Acting in Concert: An Observational Tale

Imagine a grand European orchestra, each musician a different country, each instrument a distinct legal system. The conductor, tasked with harmonizing these disparate elements, is the Takeover Bids Directive. Our story unfolds over two decades of this symphony, revealing how the concept of "acting in concert" has evolved and impacted the mandatory bid regime in the European Union.

Long ago, in the realm of corporate takeovers, the concept of "acting in concert" was born from a simple yet profound principle: to prevent the circumvention of mandatory bid rules. The image one would think of is one where a group of savvy investors, sneaking their way through a series of clandestine meetings, acquiring shares piecemeal to avoid triggering a mandatory takeover bid. The Takeover Bids Directive, with its broad definition, aimed to catch these crafty manoeuvres by treating concerted actions as equivalent to individual share purchases. The UK Takeover Panel, where this system originated, famously quipped that concerted action could be as subtle as "a nod or a wink."

But as the directive attempted to conduct its symphony, each member state interpreted the score differently. Some countries, let's call them the purists, stuck closely to the directive's original script. For them, the mandatory bid rule only applied when shares were acquired, not just when shareholders decided to join forces and coordinate their votes. No acquisition, no mandatory bid – simple and straightforward.

Then there were the innovators. These countries expanded the role of concerted action beyond mere share acquisitions. In their interpretation, if a group of shareholders came together to pursue a common, lasting policy towards the company's management, a mandatory bid was triggered, acquisition or not. This approach aimed to reinforce the anti-elusive function of concerted action by pre-emptively addressing potential circumventions.

You might be wondering, what's the harm in this expanded view? Well, here's where the tale takes a turn into the murky waters of legal uncertainty. Linking the mandatory bid rule to concerted action alone, without any share acquisition, casts a wide net. It risks ensnaring ordinary forms of shareholder cooperation, particularly those involving the board of directors, under the umbrella of concerted action. The result? Shareholders might find themselves unwittingly triggering a mandatory bid simply by coordinating their votes on governance matters, even when they do not buy a share altogether.

Enter ESMA, the European Securities and Markets Authority, attempting to calm the stormy seas. At the behest of the European Commission, ESMA drafted a "white list" of shareholder cooperation forms that should not count as concerted action. Think of it as a guidebook for musicians to avoid hitting the wrong notes. But, as with any guidebook, its impact is limited. It clarifies some uncontroversial scenarios but leaves out thornier issues, like the joint filing of board candidate slates.

Where does this leave us? In a paradoxical situation where the very rules meant to protect investors and foster market integration end up creating confusion and discouraging cross-border investments. It's a classic case of the road to hell being paved with good intentions.

In conclusion, our tale of "acting in concert" is a cautionary one. It reminds us that while the concept was designed to prevent the circumvention of takeover rules, its expansion in many national legal systems now threatens to undermine ordinary shareholder cooperation. Without the possibility of European harmonization on the horizon, we must rely on the restraint and reasonableness of national legislators and supervisory authorities to apply this concept judiciously.

The concept of acting in concert is one of the building blocks of the European approach towards takeover bids and plays a crucial role in the mandatory bid regime. In our paper, we reassess the functions of concerted action in the EU legal framework and in its national implementations twenty years after the Takeover Bid Directive. What emerges confirms that the low intensity of harmonisation in EU takeover law paves the way to diverse legal treatments of similar situations, to the detriment of cross-border investments and market integration.   

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By Javier García de Enterría (Centro Universitario de Estudios Financieros (CUNEF)) & Matteo Gargantini (University of Genoa)

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