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Commentary: Takeovers: Europe's Hypocrisy


By Jack Ewing

Chris Gent did shareholders of European companies a big favor last year. With his hostile bid for German mobile provider Mannesmann (MNNSY), the CEO of Vodafone Group PLC (VOD) gave Corporate Europe a much needed kick in the pants. The message: Get your act together, or some raider will be after you.

Maybe it was just coincidence, but soon companies such as German chemical maker BASF (BASFY) stepped up efforts to dump noncore holdings, boost profits, cultivate investor loyalty, and drive up the share price. "Companies thought much harder about their own corporate structure," says one senior Frankfurt banker.

Unfortunately, the region's CEOs will soon be able to breathe easier. The European Union has failed to agree on takeover rules and may give up. Most alarming of all: Germany, Europe's biggest corporate powerhouse, is preparing to go its own way. The legislature is expected to pass a law that will expand the powers to fend off hostile bids through poison pills. The French, meanwhile, accuse the Germans of being spoilers, yet cling to arcane rules that grant disproportionate voting rights to privileged investors.

What CEOs in both nations have in common is hypocrisy. European managers always whine that tough labor rules make it hard to compete with fire-at-will America. They want workers to be good sports about getting laid off. Yet when their own jobs are on the line, the bosses want regulations.

RAIDERS. Case in point: A leading opponent of open takeover rules is the German Share Institute, a bastion of Germany Inc.--backed by companies such as Deutsche Bank and DaimlerChrysler. The institute argues that Germans already risk takeover by raiders while other EU partners, especially France, maintain barriers. The Germans point out that in 1998, they eliminated mechanisms giving some shareholders influence out of proportion to their holdings. Nevertheless, in France and other countries, certain classes of shareholders still have more rights than others. "We don't have a level playing field," complains Uwe H. Schneider, professor of corporate and capital markets law at the University of Darmstadt.

Some of the Germans' thinking is valid. In the long run, though, it is not in their companies' best interests. As the fallout from Mannesmann demonstrated, the threat of takeover can be a healthy form of discipline. "I take the view that people who become tough in open markets are in a stronger position," says John B. Jetter, director of investment banking at J.P. Morgan Chase & Co. in Frankfurt.

Things didn't have to turn out this way. A German takeover commission, featuring ex-Mannesmann CEO Klaus Esser and Munich management consultant Roland Berger, originally proposed that managers stay neutral in the face of takeover bids, letting shareholders decide.

Now, under pressure from business and labor, Chancellor Gerhard Schroder's government is expected to strike that provision. Esser, who should know, says managers can of course defend their independence, as long as they don't do anything that reduces shareholder value. That reasonable compromise should be adopted. Otherwise, Germany will fail to lead Europe in corporate governance. Globalization is good, it seems, until it threatens your own turf. Ewing covers business and politics from Frankfurt.


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