EU merger rule opens new trade rift

/ Source: Financial Times

Fresh strains are threatening relations between the US and European Union after a warning from Washington against a “fortress Europe” in which it would be harder for US companies to carry out takeovers.

U.S. concerns have been raised by a new compromise version of the EU’s takeover directive, which was originally intended to make takeovers easier in Europe but has been changed extensively because of Germany’s objections.

This comes on top of conflicts between the EU and the U.S. over government subsidies for the U.S. steel industry.

The U.S. has made its objections about the takeover directive known to all 15 EU governments, stepping up contacts as the likelihood has increased that the compromise will be approved.

The current version - expected to receive the backing of most EU governments this week - would make it much more difficult for U.S. companies to pursue hostile bids in Europe. The U.S. warns that such a law could send a signal that “Europe is not open for business”.

Eight EU governments have indicated they will back the directive at a ministers’ meeting on Thursday. It has also gathered wide support in the European parliament.

The deal waters down earlier versions that would have banned EU companies warding off takeovers through multiple voting shares and “poison pills” without shareholder backing.

Instead, the compromise directive makes the ban on poison pill defenses optional. It would allow EU members’ governments to relax bans on such defenses where the bidding company came from a jurisdiction that permitted poison pills, such as the U.S.

Financial market participants are concerned that the proposal could damage Europe’s access to capital. Such groups argue that legal scrutiny and shareholder activism in the U.S. mean that U.S.-style poison pills serve to increase the bidding price for takeovers. They say U.S. companies with poison pills are just as likely to be taken over than those without.

Until now Frits Bolkestein, the EU’s single market Commissioner, has refused to back the measure, and member states would only be able to override him through unanimity. “This [compromise] proposal would take the heart out of the directive,” said Mr. Bolkestein’s spokesman. “It could tempt some member states to allow barriers to takeovers that do not currently exist.” But the Commission, which has tried to push versions of the directive through since 1989, is itself bitterly divided over Mr. Bolkestein’s stance. The pressure on him to support the directive would mount if both parliament and most member states approved the compromise.

The U.S. said the rules could create difficulties with World Trade Organization provisions and other international guidelines.