THE STATE OF THE ART

Hostile takeovers were frowned upon in continental Europe.

Legal barriers, trade unions, and consensual politics combined to
prevent what were seen as an undesirable practice. In Germany,
there had not been a single case of a hostile bid succeeding.

Vodafone AirTouch, a fast-growing British mobile telephone

operator, achieved the unthinkable in 1999 when it successfully
launched a hostile takeover of Mannesmann. A key factor was that
the foreign investors in the German firm supported the bid there
was no controlling shareholding to block the sale, which set a
record as the world's largest-ever hostile takeover.

The deal was widely perceived as a crucial event in the penetra-

tion of the ``equity culture'' into Europe. No European company
could feel invulnerable to attack, and the wave of mergers and
management buyouts, already underway, surged, driven largely by
US investment.

The ownership of large continental firms has tended to be closely held
among a small number of allies, in contrast to the British and American
firms where there are generally very large numbers of shareholders.
Until recently, the identity of owners could easily be kept secret on
the continent, and control has been achieved by such techniques as
issuing special categories of shares to insiders that have enormously
enhanced voting rights up to 1000 times that of ordinary shares in the
case of Sweden. Using this method, Investor, a large Swedish holding
company, owns 2.7% of Ericsson yet has 22% of the shareholders'
votes.

Complex cross holdings between firms and banks are another way

of retaining control. In 1999, according to a study by Marco Becht,
of ECARES and Ailsa RЁ

oell, of Princeton University, over 50% of listed

firms in Germany, Austria, Italy, and Belgium had more than half their
voting rights in the hands of one shareholder or controlling group.
Pressure from international investors is breaking up this ownership
pattern.

The M&A boom may eventually wane, but other business reforms

are also occurring. Competition for increasingly globalized markets are
forcing large companies to restructure, while the advent of the single