The Takeover of Public Companies as a Mode of Exercising EU Treaty Freedoms

by Maciej Mataczyński (Volume editor)
©2017 Edited Collection 200 Pages
Series: Ius, Lex et Res Publica, Volume 6


This book provides a comprehensive review of major legal problems affecting the processes of takeover of publicly listed companies with particular emphasis on EU, Polish and German law. Acquisitions are seen through the lens of two relevant EU Treaty freedoms: free movement of capital and freedom of establishment and the 13th (Takeover) Directive. The Book contains an in-depth review of the relevant case law of the Court of Justice. The authors discuss the limits of inclusion into shareholders’ autonomy by transnational rules. They also look at breakthrough and neutrality rules stemming from the Takeover Directive. The extensive economic analysis serves as background to a legal-dogmatic research. The authors discuss the phenomenon of so-called «national champions» and its role in economies and societies of emerging markets.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Table of contents
  • Introduction
  • Economic aspects of mergers and acquisitions (Adam Szyszka)
  • Restrictions and admissible exceptions to the free movement of capital in the European Union in Court of Justice case law (Sylwia Majkowska-Szulc)
  • Horizontal direct effect of EU internal market freedoms – current status (Maciej Taborowski)
  • Intuitive and counterintuitive reasons for the refusal to recognize horizontal effect of free movement of capital (Maciej Mataczyński)
  • Duties of a corporate board in the context of a takeover attempt (Tomasz Sójka)
  • Preventive anti-takeover defences in Polish law (Tomasz Sójka)
  • Rethinking European takeover law after Brexit: a German perspective (Florian Möslein)
  • ‘National Champions’ between corporate and political governance. Institutional analysis of the forms of protectionism in the strategic sectors in EU Law (Mariusz Golecki / Maciej Mataczyński)

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The book we are so proud to present is the product of three years’ work by an international research team financed by the National Centre of Science. Our studies focused on the relationships between the freedoms enshrined in the Treaty on the Functioning of the European Union, especially the free movement of capital and the freedom of establishment, and the law governing takeovers of public companies. Obviously, the research area defined in this way encompasses a multitude of issues, and the subsequent publication can, by definition, offer only a selection of them.

Adam Szyszka’s article on Economic aspects of mergers and acquisitions offers a great starting point and a useful introduction to the topic. It was intended as a synthetic discussion of key economic issues inherent to mergers and acquisitions. The task that A. Szyszka, a professor at the Warsaw School of Economics, sets out for himself in that work, was to introduce the readers to the matters discussed in the book and equip them with an indispensable economic perspective. The two subsequent articles are intended to present the free movement of capital from a practical perspective, based on case law of the Court of Justice of the European Union (Sylwia Majkowska-Szulc), and the topic of the horizontal effect of treaty freedoms (Maciej Taborowski), which is of key importance in view of the relationships between freedoms and takeover law. The fourth article, written by me, summarises the friction between the development of EU law described in the previous two chapters and the national company law in force in member states. This text is intended to serve as a bridge between the EU and corporate parts, and is based on a paper presented by myself at the Sixth Max Planck PostDoc Conference on European Private Law, held at the Max Planck Institut für ausländisches und internationales Privatrecht in Hamburg, Germany on the 18th and 19th of April 2016.

The subsequent three texts offer a dogmatic legal analysis of key institutions of national legal systems. Tomasz Sójka, professor at Adam Mickiewicz University, scrutinizes the duties of corporate boards when faced with takeover attempts, and preventive anti-takeover defences from the perspective of Polish law. Meanwhile, Florian Möslein – a professor at the University of Marburg investigates general rules governing tender offers in German law. The author dedicated the second part of his text to a very valuable and methodologically-inspiring analysis of the structure and taxonomy of German legislation. Prof. Möslein’s reasoning is embedded in the broader contemporary perspective of the United Kingdom’s departure from the European Union (the so-called Brexit), and the possible impact of this event ← 7 | 8 → on the process of harmonising legislation – especially in the context of European takeover law – for which the English law has served as a benchmark.

The reference to this historical event underscores the fact that law is a social fact and a result of actions by specific political factions and interest groups. This is the issue scrutinized in the last article, co-authored by Mariusz Golecki, professor of legal theory at the University of Łódź, and myself. Our article discusses the so-called national champions – strategic state-controlled companies. We have attempted to apply the conceptual toolbox of law and economics to the issue, which is reflected in the title: Between corporate and political governance – Institutional analysis of the forms of protectionism in the strategic sectors in EU Law.

There’s an interesting anecdote about the last article. It was inspired by a paper presented by both of us at a conference entitled The Nature and Governance of the Corporation, which was held by the World Interdisciplinary Network for Institutional Research (WINIR), and hosted by the Università della Svizzera italiana in Lugano (Switzerland) from the 22nd to 24th April 2015. When we were getting ready to speak, I received a call. It was a then secretary in the Ministry of Treasury requesting assistance in work on the draft act aimed at implementing control of investments in national champions. The subsequent three months were packed with intensive work on the Act on the Control of Certain Investments adopted on the 24th July 2015 (consolidated text: Polish Journal of Laws 2016, item 980). The Act – as I am fully aware of – is imperfect, but it aptly illustrates the thesis that law is a social fact that reflects current preferences of the majority in society. The Act passed through the Sejm almost unanimously. Obviously, I did not plan the call and invitation to cooperation or the legislative initiative of the former parliament when, in May 2013, I applied to the National Science Centre for financing of our research project. However, I am very pleased that due to this combination of facts, the research we carried out could be disseminated and applied in practice. Within the works financed with the grant, in November 2015 we published a commentary on the act in question. Meanwhile, the book you are holding in your hands is the key academic outcome of our research.

It was written by scholars of nearly the same age: four of the authors were born in 1975, and the remaining three in 1974, 1971 and 1978 respectively. Obviously, age was not among the criteria for selecting partners for this project, nonetheless the resultant work represents, at least in part, the voice of the generation of young professors in their forties.

Maciej Mataczyński
Warsaw, February 2017

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Prof. Adam Szyszka

Collegium of World Economy, Warsaw School of Economics

Economic aspects of mergers and acquisitions1

Abstract: This chapter briefly outlines the topic of mergers and acquisitions in the economic and financial context. It provides a background for further discussion on the detailed legal solutions presented in subsequent papers. First, a multidimensional typology of mergers and acquisitions is presented. This is followed by a discussion on potential reasons for M&A transactions, including rational motivation that is in the best interest of shareholders, rational aims serving managerial interests, and finally, irrational and erroneous actions made due to the psychological biases of the decision-makers. We look at the problem of value creation and destruction in the M&A process, and at the capital market’s short-term reaction to M&A announcements as well as the long-term returns to the shareholders of bidding firms. On the one hand, numerous reasonable grounds support the view that M&As can create value. On the other hand, the management’s motivation and psychological biases can also result in a loss of value for shareholders.

Key words: typology of M&A, motivation for M&A, psychological biases, capital market reaction to M&A announcements, value creation/destruction

1. Introduction

In mergers and acquisitions, two companies merge together or one business takes over another by way of acquiring its shares. Such deals are core practices of inorganic growth, as opposed to the organic growth of a company (buy vs. build). While organic growth involves laborious development of an undertaking’s own structure, inorganic growth consists in the takeover of outside assets, and, as a rule, is much faster. Nonetheless, from the business perspective, an increased scale of business operations does not necessarily translate into more value for shareholders, which should be the ultimate objective of M&A deals and a criterion for assessing their reasonability.

For decades, mergers and acquisitions have been studied as part of both legal and economic sciences. But the changing economic, geopolitical, legal, and socio-cultural environments leave numerous lacunae requiring investigation, and ← 9 | 10 → the current status of academic knowledge and business practice are subject to constant fluctuation2.

The purpose of this chapter is to briefly outline the topic of mergers and acquisitions in the economic and financial context, and to provide a background for further discussion on the detailed legal issues presented in subsequent papers. Given the spatial constraints and legal orientation of this publication as a whole, the text does not present an in-depth analysis of the economic aspects of mergers and acquisitions.

2. Typology of mergers and acquisitions

2.1 Based on the form of payment

One way to classify M&A transactions is to examine a form of payment for the target company. Transactions can be either settled in cash (cash deals) or by exchanging shares of the target for shares issued for this purpose by the bidder (share/stock deals). Cash deals are an easier and more frequent option, and when selected, the key matter to be negotiated is the share price. Sellers can quote the future synergy effect and negotiate a price above the current market pricing (control premium). To ensure that the deal is profitable to the acquirer (bidder), the value of the control premium must be below the value of expected synergy effects. Obviously, the bidder alone bears the entire risk inherent to the likelihood of a synergy effect actually materializing.

A share deal requires a reconciliation between the value of the target and bidding companies on the basis of the so-called share exchange ratio. In share deals, the target company’s valuation is typically higher than in transactions settled in cash. However, the seller’s risk is not only limited to successful execution of the M&A process, but it involves all the risks related to the target’s business operation.

Some transactions are settled through mixed means, wherein the shareholders of the target company are partially paid for their shares in cash, and partially in shares issued by the bidder. Although shares are the default security in such deals, bidders can issue bonds or convertible bonds to finance a merger or acquisition. In particular, the use of convertible bonds is an interesting option, as it allows the ← 10 | 11 → risk of failure to achieve the synergy effect to be split between the shareholders of both companies. On the one hand, shareholders of the target company relinquish control of their business and have no influence on the effectiveness of the integration process once the takeover is complete, but receive payment in the form of a bidder’s obligation to repurchase the bonds for a specified amount. Meanwhile, the option to convert bonds into shares gives them an opportunity to participate in the potential value growth generated by the M&A process. As such, the use of convertible bonds to finance the acquisition can be a persuasive argument in encouraging sellers to sell at a slightly lower price than they would do in an all-shares deal.

2.2 Based on the source of financing

Mergers and acquisitions can be financed with a company’s own capital (retained profit or capital on the issuance of own shares), or with debt. Transactions in which external capital prevails are referred to as leveraged buyouts (LBOs). In this type of deals, the assets of the target company are often used as collateral, securing debt incurred by the bidding company and repaid with cash flow generated by the subsequently merged businesses. One special type of leveraged buyout is a management buy-out (MBO). This transaction takes place when the management board of the target company decides to acquire the undertaking from its owners, usually by establishing a special purpose vehicle (SPV) to act as the bidder. Leveraged buyouts are typically characterised by high risk inherent to high levels of debt financing, but when successful, offer high returns on investment.

2.3 Based on the attitude of the target company’s management

When analysed from the perspective of the attitude of the target company’s management, takeovers can be classified as either friendly or hostile. Friendly mergers and acquisitions offer a much simpler and less expensive way of acquiring the target company. The management on both sides is willing to work together at the deal-making stage and communicate with the key stakeholders, whose positive attitude to the transaction is often pivotal. Apart from the target’s shareholders, other stakeholders include trade unions, major suppliers and key accounts, financing institutions, state agencies and market regulators. Access to insider information in the target company is yet another crucial factor. A due diligence audit of the company, if conducted, reduces the information asymmetry and brings down the bidder’s risk. Sometimes, the management of the bidding company is included in the process of jointly developing the operating plans for the merger or acquisition. In this case, the management board of the target typically retains its role after the merger or acquisition is complete. Although this situation can benefit the bidder, ← 11 | 12 → it also generates a potential conflict of interest between the management and the incumbent shareholders of the target company.

Hostile takeovers typically take place against the will of the target company’s management and are carried out through the purchase of free-floating shares. Usually, the bidder makes a direct public tender offer. The management, or some of the shareholders of the target company, may then resort to defensive measures. (e.g. for example, by amending the company’s articles of association, issuing shares with pre-emptive rights, purchasing own shares, selling key assets, and incurring long-term liabilities). All of these actions are designed to impede the takeover, boost the value of the deal or decrease the company’s attractiveness to the bidder, and usually make a hostile takeover more complex and expensive. The control premium paid in hostile takeovers is higher than in friendly mergers or acquisitions. What is more, hostile takeovers carry additional risk from limited insight into the company’s insider information, forcing the bidder to rely on public information and its own internal analyses when assessing the target company’s potential and possible synergies.


ISBN (Hardcover)
Publication date
2019 (April)
Company law EU law Hostile takeovers Treaty freedoms Public companies State-controlled companies
Frankfurt am Main, Bern, Berlin, Bruxelles, New York, Oxford, Warszawa, Wien, 2017. 200 pp., 1 b/w table

Biographical notes

Maciej Mataczyński (Volume editor)

Maciej Mataczyński is professor of law at the Adam Mickiewicz University in Poznań, Poland. He is author of several publications on civil and company law, EU and private international law including major Polish commentaries in these fields.


Title: The Takeover of Public Companies as a Mode of Exercising EU Treaty Freedoms