This time last year commentators were bullish on the prospect for European markets, citing a number ...
This time last year commentators were bullish on the prospect for European markets, citing a number of positive factors, including a positive economic outlook and greater emphasis on shareholder value and improving returns on capital.
Although the economic arguments put forward have broadly proved right, 1999 has been a dire year from a shareholder value point of view and has done nothing to improve Europe's reputation as being shareholder unfriendly.
The reason for this has partly been the proliferation of corporate activity that has taken place. Although the majority of deals have been trouble free there are still a worrying amount that have led to what may, in the UK, be perceived as shareholders' basic rights being ignored. Most notable has been the well-documented Telecom Italia/Olivetti fiasco which is a perfect case study of how some shareholders, in particular minority shareholders, can suffer at the hands of management which is market unfriendly.
One example lies within the offer document (ordinarily a legally binding document), where Olivetti gave Telecom Italia shareholders one set of conversion terms and within a matter of weeks delivered another.
The worrying aspect is that this treatment toward shareholders is not only confined to companies. It is also evident at a Government level as well. No matter how much talk there is about de-regulation and breaking- down national boundaries, national interests are still very much pervasive.
Despite the European Commission categorically stating that the Portuguese Government had no right to veto BSCH's 40% stake in the Champalimaud Group, the Portuguese Government has so far refused to lift the veto. The idea of a national champion, despite BSCH being one of the most successfully run banks in Europe, falling into foreign hands is clearly an anathema to them. This blatant refusal to adhere to what is meant to be Europe's most powerful legislative body is hardly going to stimulate cross-border M&A activity.
The damage this is doing should not be underestimated and must be addressed if further progress is to be made. Greater accountability, better visibility and a level playing field are all pre-requisites to a strong shareholder culture and this is what Europe must aim at in order to continue attracting foreign capital.
The European Union has been developing a takeover directive that aims to establish general principles that ensure shareholders, in particular minority shareholders, are financially protected during take-over bids.
How much of an influence this will have remains to be seen but at least it is a move in the right direction.
Rupert Morrell is fund manager at Johnson Fry
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