Institute of Global Affairs, London School of Economics and Political Science
Swedish House of Finance; Stockholm School of Economics – Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); London School of Economics – Financial Markets (FMG) Group
In its quest for more corporate restructuring and a single market for capital, the European Commission is pushing for Europe-wide takeover regulation. Previous attempts have failed largely due to differences in corporate governance arrangements across Member States. This article provides a framework for evaluating the effects of takeover regulation. We apply this framework to some specific proposals in the European debate and show that their impact often depends critically on the structure of ownership and control. In particular, two of the most discussed rules, the strict mandatory bid rule and the break-through rule, have no impact when ownership is dispersed. Also, the proposed break-through rule would only affect firms with dual-class shares but not firms that use other control instruments. Moreover, the two rules would effectively counteract each other, the break-through rule promoting takeovers and the mandatory bid rule impeding them. Introducing a strict mandatory bid rule alone, as the Commission proposed, would slow down restructuring. We argue that while increased contestability of control is desirable hostile takeovers are a rather blunt instrument for achieving this. The market for corporate control is only one of many corporate governance mechanisms to be honed in order to promote corporate restructuring in Europe.