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Time-out

International investors have voiced their concerns about the Dutch proposal that would impose a legally sanctioned one-year time-out period in the case of unwanted acquisitions. The investors’ concerns appear to be justified. The cure seems to be worse than the ailment for an open economy like the Netherlands.

 

In a letter to the Lower House of the Dutch Parliament, Dutch Minister of Economic Affairs Henk Kamp put forward several options for giving the boards of Dutch companies more time in the event of unwanted acquisition attempts. Examples include making it easier to introduce protective measures, raising the minimum percentage for fulfilment of a bid, including a minimum consideration period in the Dutch Public Bids Decree and introducing a legally sanctioned one-year time-out period for company boards.

 

The Dutch government also wants to conduct an analysis of sectors that provide a critical service (drinking water, chemicals, nuclear, payments, aviation, shipping handling, defence and politics). It is furthermore examining the reciprocity of laws in non-EU countries (including the US and China). This is because what is allowed in the Netherlands isn’t always allowed in other countries.

 

The proposal for a one-year time-out has particularly caused a stir. In a letter to Minister Kamp, the International Corporate Governance Network (ICGN), supported by 13 international institutional investors, called it an ‘unduly harsh provision that damages shareholder protections to the detriment of good corporate governance, efficient markets and sustainable value creation.’

 

The proposed measures have been prompted by the attempted acquisitions of Unilever by Kraft Heinz and of AkzoNobel by PPG. The debate on this topic had, however, already been sparked by Bpost’s attempt to acquire PostNL. A salient detail is that none of these companies operate in one of the critical service sectors the Dutch Ministry of Economic Affairs are now going to examine.

 

What’s more, AkzoNobel has an excellent arsenal of protective devices at its disposal and has essentially been taken under the protection of the Enterprise Section of the Amsterdam Court of Appeal. The majority of the shares in AkzoNobel are held by foreign investors and the company scarcely plays a role in Dutch society. Paint is not a vital product and the AkzoNobel head office provides only limited employment. AkzoNobel did, however, sell Organon to MSD, which subsequently moved most of the relevant R&D activities out of the Netherlands.

 

The resistance against the proposed acquisition of PostNL by Bpost last year was remarkable too. A well-developed postal company from a friendly neighbouring country that wants to acquire a moribund and floundering postal company and provide all kinds of guarantees. It seemed like a great deal, but it wasn’t allowed.

 

The proposed measures create a danger that international investors will take a more reluctant view towards investments in the Netherlands. While this could be compensated by Dutch institutional investors making more investments in the Netherlands, they already distanced themselves from the country years ago. This isn’t likely to change any time soon given the growing threat of a higher Dutch discount. As a result it is becoming significantly more difficult and more expensive for Dutch companies to raise capital.

 

In order to promote high-quality employment in the Netherlands, it would be wiser for Kamp to spend the rest of his time as Minister of Economic Affairs on matters such as abolishing the bonus ceiling for banks. More high-quality employment could be gained by attracting banks leaving London than by implementing artificial protection for underperforming companies.

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