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Most EU governments and investors feared the vote against the measure in
parliament would send an extremely hostile signal to overseas investors.

Under a compromise hammered out in early June, implementation of the clause
on defensive action was to be delayed for five years rather than the normal four years.

A compromise put to parliament by a conciliation committee is usually endorsed.
But the Germans lined up several other European MEPs to vote it down.

German Bill Gives Firms Tools to Fight Hostile Bids

By Christopher Rhoads

The Wall Street Journal, July 12, 2001, at A12

The German cabinet approved a bill that would give management more control to
defend companies against hostile takeovers, a step that could hinder consolidation in
Europe.

The legislation, which will be presented to Parliament in the fall, would allow
German companies to thwart an unwanted bid after receiving approval from
shareholders to take defensive measures for up to 18 months. The new bill is in response
to a European Union directive on making takeover rules uniform, which failed to pass the
European Parliament earlier this month — largely due to German opposition. German
companies felt the EU directive would have forced them to remain neutral upon receiving
a hostile bid, leaving the decision on how to respond entirely in the hands of shareholders.
The draft law would allow management to take whatever steps it thinks are necessary to
fend off a takeover, such as selling off a desirable subsidiary or seeking out a white knight,
for example.

Investment bankers, who are expecting further consolidation in German industry,
said the law favors management at the expense of shareholders. "It’s not good policy-
making," said Malcolm Thwaites, co-head of investment banking for Germany at Merrill
Lynch & Co. But other industry observers point out that the bill isn’t overly favorable to
companies when compared with the rights accorded to U.S. firms, for example. Defensive
tactics such as poison pills — by which stock is issued to shareholders at a cheaper price,
diluting the shares acquired by a hostile bidder — are common practice in the U.S. but
are forbidden in Germany. German law requires all shareholders, including unwanted
buyers, to be treated equally, legal experts say.

In the U.S., shareholders also have more rights, such as suing management if it
acts in a way deemed harmful to their interests. In Germany, that legal remedy is only

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