October 23, 2006
SPACs: How to Use a Special-Purpose Acquisition Company
We have posted a transcript from our recent webcast: “SPACs: How to Use a Special-Purpose Acquisition Company.”
Court Rules Against Dutch Takeover Defense
From ISS’ “Corporate Governance Blog“: The European Commission moved a step closer to its goal of establishing the fundamental shareholder right of “one-share, one-vote” when the European Court of Justice (ECJ) ruled late last month against the Dutch government’s holding of “golden share” takeover defenses in two firms.
European governments should “avoid wasting their time in introducing special share arrangements,” commission spokesman Oliver Drewes told the International Herald Tribune following the ruling. Drewes said the ruling would aid the commission as it turned its sights on Germany, where for years the body has sought to repeal defenses protecting Volkswagen.
In 2003, the commission filed suit against the Dutch government, arguing the golden shares it held in telecommunications giant Royal KPN and postal-services company TNT hindered foreign investment in those firms and violated the principle of the free movement of capital.
The two companies were privatized in 1994, but the government retained a 20 percent stake in KPN and a 35 percent stake in TNT, formerly known as TPG. The golden shares give the Dutch government veto power over stock issues; restrictions on, or removal of, priority rights of ordinary shareholders; acquisitions, disposals or dissolution; withdrawal of the special share, bylaw amendments; and dividend distributions.
The Dutch government argued that its golden shares complied with Article 56 of the European Community that prohibits restrictions on the free movement of capital across national borders. “Even if a link were to be established between the special shares at issue and the decision to invest, such a link would be so uncertain and indirect that it could not be regarded as constituting an obstacle to the free movement of capital,” the Dutch government contended, according to court records. Amsterdam also argued its golden share in TNT was justified because it would guarantee “universal postal service” and thus represented an “overriding reason in the general interest.”
The court agreed with commission officials who argued that the special shares convey disproportionate influence to the government over important management decisions such as the structure of the companies and business activities. The fact that the special shares could only be withdrawn with the government’s approval also provided ammunition for commission lawyers arguing against the defenses.
The commission views the ruling as a critical step toward removing barriers to cross-border acquisitions in what many investors view as an environment of renewed protectionism in Europe. After Mittal Steel launched a takeover of Arcelor earlier this year, Luxembourg and France enacted laws making it easier for firms to deploy takeover defenses.
Last month’s ruling, however, may discourage such initiatives and put greater pressure on Germany to remove limitations that bar any investor from acquiring more than 20 percent of Volkswagen’s voting rights. Commission spokesman Drewes said he “was absolutely confident that this case [Volkswagen] will go in the way that is favorable to the opinion of the European Commission.” In 2003, the commission won similar cases against the Spanish and U.K. governments’ golden shares in national champion companies, including airport operator BAA in Britain and Spain’s Telefonica and energy giant Repsol.