CONVERGENCE OR DIVERGENCE IN CORPORATE GOVERNANCE: EMPIRICAL EVIDENCE 47
4. MARKET FOR CORPORATE CONTROL AND (ANTI-)TAKE-OVER MECHANISMS
4.1 The take-over market
One striking difference between the U.S. and U.K. systems and those of Continental European countries is the presence of an active external market for corporate control, often referred to as the take-over market. Take-over techniques include mergers, tender offers, proxy fights, and leveraged buy-outs108. The take- over market acts as a discipline on firms, allowing control to be transferred from inefficient to efficient management teams and encouraging a convergence of interests between corporate management and shareholders109.
In the U.S. and U.K., take-overs are an important instrument for corporate restructuring. Prowse (1995) reported that the average annual volume of completed domestic take-overs as a percentage of total market capitalisation over the period 1985-1989 equalled 41,1% in the U.S. and 18,7% in the U.K. In the non-Anglo- American countries there is less take-over activity through stock markets. In Germany, only 2,3% of total market capitalisation is attributable to take-over activity. In Japan this figure amounts to 3,1%110.
In the case of a hostile take-over the management of the target company opposes the take-over. Table 14 reports announced hostile take-overs in countries that have been classified according to La Porta et al.'s classification system (cf. supra). The occurrence of hostile take-overs was mostly located in the U.S. and U.K.; these countries accounted for 93,7% of worldwide hostile targets in terms of transaction value in 1980-1989, and 78,9% in 1990-1998. In terms of acquirers, U.S. and U.K.
companies were responsible for 82,7% in 1980-1989 and 80,5% during 1990-1998.
No other country matches the take-over activities of the U.K. and the U.S.
Italian, German, Norwegian and Swedish acquirers have become more active in the 1990s than in the 1980s, but their absolute level of activity is still very low compared to the Anglo-Saxon countries. The remaining countries remain largely
105Bill “Wijziging van Boek 2 van het Burgerlijk Wetboek alsmede enige andere wetten in verband met de openbaarmaking van de bezoldiging en het aandelenbezit van bestuurders en commissarissen”, Eerste Kamer, vergaderjaar 2001-2002, 27900, nr. 288.
106 Bill of Van Quickenborne et al. (2000).
Law No. 2001-420 of 15 May 2001 regarding the new economic regulation.
108 Weimer and Pape (1999).
109 Franks and Mayer (1990).
110 Prowse (1995).
107
unaffected by hostile take-overs. In this respect, the data does not suggest that over the given time period convergence of take-over practices took place.
4.2 Anti-take-over or defence mechanisms
Defence mechanisms against hostile take-overs have been the subject of take- over legislation. In the US, Gompers and Ishii (2001) identified 24 commonly used provisions that potentially increase management control at the expense of shareholders. An overview of these provisions is presented in appendix 7.
Anti-take-over mechanisms in European countries are quite different from those in the US. The comparative research on take-over defences in the U.S. and Europe conducted by Ferrarini (2000) concludes that the importation of U.S. take-over defences into the EU is not straightforward because of particular legislative and common practice differences. For example, poison pills cannot be imported, as they appear to conflict with several rules of the European company law directives. As Ferrarini states: "they [i.e. take-over provisions] reflect a distribution of powers between the board of directors and the shareholder's meeting which differs from that prevailing in Europe". In addition, constraints created by European corporate law limit the range of defensive tools available to European companies.
To analyse the European scenery in more detail, we can rely on the study of Déminor (2000). Figure 14 gives an overview of take-over defences used in European countries. It is clear that the Netherlands are by far the best protected, followed by Italy, France and Belgium. The least protected seems to be Sweden, the U.K., Switzerland and Germany.
For details see appendix 8.
111
At the EU level, the European Commission proposed measures to harmonise corporate take-over procedures in order to protect investors. In 2001, a special expert group has been installed to foster an agreement on the route to further convergence within Europe. A historical overview of the long way to reach that goal is given in the next Insert.
112 Déminor (2000).
After so many years of efforts, national (anti-)take-over provisions are still in place and differ substantially. With the increasing number of cross-border mergers and acquisitions within the EU, these differences may have a negative impact on the corporate control of existing shareholders. Put differently, particular national take- over procedures may obstruct the growth of a true European single market because of the absence of an equal level of protection for shareholders throughout the European Union, in the event of a transfer of corporate control113.
The objective of the Commission is to harmonise national rules for take-overs to create a level playing field for cross-border bids while ensuring a high level of protection for minority shareholders and ensure they are treated the same as large institutional investors. The expert group headed by Jaap Winter focused on three elements in relation with take-over bids: how to ensure a level playing field in the EU guided by two principles, i.e. shareholder decision-making and proportionality between risk-bearing and control; the definition of the equitable price to be paid in the case of a mandatory bid; and the introduction of a squeeze-out procedure114. The result was a 97-page report with 22 recommendations. Especially two recommendations could, if included in the commission's proposals, generate heavy resistance and put the code's approval in danger, i.e. the one-share-one-vote system when bidding for a company and the proposal which should allow a bidder with at least 75 % of a company's ordinary share capital to take control115.
Not only rules but also implementation needs further attention, as can be deduced from the next insert :
113Bolkestein (2001); Lundby-Wedin and Pagrotsky (6 July 2001).
114 Winter (2002).
115Guerrera (19 March 2002).