Berlin, Brussels at Odds Over Takeover Law

The Federation of German Industries came out strong on Wednesday against a package of reforms put forth by the European Commission to regulate corporate takeovers throughout the 15 member EU states.

The new regulations, they say, would unfairly disadvantage German companies by prohibiting defense measures in Germany while allowing them to remain in other countries.

The set of rules, which must be adopted by both the EU parliament and member states’ governments, would guarantee equal opportunities for shareholders of a target company and possible corporate buyers. The proposals would require greater transparency than is now currently the practice, especially in terms of defensive mechanisms such as "poison pills" or "golden shares."

As a concession to Germany, which blocked the passage of the original takeover directive last July, EU Internal Market Commissioner Fritz Bolkestein, said that the new rule would not encroach on anyone’s acquired rights in a company and should therefore not interfere with legal or constitutional rights in a member state.

As a result, the plan should not affect Germany’s so-called "VW Law," a golden-share law that grants the state of Lower Saxony, where carmaker Volkswagen is based, voting rights disproportionate to its capital stake in the car manufacturer.

New deadline should bring closure

After presenting the new takeover directive, Bolkestein proposed a January 1, 2005 deadline for the measures to go into effect, thereby ending a 13-year drive for EU-wide takeover rules.

The plan is a "coherent way forward," Bolkestein said. It would "improve the level playing field without compromising the competitive situation of European companies in comparison with those of third countries, and in particular of the US."

But Germany is not buying any of it and has announced it will most likely vote against the bill.

Germany on the defensive

Germany’s main argument against the bill is its unfair treatment of German companies when it comes to defensive practices in takeover maneuvers.

Whereas Bolkestein’s reforms forbid tactics common in German corporate takeover law such as a poison pill mechanism to stop hostile takeovers, it does not eliminate multiple voting rights for shareholders in corporations in other countries such as France and Sweden.

Multiple voting rights allow company shareholders a number of votes disproportionate to their number of shares. In Sweden, the family Wallenberg, for instance, controls the largest companies in the country, such as Ericsson, without actually having a majority in the company’s shares. In Germany, multiple voting rights are against corporate law.

The same takeover rules need to apply throughout the EU, and this is not the case with the new proposals, said Michael Rogowski, President of the German Federation of Industries, in a statement on Wednesday.

"You cannot forbid defensive mechanisms in one country and allow them to exist in others," he said. "Either you don’t touch any of them, or you ban all of them without exception."

Brussels-Berlin showdown

In the eyes of German industry leaders, Bolkestein’s insistence on the retention of multiple voting rights in some countries goes against all previous proposals, and places German companies at an unfair disadvantage to compete with other countries.

Speaking in front of the Commission on Wednesday, Klaus-Heiner Lehne, a German member of the European Parliament, demanded "equal weapons for all companies," insisting that "otherwise the takeover proposal is faulty."

In January, a special group of experts commissioned by Bolkestein to examine the takeover law, suggested implementing a complete ban on multiple voting rights for corporate shareholders in all EU member states. But Wednesday’s proposal only went half that far.

"It’s difficult to understand, why Bolkestein did not adhere to the advice of his own expert group, and only partially adopted their recommendations," said Rogowski. "Basically, we’re at the same point today, where we were a year ago."