The Economics of the Proposed European Takeover Directive. CEPS Reports in Finance and Banking No. 32, 1 April 2003

McCahery, Joseph A. and Renneboog, Luc. and Ritter, Peer and Haller, Sascha. (2003) The Economics of the Proposed European Takeover Directive. CEPS Reports in Finance and Banking No. 32, 1 April 2003. UNSPECIFIED.

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Abstract

This report provides a detailed analysis of the mandatory bid rule. It examines the implications of the rule, taking into account its ex-ante and ex-post trade-offs. The report outlines clearly the valuable features of the mandatory bid rule in safeguarding against value-decreasing takeovers and assesses whether the Commission’s decision to allow member states to define the threshold for the mandatory bid is a sensible approach. The report also outlines the main elements of the break-through rule and assesses the profound changes that would take place in Europe’s takeover market should the rule be adopted. A number of recommendations are made. The report identifies a number of factors that supply good reasons for rejecting the break-through rule. These include the fact that it violates shareholder decision-making, is logically inconsistent with the mandatory bid rule and may create problems associated with two-tier takeovers. Moreover, the evidence on the efficiency implications of dual-class shares is inconclusive. The report concludes that, having highlighted the costs and benefits of the proposed break-through rule, the higher costs associated with the break-through rule outweigh the benefits.

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