UK firms need better protection, says Takeover Panel

The Panel's post-Cadbury review decides that the rules need changing. But do its proposals go far enough?

by James Taylor
Last Updated: 06 Nov 2012
Are UK companies too easy to take over? That was certainly the feeling in the wake of Kraft's controversial £11bn takeover of Cadbury, prompting the Government to bounce the Takeover Panel into a review of the rules. Some months later, the Panel has concluded that there should indeed be more protection for target firms via tougher disclosure and transparency standards for bidders. But it hasn't gone quite as far as some hoped, particularly in limiting the influence of short-term investors. Indeed, in themselves the new rules still probably wouldn't have stopped the Cadbury deal...

The Panel concluded that in recent times, hostile bidders 'have been able to obtain a tactical advantage to the detriment of the offeree company'. So it's proposing changes that will reduce this and 'redress the balance in favour of the most offeree company.

Perhaps the most significant move would be a crackdown on so-called 'bear hugs', which is where predators state their interest in a company but then wait ages before submitting a bid - while all the time the pressure mounts on the target. Kraft, for example, spent nine whole weeks stalking Cadbury like this. Bidders will now have just four weeks to state their firm intentions (unless they agree otherwise with the target). They'll also have to specify their financing details, to avoid the 'virtual' unfunded bids common in the credit boom.

There are other useful changes being proposed too. Bidders must specify how much they're spending on advisory fees, Deal inducements like break fees will effectively be banned (so the board has more of an incentive to seek out other offers). And although it's ostensibly steering clear of employees' rights, the Panel also wants bidders to have to keep any promises made during the bidding process for at least a year (as Kraft failed miserably to do when it closed the Somerdale plant).

But what's equally interesting are the suggestions the Panel has rejected. Some wanted it to increase the minimum acceptance threshhold from its current level of 50% plus one vote - but it's refused, on the grounds that could mean a majority could still  favour of a deal that was rejected. More controversially, it has refused to bow to pressure to limit the influence of short-term, profit-driven investors; which it could have done by (for example) preventing anyone who's bought shares during the process from voting on the outcome.

Any rules that force bidders to be more transparent and straightforward are undoubtedly positive developments, and they will give more power to target companies. But many will feel the Panel hasn't gone far enough. The new rules may have stopped Kraft stalking Cadbury for such a long time, but it wouldn't have prevented the company being sold against the wishes of the board and the staff - not with all those hedge funds involved. And ultimately, if a company's original investors choose to sell up and cash in, what can the Panel realistically do to stop them? So foreign predators may be forced to raise their game a bit in the UK, but they won't be frightened off.

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