PROMOTING (IN)EFFICIENCY? Cross-border takeovers and takeover defenses in the European Union with and without the proposed 13th Company Law Directive; Theoretical application of simple finance theory and transaction cost economics
Abstract: The market for corporate control is one of the cornerstones of economical systems in every country. The Commission of the European Communities has tried for the past 15 years to get accepted a Directive that aims at harmonizing takeover regimes in the Member States of the European Union. The paper examines the rationales behind takeovers and methods to prevent them from occurring through two alternative theories – the simple finance model and the transaction cost economics – to determine the need for the 13th Company Law Directive. The same theories are also applied to existing situations concerning takeovers in six European Union Member States. It becomes evident that the current system of takeover regulation in the Member States under examination converges and unexpectedly the transaction cost economics seems to explain the existing situation more precisely than the simple finance model. Closer examination of the proposed Directive shows several shortcomings that are not feasible based either on the simple finance model or transaction cost economics. Recent judgements of the ECJ seem nevertheless to provide a reason for the Directive as a remedy for faulty judgements. Natural convergence of markets for corporate control does not follow the path taken in the Directive, which questions the need for harmonization through such a radical legislative intervention.
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