DealLawyers.com Blog

April 4, 2006

European Protectionism Continues…

From the April Issue of GovernanceMetrics International’s “In Focus”: The European Commission has urged against “nationalist rhetoric” and promised to uphold laws against protectionism. However, recent months have seen extraordinary protectionist and anti-takeover stances taken by governments around Europe.

– Germany’s power group Eon is bidding to acquire Spain’s Endesa S.A., the former Spanish electric monopoly, and the EU has cautioned Spain’s government not to use illegal anti-takeover measures. The EU’s regulators are seeking to build a single European energy market, but Spain clearly wants to keep its leading power and gas company under its own control. The Spanish government had backed a rival bid for Endesa by Barcelona-based Gas Natural, but Eon’s bid of 29.1B Euros ($34.7B) is the largest ever bid in the utilities industry, and few believe that any other industry players can match the German’s all-cash offer. The Spanish government holds a golden share in Endesa, but Spain’s prime minister said it would be used only in extraordinary circumstances. The EU has warned that any attempts by Spain to block the merger would be a violation of EU regulations. However, Spain recently overhauled its energy laws

– France recently announced that the country is amending its takeover laws to allow companies to launch poison pill defenses in response to hostile takeovers. The measure entails a reciprocity requirement whereby the poison pill could be used only if the hostile bidder has a similar right and only if the poison pill were approved by a shareholder vote. Still, the move has aroused accusations of protectionism. France has also taken measures to protect French-Belgian utility Suez, which may be the target of Italian utility giant Enel. France has begun a merger between Suez and state-controlled French utility Gaz de France, which would effectively fend off Enel’s bid. EU regulators have stated that France may have broken market rules by engineering the $40B merger.

– Luxembourg, where steelmaker giant Arcelor is the target of a hostile takeover by Mittal Steel, also recently adopted a “reciprocal” law in an effort to strengthen Arcelor’s defense. Moreover, the country is also working on a bill to allow companies, and Arcelor in particular, to adopt poison pills without shareholder approval. France and Spain, where Arcelor also has main locations, is joining Luxembourg in opposing Mittal’s $22.3B bid, but Mittal has stated that the deal would not entail job losses or changes to labor agreements. Critics of the deal have questioned Mittal’s governance profile. Lakshmi Mittal holds both the chairman and CEO positions, his 28-year-old son is the company’s CFO, and the family owns 88% of the company’s stock.

– Italy has also considered toughening its takeover laws, as the country already holds golden shares in many of its largest utility companies.

– Poland has been warned not to impede Italy’s UniCredito Italiano from acquiring BPH, Poland’s third-largest bank. Poland has opposed the takeover, claiming that UniCredito already owns Poland’s second largest bank and that the merger would violate privatization agreements and disrupt the stability of the country’s banking system.

While Japan Introduces Approval Requirements on Anti-Takeover Measures

The Tokyo Stock Exchanged announced in early March that listed companies must gain approval from the TSE before adopting anti-takeover measures, such as golden shares or poison pills. The TSE will consult neutral third parties before granting approval to such defenses in the interest of protecting the rights of investors. The TSE stated that it will disclose the names of firms that introduce defensive measures without seeking approval first, and companies face the threat of delisting if golden shares are not removed after the TSE has denied the approval request. The TSE plans to grant approval for golden shares only in limited cases, such as for privatized companies.