Takeover rule changes set to hurt M&A

Elizabeth Fournier
COMPANIES launching takeover bids will be subject to stricter timetables and increased disclosure requirements, under new proposals announced by the UK Takeover Panel yesterday.

The reforms, which have been planned since criticism of the Kraft takeover of Cadbury in January last year, aim to make the bid process fairer on the target company, but could prove onerous for bidders and dampen the recovering M&A market.

Top of offeror companies’ gripes is the introduction of a mandatory four-week deadline for a deal to be confirmed after initial interest is declared.

At the moment, the Panel assesses deals individually and issues a so-called put-up-or-shut-up deadline accordingly.

In 2010 the Takeover Panel issued eight put-up-or-shut-up notifications. Of those deals only two went ahead – the Kraft takeover of Cadbury and Babcock’s acquisition of VT Group.

“Put-up-or-shut-up can kill deals,” said David Pudge of law firm Clifford Chance. “Bidders may have to change their tactics and be better prepared before takeover talks are announced.”

The changes are particularly worrying for private equity firms, which often fund buyouts through leveraged financings with lengthy due diligence requirements.

Adding to concerns are plans for break fees and other inducements to be banned, leaving bidders unable to recoup cash if a target leaves talks.

Also on the Panel’s reform list are rules on fee transparency, which could see parties from financial advisers to PR firms forced to disclose their expected fees from a transaction.

Though the change was expected, advisers are still worried that increased speculation on fees will detract attention from the value of a potential bid to the offeree.

“These changes hit the wrong target and may in fact damage the interests of target company shareholders,” said a spokesman for the British Venture Capital Association.

Recognising employees’ interests is also in the Panel’s sights, with proposals to discipline companies that renege on employment promises made during negotiations.

Takeovers that could have been affected

Kraft Foods/Cadbury, Jan 2010
Despite saying it would stay open, after acquiring Cadbury, Kraft decided to close its Somerbury factory. Under new rules bidders can be disciplined if they don’t fulfil statements made during a bid.

First touted in October 2008, the merger between Britannia Building Society and Co-operative Financial Services wasn’t confirmed until January 2009 ?– well over the new mandatory four-week limit.

KNOC/Dana Petroleum, Sep 2010
An approach was first rumoured in early July, but no takeover was confirmed until 24 September. International firms are used to deadlines and inducements that won’t be allowed in the new UK regime.