EU`s 13th Directive on Takeover Bids and Its Implications

In April 21, 2004, after 20-year-long negotiations and debates, the Council of the European Union passed the 13th Directive on Takeover Bid (the Directive). Aiming to encourage corporate restructuring and takeover activities, the Directive adopted several controversial devices associated with takeover bid: mandatory bid; board neutrality; breakthrough rule (BTR); optionality right of Member State; reciprocity. This paper analyses the effects of three major provisions of the Directive. First of all, the mandatory bid rule requires acquirer to offer minority shareholders of the target company the same price as has been offered to controlling shareholders, thereby protecting minorities. This rule has two-fold chilling effect: it would effectively prevent value-decreasing acquisition, discouraging incompetent purchaser from buying the target; it might also prevent value-increasing acquisition, imposing additional burden even on competent purchaser. Secondly, the BTR allows the offeror to break through any restrictions on voting and/or transfer over target shares, provided that she successfully obtains 75% cash-flow rights in the tender offer. BTR is expected to reduce the agency cost from separation of cash-flow rights and voting rights. In terms of hostile takeover activities, BTR has opposite effect to mandatory bid rule: BTR is supposed to boost hostile takeover, while mandatory bid rule has chilling effect. This paper shows how these two contradicting aspects would work in the future. According to the economic analysis, the BTR might erode the protection for minorities by mandatory bid rule.이 논문은 서울대학교 법학발전재단 출연 법학연구소 기금의 2007학년도 학술연구비 의 보조를 받았음