Wanna Argument?
The EU Takeover Directive
Many companies do not wish for the European market to become as free as the European Commision would like. Source: Wikimedia Commons, under the GNUDFL licence.
The route of state intervention is gaining ground in some critics' minds: in the UK, trade union leaders have called for Government action to protect companies in certain key sectors. Sparked by the proposed takeover of BOC, these critics say that it's important to safeguard firms whose activities are of 'strategic importance'.
This is exactly the argument employed by governments in continental Europe. It is unlikely to succeed as it can be seen as acting against the free movement of capital, and therefore unlawful under EU single market legislation.
Protectionist action by EU member states to prevent foreign takeovers of key firms in certain industrial sectors may contravene EU law. The EU's takeover directive, which was agreed in 2004, takes what some see as a typically 'fudged' EU view of the issue.
The Directive recognises the fundamental differences between the two types of capitalism practiced by member states: the shareholder and stakeholder models. It maintains a balance between these two opposing approaches by making some of the Directive's requirements optional. Whilst this flexibility is highly complex, its intention is clear.
The European Commission wants to open companies up to outside control, by outlawing defences against hostile takeovers. The belief here is that this will introduce greater management discipline, as companies try to improve their performance so to deter predators. Stronger company performance means higher economic growth in the EU.
This would have introduced more liberal economic policies into countries where, unlike the UK and the Republic of Ireland, there is no strong tradition of free market capitalism. Member states such as Germany and the so-called Nordic countries have more coordinated economies, which could suffer if takeovers become commonplace.
Critics of the European Commission's strategy point to what they say is a lack of evidence that hostile takeovers actually work. There is a body of research indicating that the benefits claimed by those in favour of the unrestricted free market are illusory. Some analysts believe that this shows that the performance of companies post-takeover falls short of expectations.