VZCZCXRO4302
PP RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHTC #1003/01 1241512
ZNR UUUUU ZZH
P 041512Z MAY 06
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 5624
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHFT/AMCONSUL FRANKFURT 3385
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAT/AMCONSUL AMSTERDAM 0784

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