The globalisation of General Principle 7: transforming the market for corporate control in Australia and Europe?

Abstract

The integration of national financial markets over the past 30 years has resulted in a globalised market for corporate control which has increased both the opportunities for companies to fund acquisitions and the possibility of being acquired. Takeovers and mergers have, as a result, become a matter of some concern for governments, as they try to encourage the development of financial markets but also deal with the consequences of a globalised market for corporate control, where even companies regarded as national champions are within the reach of a foreign takeover. In the course of the last decade General Principle No 7 of the UK Takeover Code, that shareholders should decide the outcome of a takeover bid, has been adopted in many jurisdictions around the world and has formed the heart of the EU Directive on Takeovers. The Principle is however a controversial one, as its adoption is often viewed in civil law jurisdictions as an attack on a core part of a social market system. This has been particularly evident in the debate on the EU Directive on Takeovers. A number of common law heritage countries have also based their takeover regime around General Principle No 7 and many of these common law heritage counties have similarities with social market systems, in that they have less significant stock exchanges than the UK, the make up of their shareholding base is more concentrated and employment protections are more extensive. A central jurisdiction in that overlap is Australia, with exactly this combination. The purpose of this paper is to examine the historical effect of introducing UK takeover principles into the Australian system, by creating an empirical data set of takeovers of Australian listed companies covering the period before and after those UK-based principles were introduced. In doing so the paper found that factors such as concentrated ownership, capital controls and protective labour law have significant effects on the market for corporate control. There was no transforming effect evident in adopting an anti-managerial pro-shareholder takeover regime. As such, the fear that the adoption of a standardised EU-wide takeover Directive, along the lines of the UK Panel on Takeovers and Mergers' shareholder-oriented General Principle 7, would have a negative transforming effect on social market systems appears, on the Australian evidence, to be overblown, while other key features of such systems, particularly concentrated ownership and protective labour laws, remain in place.