Ownership, Takeovers and EU Law: How Contestable Should EU Corporations Be?

Abstract

In this paper, I draw on economic theory of ownership structure; empirical research on ownership, value and takeovers; and comparisons to US law to argue that the proposed break through rule (BTR) is not clearly better than the status quo, from either a political perspective, or an economic perspective, with implications for any directive on takeover bids (DTB). The good (a step toward an integrated EU capital market) cannot wait on the perfect (ideal takeover rules), but neither should it be pursued without regard for the difference between the two. This suggests that if the BTR is adopted, it should be kept flexible with a mixture of regulatory tools - sunsets, opt-outs, and industry-based exemptions - that reflect the fact that regulation will inevitably be both imperfect and difficult to modify once adopted. The best rationale for the BTR - that many ownership structures in EU reflect historic national market structures and may increasingly impede achievement of economies via cross-border mergers - would be better addressed by rules requiring control of such firms be made contestable on a periodic rather than a continual basis.

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