Draft Dutch Law Allows Takeover Protection, May

UNCLAS SECTION 01 OF 02 THE HAGUE 001003

SIPDIS

SIPDIS

STATE FOR EUR/UBI ERIC FALLS
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT
TREASURY FOR IMI/OASIA/VIMAL ATUKORALA
PARIS ALSO FOR OECD
STATE PLEASE PASS FEDERAL RESERVE

E.O. 12356: N/A
TAGS: ECON EFIN EINV NL
SUBJECT: Draft Dutch Law Allows Takeover Protection, May
Raise Barriers against U.S. Firms

Ref: A) THE HAGUE 253

B) 05 THE HAGUE 3119

THE HAGUE 00001003 001.2 OF 002


THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE
ACCORDINGLY.


1. (U) SUMMARY With only two weeks to go before the
deadline to implement the EU takeover directive, several
large corporate takeover attempts have kindled political
interest in defensive measures across Europe. Draft
legislation to implement the directive in the Netherlands
limits the use of defensive measures in a takeover battle,
but contains a reciprocity condition that allows a company
to use certain defensive techniques to protect itself when a
U.S. party launches a public bid. Two provisions of the
Dutch draft would limit the degree of protection, but those
have met with strong opposition in Parliament. Experts
doubt the efficacy of legal protection, and appear hopeful
that the Dutch will end at least one defensive measure, the
certification of shares. END SUMMARY

TAKEOVERS ACROSS EUROPEAN BORDERS
--------------


2. (U) The governments of Luxembourg, France and Belgium
are working to fend off Mittal Steel's bid for Arcelor (ref
A). The Spanish government is engaged in German energy
company E.ON's bid to acquire Endesa. The French government
has successfully engineered a merger between Suez and Gaz de
France to frustrate a bid by Belgian energy company
Electrabel. Politicians in the Netherlands still remember
the legal battle ABN Amro needed to fight to acquire Italian
bank Antonveneta last year, and are concerned to open their
local market while other countries continue to protect
theirs.


3. (U) The Takeover Directive seeks to facilitate cross-
border mergers and acquisitions within the EU, and
introduces restrictions on defensive measures in the case of
a hostile takeover. The Directive, however, does not
actually ban the board of directors taking defensive action
in the case of a hostile takeover, nor does it end
contractual or statutory defensive measures. Those choices
are left up to the individual member states.

RECIPROCITY AGAINST U.S. TAKEOVER BIDS
--------------


4. (U) In the draft legislation to implement the Takeover
Directive in the Netherlands, the GONL would not ban the use
of defensive measures. A listed company could then choose
whether it wants to be a protected company or an unprotected
company. The law would also introduce a so-called
reciprocity provision, meaning that an unprotected company
could still try to defend itself in case of a hostile
takeover by a protected company. Protected companies also
include any U.S. companies. The explanatory note of the law
argues that U.S. companies fall outside the scope of the
Directive, so that a hostile takeover attempt warrants
defensive measures by an unprotected company.


5. (U) The GONL has also included two provisions in the
draft law that would limit the extent of protection
companies can choose. The first would enable a large
majority shareholder to break through defensive measures by
replacing the executive and supervisory boards. The other
would guarantee the right for the holders of certificates to
exercise the voting rights of the underlying shares.
(Certification is a defensive measure in which a management-
friendly foundation is created which holds the company's
shares, exercises their voting rights, and issues
certificates against those assets to investors.) These
provisions have met with strong opposition in Parliament,
which wants a level playing field.

INSIDER VIEWS
--------------


6. (SBU) Finance Minister Zalm recently cited similar
concerns, referring to the way other EU countries are
choosing to implement the Directive. Reflecting on Zalm's
remarks, a MOF spokesman expected the breakthrough provision

THE HAGUE 00001003 002.2 OF 002


to be scrapped, but remains hopeful about the provision that
would end certification. He went on to explain that
Parliament has asked the GONL to find out how many Dutch
companies still use certification. Initial findings
indicate there are some twenty (including Unilever and ING)
that use certification as a defensive measure.


7. (U) Tom Nederveen, legal takeover expert for U.S. owned
Dutch merchant bank NIBC, notes that the legal power of a
majority certificate holder remains unclear. He goes on to
argue that Parliament's concerns presuppose that all Dutch
companies are undervalued. He notes that ten years ago, a
hostile takeover was doomed to fail, but shareholders now
have a much greater say.


8. (U) Arnoud Boot, Professor of Corporate Finance and
Financial Markets at the University of Amsterdam and Member
of the Dutch Social Economic Council (SER),argues that
legal measures against takeovers provide no real protection
of economic activity in the Netherlands. The only way to
address such concerns is through shareholders. The right
shareholders are private shareholders who expect a decent
return.

COMMENT
--------------


9. (U) Foreign investors already own eighty percent of the
shares issued by the largest Dutch companies and few Dutch
companies still employ certification as a defensive measure.
Still, two foreign companies recently demonstrated the
importance of certification. Oil company Yukos has shielded
its international assets from the Russian state through a
Dutch holding company (ref B) and Arcelor has moved its
Canadian subsidiary Dofasco into a Dutch holding company in
an attempt to fend off Mittal Steel. If the Netherlands
should end such structures, other countries in Europe may
still provide shelter.

BLAKEMAN