The European parliament Wed-nesday voted down important legislation designed to prevent corporate management from thwarting hostile takeover bids, even though those bids might be in shareholders' interests. In simple terms, parliament sided with management, and in so doing, stuck it to shareholders.
Had the legislation passed, management across the EU would have needed shareholder permission to adopt poison pills and other defensive measures.
And that is the way it should be, for whose company is it anyway? What kind of a system favors management over shareholders? The people who own a company ought to have the right to get the full benefit of a takeover bid -- friendly or hostile.
To me it is axiomatic that if Europe wants to fulfill its economic potential, it must allow capital to move freely. That includes empowering shareholders to remove bad management. It also means that any company, or for that matter any individual, ought to have the right to present an offer to buy a company directly to its shareholders.
Not so, according to the European parliament.
What we got instead looks like a good example of blatant protectionism of vested local interests. European Commissioner Frederik Bolkenstein, the architect of the bill, said after the vote, "It is tragic to see how Europe's broader interests can be frustrated by certain narrow interests." There may be more at work here than meets the eye. If you listen to the Italians, it was fear of France's state-owned companies -- especially Electricite de France -- and their appetite for corporate acquisitions that canned the takeover law.
Italian European Affairs Minister Rocco Buttiglione told reporters, "The Italian government changed its position in reaction to the aggression of EDF."
EDF, France's state-owned power company, is known to be in league with Italy's Fiat SpA and others in a hostile bid for Montedison SpA and its Edison SpA unit, Italy's second-largest electric utility.
Buttiglione said the position of the Italian government was decisive in the vote. And the thing that seems to have them, and others, riled up is that EDF itself cannot be taken over because it is a state-owned entity.
This, the opponents of the bill say, makes for an "unlevel playing field." And actually, they may have a point, but not one that they themselves actually mean.
If you restrict the argument to cases in which a private company goes after another private company, there is little doubt that all bids ought to go directly to shareholders. I hope that. Buttiglione would agree with me on that.
But what about the case where a public company goes after a private company? The Italians, and other like-minded people, believe that the management of such a target company ought to have the right to bypass the shareholders and block the acquirer's bid.
Why should it make a difference whether the acquirer is state- owned or private? Why don't shareholder rights prevail? If the devil himself wanted to pay a hefty premium for the company, why should shareholders miss out? There is only one reason why the argument might be valid. State-owned European enterprises are too large as matters stand.
Allowing them to acquire private companies freely would make the situation worse yet.
It takes a pretty big stretch of the imagination to think that this is what the Italians meant.
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