The UK’s Takeover Panel has proposed a dramatic shake-up of its rules to reduce what it calls the ‘tactical advantage’ held by hostile bidders over the targets they wish to acquire.
The proposals are the result of a review into the Takeover Code triggered by the hostile takeover of Cadbury by US food company Kraft some 15 months ago. Assuming the rules are implemented, which seems likely given the lengthy consultation that has already taken place, hostile bidders are going to have to adapt to much shorter time frames when making bids.
Under the current system, bidders can let it be known they are considering making an offer without actually committing to doing so, thereby putting pressure on the target company for a long period of time without having to make a formal offer. The new rules seek to prevent such a ‘virtual bid’, as it is known, by forcing a company to either make a bid or give up just four weeks after its intentions become known.
The panel will enforce this by issuing what’s known as a ‘put up or shut up’ demand to the bidder. An extension to the four-week deadline would be permitted only with the consent of the target company.
With this system, the target companies ‘would be subject to a shorter period of uncertainty and disruption prior to a formal offer being announced and would have a greater degree of control than at present over the duration of that period,’ explains the panel in its 172-page consultation paper.
Private equity firms lobbied for this change to be scrapped, arguing that the short time period would make it hard to put financing in place for more complex deals, but they appear to have failed in this aim.
There’s more bad news in the paper for would-be acquirers, such as the near-banning of break-up fees, plus the required disclosure of payments to bankers, PR firms and others advising the bidder – to give shareholders a better understanding of the costs involved in a deal.
The panel also says target boards should not be limited in the factors they consider when deciding whether to recommend an offer, giving targets explicit permission to look beyond price and at other issues, such as the impact on employees.
