been reached as a result of a general offer. ‘Non/accepting shareholders can serve a notice on the bidder within certain time period of the end of the offer period, the effect of which is to require the bidder to acquire the shares of the final terms of the offer.’93

90 Ibid. p. 40. 91 J Payne, ‘Schemes of Arrangement, Takeovers and Minority Shareholder Protection’ [2010] (42) Oxford Legal Studies Research Paper < http://ssrn.com/abstract=1600592> accessed 16 December 2010. P. 11. 92 Ibid. 93 Ibid.

30

4. 6. 1. Need for Protection of Minority Shareholders

The MBR is tool, which enables minority shareholders ‘to exit the company, often at favorable conditions.’94 The reason also why we have MBR is fairness to the shareholder. The MBR makes the Takeover Directive introduces also equal treatment of shareholders, according some critics of MBR fairness does not have to be necessary connected with equality. When we look on this problematic from the UK perspective: ‘Company law in the UK seeks to treat shareholders fairly, but not necessarily equally’95

According my opinion, fairness in economical and social issues does not have to necessarily mean the price equality, but it should mean the same opportunity. When we take into consideration, that after successful bid it can happen anything with the company, the minority shareholders, can really loose their investments. Although some, mainly British lawyers objects, that fairness is not sufficient justification of MBR. Because the value o shares can happen also without takeover and shareholders (not only the minority one) can loose their investments, as well.96

The team from Oxford University points out two main justifications of MBR. First rational argument for MBR is that successful bid may launch offensive activities toward minority shareholders. Second rational argument is that minority shareholders should have the right of exit, when a change of control occurs followed by a takeover. Minority shareholders can de facto became a hostage in the hands of new owner. Sometimes new owner does not have to have clean intention with company. He might buy the company which is his concurrent, with aim to destroy concurrency.97

Rational reason for equality according some other lawyers is to ensure, that the bidder will not be able to force the targets shareholders to accept the offer. From the UK perspective, the whole weight of decision making process is on the targets shareholders, in respect of the acceptance of the offer or not, there are some cases – especially in transactions that fall within the description of class 1 transactions of the Listing Rules – where the acquirers offer is subject to the approval of its own shareholders as well.98

If the bidders’ management is able to circumvent their shareholders right to

approve the transaction, by just acquiring shares in the market and putting the bidder under an obligation to make a mandatory offer, then the very purpose of the shareholders approval rule is defeated.99

According the UK Takeover Code is this action forbidden and bidders’ management cannot put the bidder in a situation where it is obliged to make mandatory bid.100 94 K. J. Hopt and E. Wymeersch, Capital Market and Company Law (Oxford University Press, Oxford, 2003) p. 593. 95 J Payne, ‘Schemes of Arrangement, Takeovers and Minority Shareholder Protection’ [2010] (42) Oxford Legal Studies Research Paper < http://ssrn.com/abstract=1600592> accessed 16 December 2010. P. 12. 96 Ibid. P. 13. 97 Ibid. 98 A Kouloridas, The Law and Economics of Takeovers: An Acquire´s Perspective (Hart Publishing, Portland 2008) p. 229. 99 Ibid. 100 Ibid. p. 232.

31

The MBR is understood also as a remedy for the minority shareholders against oppressive behavior from the acquire side in the future. Although not always new owner of the company has to have necessarily opprehenssive behavior toward minority shareholders. Remedy for minority shareholders is understood as tool, against potential abuse, which did not happen yet.101

Exit right is connected with argument, that the direction of company may go different way, than during the pre takeover period. This idea is based ‘the idea that the position of shareholders in a company depends to a significant extent on the identity of controllers of a company’102. The change of the control may effect shareholders also, because the new owner may set a new strategy, which may be in the eyes of shareholders less effective. There can be a situation, where a bidder is part of some group of companies and the acquired company becomes also member of this association. Decisions may be taken mainly on the group level and it can have a negative impact on the targeted company.103

Mandatory bid rule, therefore offers possibility to leave and receive the bid price as other shareholders. There is necessary the need of minority shareholders, also because, they can be during the takeover very easy circumvent. They can loose their investments, as well. However, there can be takeover of company, which has a dispersed structure of ownership (usually in UK) and takeover of company, which has concentrated ownership structure (usually in Germany).

Especially in the company with dispersed ownership, the minority shareholders may feel significant lost of their previous position. Mainly, when after takeover the dispersed ownership is changed to blockheld (concentrated) minority shareholders may loose their private benefits, position and influence in the company. Therefore MBR ensures the principle of equality for shareholders.

The MBR does not applies if control was gained ‘following a voluntary bid made in accordance with the Directive to all the holders of securities for all their holdings’.104

4. 6. 2. Threshold

‘The percentage of voting rights which confers control for the purposes of paragraph 1 and the method of its calculation shall be determined by the rules of the Member State in which the company has its registered office.’105

The Takeover Directive is many times criticized that their provisions allows a wide

margin of discretion to the Member States. The provision cited above is also totally on the discretion of MS, to define the control threshold. In most countries is the threshold below 50% 101 J Payne, ‘Schemes of Arrangement, Takeovers and Minority Shareholder Protection’ [2010] (42) Oxford Legal Studies Research Paper < http://ssrn.com/abstract=1600592> accessed 16 December 2010. P. 15. 102 Ibid 16. 103 Ibid.

104 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 25. 105 European Parliament and Council directive 2004/25/EC of 21 April 2004 on takeover bids [2004] OJ L 142/27, art. 5 (3).

32

of acquired shares. For example in UK is the threshold minimally 30%, in Slovakia is the threshold 33%. Some countries, which opposed the TD may set the threshold also at the level of 50%. Therefore lack of harmonization control of the threshold and the equitable price does not contribute too much to uniform protection of minority shareholders. In this case is important to stress, that for acquiring the control, there is no need to obtain 50%. If, there is in company dispersed ownership structure, the shareholder can control the company also with share of 30%.

Article 5 (1) of the TD speaks only about natural or legal person, who acquires securities, that him control of the company. Person acting in concert means natural or legal person who is authorized to cooperate with the offeror in gaining control in the targeted company.106

4. 6. 3. Equitable Price

Equitable price is one of the most controversial elements in the application of MBR. It is

defined as:

The highest price paid for the same securities by the offeror or by persons acting in concert with him/her, over a period, to be determined by MS, of not less than six months and not more than 12 before the bid referred to in paragraph 1 shall be regarded as the equitable price. If, after the bid has been made public and before the offer closes for acceptance, the offeror or any person acting in concert with him/her purchases securities at a price higher than the offer price, the offeror shall increase his/her offer so that its is not less than the highest price paid for the securities so acquired.107

The MS may adjust the price in circumstances and according to criteria that are

specified. Directive considers the equitable price, the highest price paid for the same securities by the offeror, over a period determined by MS (not less than 6 months, not more than 12 months). There can be no discrimination between the price paid by the offeror to the incumbent controller and that to be offered to the non-controlling shareholders. The price is calculated on the basis of previous recent acquisitions, but there are possible certain exceptions.

The Group of experts, which elaborated, the directive considered the equitable price for on of the most important element. If there would be not any equitable price, the fairness, which the MBR aims, would not be reached. The limit for a equitable price is to not defined

106 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its

implementation in the Member States (Memento Verlag, Freiburg 2008) p. 25. 107 European Parliament and Council directive 2004/25/EC of 21 April 2004 on takeover bids [2004] OJ L 142/27, art. 5 (5)

33

by voluntary bids, this is justified on the basis that the adequacy of price would be determined by the market.108

Before the Takeover Directive lot of Member States already applied the equitable price during the MBR, but there was a difference on the level of payment and also they differed in criteria. In some member state there was only recommendation regard the equitable price. The aim which was pursued by the TBD was to make the equitable price issue of European law. The Winter Group had two possibilities regard this issue.109

Firs option was to not determine exactly the equitable price. Consequence of this would be with highest probability, that the price would have to be later determined by the case law of Court of Justice of European Union (CJEU). What can mean, that the situation may than develop in not very predictable.110

Second option was to determine the exact criteria for the equitable price and avoid some speculations. The drafters of TBD opted for the latter option. What was in my opinion better solution, than leave it up to not controlled development, what could lead to black end of the aims of Directive. Anyway, the Directive deserved a huge amount of criticism for some of it not specific parts, which we will discuss later on. The argument for leaving some discretion up to MS is to have more flexibility in the system, but on the other hand, there is also necessary to have some level of predictability in the economic area. Without precise criteria for equitable price, the TD would miss their target – protection of minority shareholders. Because, then the minority shareholders would be forced to sell their shares in voluntary partial offers. The value of shares may then be much lover, than by if we would fully apply the MBR. 111

There were also some ideas in the Winter group to adopt equitable prices also in case of voluntary bids, but this opinion was rejected. According the statement of the group, the equitable price should achieve a ‘proper balance between competing objectives of flexibility and predictability’112. So the article 5 (4) contains kind of determination of the consideration by MS, because the supervisory authority may change the price under some ‘specific conditions and based on very clear criteria’113. Those criteria may for example be:

- purchaser and seller jointly agreed on highest price - if the market price of some securities was manipulated - if market price was influenced by extraordinary events (collapse of the stock

exchange) - lower price is possible to make it possible for companies in distress to reduce

from bankruptcy.114 All deviation in the directive has to be however in accordance with the principle of

fairness. Where there is deviation, which would lead to a lower price, the burden of proof is up to offeror to justify the reasons. The Winter Group stresses, that the main aim of the Takeover

108 The High Level Group of Company Law Experts, ‘Report of the High Lvel Group of Company Law Experts on Modern Regulation Framework for Company Law in Europe’ (2002) Brussels <http://www.ecgi.org/publications/documents/report_en.pdf> accessed 20 February 2011, p. 9. 109 Ibid. 110 Ibid. 111 Ibid. 112 Ibid. p. 46. 113 S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008) p. 26. 114 Ibid.

34

Bids Directive is protection of minority shareholders, therefore judgement should be in accordance with interest of shareholders and with principle of fair treatment of the targets shareholders.

Next important element in connection with equitable price is the publication of the bid. Art. 5 (4) says that if there is higher offer price for minority shareholders shares, in period after publication the bid till moment the offer closes for acceptance, the offeror shall increase his offer so it is no less than the highest price paid for the securities so acquired.

As was already mentioned in the chapter about principles of protection of minority shareholders, the offeror has to offer cash or alternatively securities. According some lawyers:

There has been some criticism of the fact that the Directive does not require a cash

alternative in all circumstances: although liquid securities may be regarded as almost equally fungible, they are clearly at risk of volatile price movement.115

Liquid securities must be admitted to trading on regular market. It is up to MS to define

exactly what does it mean liquidity. But ‘MS may provide, that a cash consideration must be offered at least as an alternative, in all cases’116. This was requirement was supported mainly by British company law experts; because, they considered that this would increase the shareholder protection, because it would give them a greater scope for their decision.

4. 6. 4. Is MBR sufficient in value-decreasing and value-increasing Takeovers

There are many discussions if the MBR protects sufficiently minority shareholders

during the value decreasing or value increasing takeovers.

The argument that the mandatory bid rule protects shareholders against potential expropriation does not hold in case of value-increasing bidder. It overlooks that the ability to extract private benefits affects the bid price and the post-takeover minority share value to the same extent117

The bidder offers, with or without MBR, the post-takeover minority share value, ‘and

shareholders realize the same return on the shares that they can sell and on those that they retain’118. There is important to stress, that also the bidder relies on private benefit, as real expectation from private market. ‘Unless a bidder has some source of profits that is not eroded 115 T Papadopoulos, ‘The Mandatory Provisions of the EU Takeover Bid Directive and Their Deficiencies’ [2007] (1) Law and Financial Markets Review-LFMR 525 <http://ssrn.com/abstract=1088894> accessed 16 December 2010. P. 527. 116 European Parliament and Council directive 2004/25/EC of 21 April 2004 on takeover bids [2004] OJ L 142/27, art. 5 (5) 117 M. Burkart and F. Panunzi, ‘Mandotry Bids, Squeeye-out, Sell-out and the Dynamics of the Tender Offer Process’ [2003] (10) Law Working Paper N. 10/2003 <http://ssrn.com/abstract=420940> accessed 10 May 2011. P. 13. 118 Ibid.

35

by the small shareholders free rider behavior, he has little incentives to launch a takeover in the first place.’119 If the target company with dispersed ownership was concentrated, there is no impact of MBR in value-increasing takeovers on protection of minority shareholders.120

Situation is different in value-decreasing takeovers. Value-decreasing bids can succeed against the collective interest of the shareholders, ‘by offering more than the post-takeover share value the bidder creates a pressure to tender’121. In this case the unfavorable minority position improves. ‘In a regime with a MBR, truly value decreasing takeovers are prevented, because the bidder would bear the entire value loss.’122 Shareholders do not loose in value increasing takeovers their private benefits, because the post-takeover value falls not below the pre-takeover share value. Of course the benefit for minority shareholders during the value-decreasing takeovers depends on the success of the takeover, if they are not rejected by the shareholders.

If in case of the value-decreasing the offer is accepted by majority of shareholders, the offer becomes binding for all shareholders. ‘The majority vote has to be binding to overcome the free-rider problem.’123 If the offer is by majority accepted the minority shareholders can tender to prevent financial losses.

The negative effect of MBR is mainly for potential bidder, because it reduces the scope to recoup the takeover cost. It might happen; that the post-takeover share value is larger than current share value, but the acquisition costs (also with regard to MBR) is so high, that the bidder cans not in short future benefit from it. For example he might have high borrowing costs. So if the bidder does not have sufficient private benefit from takeover, he might cease from value-increasing takeover. This can be also disadvantage for minority shareholders.124

The chilling effect on transfer of corporate control is one of the most common objections to the MBR. According some lawyers MBR is quite controversial subject; ‘although its capabilities to prevent inefficient takeovers are undisputed, many scholars, especially law and economics scholars, doubt the necessity of the protection it offers, given the high cost of the rule’125.

4. 6. 5. Expenses for MBR in case of one Bidder

The MBR also according some scholars is more efficient in market control, than just pure market rule (de facto no any rule, only reliance on market self regulation).

The MBR has a positive screening function among all efficient bidders. Thus it is

suggested here that in circumstances where some bidders can take control over the target

119 Ibid. 120 Ibid 121 Ibid. p. 14. 122 Ibid. p. 15. 123 Ibid. p. 16. 124 Ibid. p. 16. 125 E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010] (10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010, p. 8.

36

under both rules, the MBR has additional advantages over the market rule that need to be taken into account.126

Professor Bebchuk tries to prove, that the market rules are more efficient in takeover

control succeeding, than MBR. His presumption is based mainly on private benefit of control and cash flow rights of the company among potential bidders. ‘Bacchus’s estimate effectively gives and idea of the proportion of potential bidders meeting the efficiency and the transfer requirements under the market rule and the MBR.’127 The arguments of prof. Bebchuk does not however provide a complete estimate of the real inefficiency costs entitled by MB rule and market rule.

Another argument against the MBR’s merit is based on the notion that Private

Benefit of Control (PBC)128 levels between two bidders are likely to be very similar, as they depend on the legal rules applicable to the target company. By also accounting for potential synergies, the analysis presented here takes away some of the force of this argument, because PBCs are not a mere function of good or bad law.129

The level of PBC depends also on country of potential bidder. MBR leads also more to

concentrated ownership structures. There is no exact argument if is better concentrated structure or dispersed ownership structure. Dispersed ownership structure is more typical for United Kingdom and concentrated more for Germany, this depends also on company tradition in certain country.130 Problem of ownership concentration by on bidder is that the incumbent controllers can fear to be deprived of their PBCs by hostile bidder, which hypothetically may lead to reducing contestability of control. According Schuster, this argument is not sufficient, because neither opposite is true, that hostile bids in block-holder companies can increase the contestability of control.131 There is hard to say, how efficiency costs of market rule or MB rule are. No any proper research was done in this field.

4. 6. 6. Auctions and MBR

Under the market rules there can be some problems indicated. Usually the bidder under market rules creates a larger proportion of the gains in private benefit of control, rather than

126 E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010] (10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010, p. 30. 127 Ibid. 128 ‘It is widely recognised that a person exercising effective control over a company usually gets ‘something more than other shareholders of the company. In other words, the ability to control the company has distinct (separative) value – over and above the sum of the cash-flow rights attached to the shares conferring this control.’ E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010] (10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010, p. 14. 129 Ibid. 130 Professor C. F. van der Elst, public lecture on Corporate Governance, 8.4. 2011, Gent University, Gent. 131 E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010] (10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010, p. 30.

37

letting than letting the most efficient bidder to win. ‘Among two parties creating the same overall value surplus, a market rule will always lead to the bidder with the higher PBC/value winning the auction.’132 The problematic point is, that ‘even the inefficient bidder can outbid a value-creating one’133. MBR on the other hand can quiet successfully block the inefficient transactions. Under MBR the bidder has to consider the PBC and cash flow rights equally. The auction is therefore won by the most value-creating bid, ‘irrespective of how the gains are distributed between PBCs and cash flows’134.

Only the most efficient bidder can therefore win the auction. There is no difference in MBR an MR only in case that the difference between the bidders is too large, than auction is won always by the most efficient bidder. Auctions are therefore better controlled under MBR than MR. MBR can prevent from inefficiency costs of, which would be there during the MR.

Where the takeover gains of the different potential bidders stem from different

sources, ie one bidder expects to create disproportionally more value through the extraction of PBCs, while another bidder’s gains stem from increasing shared cash-flows to a larger extent, the MBR – by taking an equal weight on both types of gains – favors the best bidder, unless company law would demand that synergy gains are always assigned entirely to the target company.135

There is no exact rule how to divide gains from the transaction between parent company

and its subsidiary. ‘Most legal systems probably provide some kind of assurance to the subsidiary’s minority shareholders which require the parent company to bargain at-arm’s-length.’136 That means, the gains coming from different transactions will result in different allocations of gains. In countries with high protection of investors the division of gains depends on many factors e.g. transferability of gains, or existence of a market for comparable transactions.

The mains pros of MBR are according some scholars that MBR prevents inefficient transactions. It also gives more advantages than deregulatory approach of MR. It also offers efficiency screening function at low cost. It offers also fairness in the takeover bids.

5. 7. Negatives of MBR

There is possible find lot of articles which are praising the MBR and the skills of legislators. But on the other hand we can find scholars who put MBR under heavy fire.

MBR is conceived of as a fundamental tool to promote value-maximizing

takeovers and prevent the expropriation of minority shareholders by controlling

132 E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010] (10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010, p. 33. 133 Ibid. 134 Ibid. 135 Ibid. p. 35. 136 Ibid. p. 38.

38

blockholder. The underpinning efficiency argument is that a rule that provides shareholders with adequate and fair terms of exit will reduce the cost of equity capital and, ultimately, enhance corporate efficiency.137

On the other hand:

The MBR is probably the best example of the overlapping between efficiency oriented objects and distributive concerns that characterizes the European Directive on Takeovers. My claim is that such an overlapping is likely to transform the Directive in a “lost occasion”. There are two fundamental reasons for this. Firs, the distributive concerns underlying the harmonized mandatory approach of the European takeover regulation risks to frustrate rather than promote the development of the European capital market. Second, the adoption of rules, such as the MBR, that confuses distributive concerns and efficiency is likely to prove more detrimental than beneficial for the protection of minority shareholders’ interests.138

Some scholars understand MBR as pure protectionist tool to prevent acquisitions and

consider it as anti-takeover defence. The next reason, why some are scholars are opposing to whole Takeover Bid Directive is that, it gives to much discretion to MS to decide in some cases.139 Mainly American authors are claiming it that there are better market rules, than MB rules during the takeovers. They claim that parties can by itself find optimal rules and that legislative competition in company law is also in accordance with the approach of Court of Justice of European Union.140

The European ratio philosophy is that ‘MBR prevents corporate acquisitions motivated exclusively by the buyer’s expectation to extract higher private benefit than the incumbent controller.’141 The main counter argument mentioned already in previous chapters is that, it makes more difficult he value increasing takeovers. There has to be also considered, that in Europe apart from UK is the dispersed ownership structure not so common. According some scholars, this means, that value decreasing takeovers are not so common, as well. Therefore the danger of MBR is that it can frustrate many value increasing takeovers.142 From economical point of view, the takeovers are considered in following way:

In private sales of control, the incumbent controller and the buzzer set the price in

accordance with the share value under the incumbent (buyer); and the net present value 137 S M Sepe, ‘Private Sale of Corporate Control: Why the European Mandatory Bid Rule is Inefficien’ [2010] (10-29) Arizona Legal Studies Discussion Paper <http://ssrn.com/abstract=1086321> accessed 16 December 2010, p. 24. 138 Ibid. 139 T Papadopoulos, ‘The Mandatory Provisions of the EU Takeover Bid Directive and Their Deficiencies’ [2007] (1) Law and Financial Markets Review-LFMR 525 <http://ssrn.com/abstract=1088894> accessed 16 December 2010. p. 525. 140 S M Sepe, ‘Private Sale of Corporate Control: Why the European Mandatory Bid Rule is Inefficien’ [2010] (10-29) Arizona Legal Studies Discussion Paper <http://ssrn.com/abstract=1086321> accessed 16 December 2010, p. 25. 141 Ibid. p. 27. 142 Ibid. p. 30.

39

of the Dissipative Private Benefit for the incumbent buyer. The exchange price of the controlling block will depend on the value of these two assets and their weight in the block.143

5. 7. 1. MBR and Income of the Bidder.

According scholars in Arizona legal studies it is unlikely that prospective buyers may extract higher Dissipative Private Benefit (DPB) than incumbent controllers. Prof. Sepe claims,

that the DPB that a controlling block holder can extract are determined by the legal

environment, the kind of industry, and the level of market competition of the country in which the controlled company is chartered. In turn, the risk of transfers of control that expropriate minority value would be relatively low, since it seems implausible that a large number of prospective buyers will be moved just by opportunistic reasons in seeking control of the company.144

The number of inefficient transfers is relatively low in Europe and there is no tendency

in increasing of them. ‘On the other hand, the number of value-increasing sales of control that the MBR prevents is increasing in the size of the DPB.’145 DPB value in Europe relatively large, therefore MBR is likely to prevent a high number of value-increasing takeovers.146

5. 7. 2. Too much discretion for Member States.

‘The need for the discretion is not due to a requirement to adjust the regulation to Member States’ needs an idiosyncrasies; it is more a question of the waiver or otherwise of the enforcement of the Mandatory Bid Rule in individual cases.’147 The Takeover Bid Directive gives possibility to derogate also from some minimal requirement of the Directive. Therefore the minimal harmonization not fully meets its aim in this case, according Papadopoulos.

Mainly problematic part in this area is for example the part concerning the supervisory authority.148

143 Ibid. p. 30. 144 Ibid. p. 38. 145 Ibdi. p. 38. 146 S M Sepe, ‘Private Sale of Corporate Control: Why the European Mandatory Bid Rule is Inefficien’ [2010] (10-29) Arizona Legal Studies Discussion Paper <http://ssrn.com/abstract=1086321> accessed 16 December 2010, p. 39. 147 T Papadopoulos, ‘The Mandatory Provisions of the EU Takeover Bid Directive and Their Deficiencies’ [2007] (1) Law and Financial Markets Review-LFMR 525 <http://ssrn.com/abstract=1088894> accessed 16 December 2010. p. 526. 148 Ibid.

40

Provided that the general principles laid down in Article 3 (1) are respected, MS may provide in the rules that they make or introduce pursuant to this Directive for derogation from those rules:

(i) by including such derogations in their national rules, in order to take account of circumstances determined at national level

And/or (ii) by granting their supervisory authorities, where they are competent, powers to

waive such national rules, to take account of the circumstances referred to in (i) or in other specific circumstances, in which case a reasoned decision must be required.149

According the directive MS can authorities their national supervisory authority case by

case to adjust the or not apply some specific circumstances of MBR. Those derogation should have narrow interpretation.

This narrowly interpreted discretion of MS and national supervisory authorities in

relation to the possible exemption is not only due to the determination of the price by “and in accordance to criteria clearly determined” and the relevant national “list of circumstances”.150

Also general principles of directive dictates narrow interpretation. The narrow

interpretation of derogations can be derived from art. 3 (1c) but also from art. 49 of TFEU. Therefore, when MS grants derogation in MBR, there should be used always narrow interpretation of discretion.

Furthermore, the European Commission in its 2002 Proposal justifies the

derogation provision by the need for flexibility in the financial markets and stresses that MS shall “authorize their supervisory authorities to adjust that price in circumstances and according to criteria that are clearly determined, by means of a reasoned decision that is made public”.151

Threshold. It is up to discretion of MS to define the threshold for capital share or voting

rights, which define control over company. The Directive neither defines any method for calculation of it. ‘The lack of a harmonized control threshold and a price definition does not contribute towards unified minority shareholder protection throughout the European Union.’152

Equitable price. There has been also criticism, that the directive does not require cash alternative in all circumstances, because liquid securities (as alternative) are at risk of price movements on the market.153

149 European Parliament and Council directive 2004/25/EC of 21 April 2004 on takeover bids [2004] OJ L 142/27, art. 4(5). 150 T Papadopoulos, ‘The Mandatory Provisions of the EU Takeover Bid Directive and Their Deficiencies’ [2007] (1) Law and Financial Markets Review-LFMR 525 <http://ssrn.com/abstract=1088894> accessed 16 December 2010. p. 527. 151 Ibid. 152 Ibid. 153 Ibid.

41

This quite wide range of discretion for MS makes the protective function of minority shareholders more difficult. In my opinion, the main reason, why it is there so wide discretion for MS, is that the company law in all MS has some differences and aim was also to adjust the directive for differences at capital market in all MS. On the other hand, I understand, that the flexibility aim, which pursues the directive may be also con in the field of full and harmonized protection of minority shareholders at the capital market of the European Union.

Partial offers. Permission of partial offers is also according Papadopoulos perceived as negative effect. The bidder may then seek a stake below the mandatory bid threshold and no MBR requirements will be followed for a bid for a stake below the relevant threshold. The bidder can therefore make share acquisition below the MBR threshold to fulfill requirements and also obeying the MBR. According the Directive this kind of practice is not forbidden and it does not improve the position of minority shareholders.154

Hidden Defensive Measure. According Papadopoulos is MBR considered also hidden defensive measure, which can quite effectively frustrate the takeovers. The reason is, that it makes obstacles to takeovers. ‘The Mandatory Bid is an additional barrier to takeover activity and as a consequence to market penetration.’155 If, his conclusion is right, then it is bad for the freedom of establishment and integration of European equity markets. This argument is however truth mainly for bidders coming outside European Economic Area.156

6. Selected Issues from the MBR at Slovak Republic

Supervisory authority. Designated authority for take takeover bids according the Securities Act is the National Bank of Slovakia (Národná banka Slovenska, NBS), which is central bank and also supervises the financial market in the Slovak Republic.157

The National Bank of Slovakia has the power to: (i) perform supervision within the scope stipulated by the Financial Market

Supervision Act, the Securities Act and other special laws over individuals and legal entities charged with obligations in the area o capital market;

(ii) supervise compliance with the provisions of legally binding acts of the European Communities and the European Union, which apply to supervised entities or their activities;

(iii) conduct proceedings, grant approvals, impose sanctions and remedial measures, issue other decision, positions, methodological guidance and recommendations in accordance with the above-mentioned law, and supervise

154 Ibid. 155 T Papadopoulos, ‘The Mandatory Provisions of the EU Takeover Bid Directive and Their Deficiencies’ [2007] (1) Law and Financial Markets Review-LFMR 525 <http://ssrn.com/abstract=1088894> accessed 16 December 2010. p. 528. 156 Ibid. 157 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP, Cambridge 2008), p. 356.

42

compliance with its decisions, including the adherence to the conditions set out in these decisions; and

(iv) issue a generally binding legal regulation, where it may specify additional details on the draft of a takeover bid and on conditions under which takeover bids must be implemented.158

‘Any person affected by the final decision of the National Bank of Slovakia may ask the

Supreme Court of the Slovak Republic (Najvyšší Súd Slovenskej Republiky) to review its compliance with the law, …159

Mandatory takeover bid (Povinná ponuka na prevzatie). There are not allowed partial or conditional takeover bids in Slovakia (according art. 11 Securities Act). There is defined control share (kontrolný podiel) of 33 percent of voting rights carried by the equity securities, necessary to launch the MBR.

In order to induce the person who acquired the controlling share to make a

mandatory bid, the law expressly prevents him or her from exercising control over the offeree company. Until the mandatory takeover bid is published, he or she is not allowed to exercise those voting rights that exceed the controlling share. Moreover, once the mandatory takeover bid has been made, it may not be revoked.160

If the company is overtaken by more persons acting in concert or in cooperation all of

them have duty to launch MBR. Hence, the duty is fulfilled when any of them announces the mandatory takeover bid. Document concerned the MBR has to be approved by National Bank of Slovakia. ‘If at least part of the consideration is offered in the form of securities, the pecuniary consideration must also be offered as an alternative.’161 Consideration is adequate when it is no lower than:

(i) the highest consideration that the offeror or person acting in concert with him or

her provided to other shareholders for the equity securities of the offeree company within twelve months prior to the acquisition of the controlling share;

(ii) the consideration determined by the expert in his or her evaluation report; and (iii) the net value of assets, including immovable, allocated to one share under the

financial statement approved by an auditor prior to the acquisition of the controlling share.162

‘All conditions has to be cumulatively fulfilled.’163 Capital market at Slovakia is

characterized by low liquidity, hence experts in evaluation play important role in a mandatory

158 The Securities Act, (art. 118k) Act. No. 209/2007 Coll. 159 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP, Cambridge 2008), p. 357. 160 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP, Cambridge 2008), p. 358. 161 Ibid. p. 359. 162 The Securities Act, (art. 118g (5)) Act. No. 209/2007 Official Journal (Zbierky zákonov) 163 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP, Cambridge 2008), p. 360.

43

bids. Role of expert is to evaluate the adequate extent of consideration offered for the offeree company’s equity securities. He evaluates the general value of the entire undertaking, including the undertaking’s immovable and securities. Expert is appointed by the National Bank of Slovakia to guarantee his independence. He is chosen from a list maintained by Ministry of Justice of the Slovak Republic (Ministerstvo spravodlivosti Slovenskej Republiky). Offero can use also previous expert evaluation prior to acquiring the controlling share if no more than six months passed between its preparation and the acquisition. It is up to discretion of National Bank of Slovakia to accept or reject such report.164

There may also appear a counter offer.

‘Once the competing takeover bid is delivered to the offeree company, its board of directors is required to inform the initial offeror about this circumstance in writing and without undue delay. The competing takeover bid must be published at least five working days before the expiry of the initial one.’165

Shareholders of offeree company after acceptance of the initial takeover bid may,

withdraw their acceptance until it lapses (par. 118e(9) Securities Act. The bidder can by announcement to the National Central Bank of Slovakia revoke its original takeover bid without any restriction. The revocation of the bid has to be communicated in writing to all persons who accepted the bid and whom the bidder has knowledge about. He is also required to inform them about the possibility of accepting the competing takeover bid.166

164 D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I Cambridge CUP, Cambridge 2008), p. 360. 165 Ibid. p. 371. 166 Ibid.

44

7. Conclusion (Mandatory bid rule yes or no?)

There are many pros and cons for the mandatory bid rule and its sufficient protection of minority shareholder. Some authors rely on sufficient self regulation of the market and consider the market rules as the proper way, general in company law and in protection of minority shareholders, as well. Most of the authors criticise MBR because it may prevent the value increasing takeovers and stands in the way of efficient transactions.

In my opinion is MBR a good rule. Minority shareholders needs protection on the market, otherwise they can be exposed to abusive conduct. Their investments can be very easily devaluated, and of course they can loos a lot of money. Without MBR it would be quite risky to be a minority shareholder. I think minority shareholders would have a big tendency to deprive of their securities, before any possible takeover otherwise they would be in quite risky situation. Argument that MBR makes takeovers is reasonable, but the outcome which MBR gives can sufficiently compensate it.

Minority shareholders gives their investments to the company and also thank to their contribution can company do the business. Hence they should be not treated worse than those with control stake. The self regulation of market is, in my opinion, the best way to economical prosperity, but there is one important condition – there has to be fair play. MBR definitely supports the fair play in the area of company law. Of course minority shareholders on the basis of their position can not enjoy all advantages like stake controlling shareholders; the minority one should have at least some level of guarantee for their investments and for their contribution into company.

Without MBR would be the situation of minority shareholders little bit more complicated. The main shortcoming of the Takeover Bids Directive is from my point of view, that it gives too much discretion on MS and there are unnecessary derogations, as well. The ratio for this is quite understandable. Company law and character of capital market is different in MS so the authors of TBD wanted to make it also flexible so much as it is possible. Also when we look into history, how long was the way trough all compromise till final draft of the TBD, we can understand the final character of the Directive. For example some countries have traditional dispersed ownership structure; some countries have tradition of concentrated ownership structure. In my opinion, for the conclusion, it is obvious; that the Directive did not fulfills all expectation for proper harmonization of company law in Europe. I think, that the Directive have had been more precise, what would improve the integration of European capital market law.

In my opinion the arguments for protection of minority shareholders prevail over argument that: ‘Each company ought to be free to choose which market is more attractive for its business activities and profitable for existence the right of corporate mobility.’167 This Directive does not set up so high standards, which would hinder the regulatory competition among national company laws. Directive uses the principle of minimal harmonization and capital markets of MS can still widely benefit from regulatory differences.

167 T Papadopoulos, ‘The mandatorz provisions of the EU Takeover Bid Directive and their deficiencies’

(2007) Law and Financial Markets Review Academic Analysis <http://ssrn.com/abstract=1088894> accessed 20 February 2011, p. 531.

45

Each legislation concerning economic activities there are certain pros and cons, also harmonization in Europe (also in the field of company law) is many times based on principle give and take. Pros of MBR in my opinion prevail in big scale over the disadvantage of high costs of the takeover for the company.

Aim of this Paper was also provide examination of MBR and protection of minority shareholders. Paper mentions on the beginning the principles, which are in my opinion closely connected with protection of minority shareholders. Manly the principle of cash consideration is crucial to make protection of minority shareholders effective. Next chapters are devoted to certain issues of takeover bid procedure, because in from my point of view it is important to know what the reaction of shareholders in general can be during each step. The aim of LLM Paper was also to point out on certain important issues of MBR and sufficiency by protection of minority shareholders.

I consider mandatory bid rule as good law, which offers fairness in the treatment of shareholders. Although, the rule could be more efficient, if there would be more precise provisions of the Directive. In conclusion, I think that the costiveness and asset of mandatory bid rule is much surpassing the shortcomings. There is still lot of work in the area of European company law. MS wants to keep their regulatory competitiveness in this are, what may increase the Delawere effect. This aspect is from my point of view not so wrong, just there has to be precise and effective rules, which would keep fairness in the business competition.

46

Bibliography Books:

1. A Kouloridas, The Law and Economics of Takeovers: An Acquire´s Perspective (Hart Publishing, Portland 2008)

2. A J Boyle, Minority shareholders’ remedies (CUP, Cambridge 2002) 3. B Hannigan, Company law (2nd edition OUP, New York 2009) 4. C Bolle, A Comparative Overview of the Mandatory Bid Rule in Belgium, France,

Germany and in United Kingdom (Nomos Verlagsgesellschaft, Baden-Baden 2008) 5. D Van Gerven, Common Legal Framework for Takeover Bids in Europe (Volume I

Cambridge CUP, Cambridge 2008) 6. E A Martin, A Dictionary of Law (Reissued with new covers OUP, Oxford 2003) 7. E Perakis, Rights of minority shareholders (Bruylant, Brussels 2004) 8. G Ferrarini and others, Reforming Company and Takeover Law in Europe (OUP,

Oxford 2004) 9. J Cory, Business ethics: the ethical revolution of minority shareholders (Springer-

Verlag, New York 2005) 10. J Mukwiri, Takeovers and the European Legal Framework: A British Perspective

(Routledge-Cavendish, Oxon 2009) 11. P. Mantyssari ‘The Law of Corporate Financ: General Principles and EU Law’

(Springer, Heidelberg 2010). 12. R Skog, Does Sweden need a mandatory Bid Rule?: a critical analysis (Juristforlaget,

Stockholm 1995) 13. S Maul, D Muffat-Jeandet and J Joelle Simon, Takeover bids in Europe: The Takeover

Directive and its implementation in the Member States (Memento Verlag, Freiburg 2008)

Journal Articles:

1. B Sjafjell, ‘The Core of Corporate Governance: Implication of the Takeover Directive for Corporate Governance in Europe’ (2010) UCD Working Papers in Law,

47

Criminology and Socio-Legal Studies Research Paper 27/2010 <http://ssrn.com/abstract=1598298> accessed 19 February 2011

2. E. Wymeersch, ‘The Takeover Bid Directive, light and darkness’ [2008] (1) Financial

Law Institute Working Paper Series WP 2008-01 < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1086987 > accessed 20 April 2011.

3. E. Wymeesch ‘The New Belgian Law on Takeovers’ [2008] (4) Financial Law

Institute Working Paper Series WP 2008-04 < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1109048 > accessed 21 April 2011.

4. E-P Schuster, ‘Efficiency in Private Control Sale: The Case of Mandatory Bids’ [2010]

(10) LSE Working Papers <http://ssrn.com/abstract=1610259> accessed 16 December 2010

5. G Tamburrini, ‘Harmonization of Takeover Disciplen: a Comparative Law and

Economic Overview’ (2009) La Sapienza <http://ssrn.com/abstract=1423762> accessed 16 March 2011

6. J Payne, ‘Schemes of Arrangement, Takeovers and Minority Shareholder Protection’

[2010] (42) Oxford Legal Studies Research Paper < http://ssrn.com/abstract=1600592> accessed 16 December 2010

7. L Enriques, ‘The Mandatory Bid Rule in Takeover Directive: Harmonization Without

Foundation?’ (2004) 1 European Company and Financial Law Review 440 8. L. Enrique, ‘European Takeover Law: The Case for a Neutral Approach’ [2010] (45)

Nota di Lavoro, Institution and Market Series, Fondazione Eni Enrico Mattei. 9. M Brukart, F Panunzi, ‘Mandatory Bids, Squeeze-out, Sell-out and the Dynamics of

the Tender Offer Process’ [2003] (10) ECGI Working Paper Series in Law <http://ssrn.com/abstract=420940 or doi:10.2139/ssrn.420940> accessed 16 December 2010

10. M. Burkart and F. Panunzi, ‘Mandotry Bids, Squeeye-out, Sell-out and the Dynamics

of the Tender Offer Process’ [2003] (10) Law Working Paper N. 10/2003 <http://ssrn.com/abstract=420940> accessed 10 May 2011.

11. M. Ventoruzzo, ‘Takeover Regulation as a Wolf in Sheep’s Clothing: Taking Armour

& Skeel’s Thesis to Continetal Europe’ (2008), Bocconi University, Institute of Comparative Law „Angelo Sraffa“, Draft January 2008.

12. P. Davis, E-P Schuster and E. van de Walle de Ghelcke, ‘The Takeover Directive as a

Protectionist Tool?’ (2010) ECGI Working Paper Series in Law

48

<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1554616> accessed 18 April 2011

13. R Painter, C Kirchner, ‘Takeover Defense under Delaware Law, the Proposed

Thirteenth EU Directive and the New German Takeover Law: Comparison And Recomendation Reform’ (2002) Illinois Law and Economics Working Paper Series Working Paper No. Le02-006 <http://papers.ssrn.com/pape.tar?abstract_id=311740> accessed 19 February

14. S M Sepe, ‘Private Sale of Corporate Control: Why the European Mandatory Bid Rule

is Inefficien’ [2010] (10-29) Arizona Legal Studies Discussion Paper <http://ssrn.com/abstract=1086321> accessed 16 December 2010

15. T Papadopoulos, ‘The Mandatory Provisions of the EU Takeover Bid Directive and

Their Deficiencies’ [2007] (1) Law and Financial Markets Review-LFMR 525 <http://ssrn.com/abstract=1088894> accessed 16 December 2010

Statutory materials:

1. Council Directive (EC) 2004/25 on takeover bids [2004] OJ L 142/12 General websites: Peter Cavojsky, ‘Základné princípy podľa smernice upravujúcej ponuky na prevzatie (Basic principles according the Directive on takeover bids)’ (Article in Economic Newspapers in Bratislava 9.6.2004) <http://hnonline.sk/ekonomika/c1-21902695-zakladne-principy-podla-smernice-upravujucej-ponuky-na-prevzatie> accessed 30 March 2011.