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March 21, 2011 10:15 pm
New takeover rules aimed at giving British companies more protection from hostile bids are set to be adopted in spite of criticism that some of the measures may derail deals.
The Takeover Panel on Monday published proposals for reducing bidders’ potential tactical advantages in a far-reaching review that was first triggered last year by Kraft’s controversial £11.5bn ($18.8bn) hostile takeover of Cadbury, the confectioner.
Among the biggest changes will be a tightened “put up or shut up” period, requiring a publicly named bidder to declare its formal intentions within 28 days, from a system where the clock starts ticking at the request of the target company.
Other changes include banning incentives that give special protection to the first bidder, commonly known as break fees.
Experts said that while the proposals were broadly unchanged from earlier guidance from the panel, the private equity industry in particular would be disappointed by the reforms.
A final consultation period will close on May 27, after which the UK merger watchdog will publish amendments to its code.
“There are no big surprises here but there will be real scrutiny of the detail,” said Richard Hough, a partner at Allen & Overy, the law firm. “We expect private equity to argue that the shortened 28-day put up or shut up period and ban on inducement fees will reduce bid appetite, but it’s unlikely that anything will change significantly before the formal introduction of the new rules.”
The Takeover Panel first unveiled the proposals in October. They followed a furore sparked by the Cadbury deal and the sentiment among some senior politicians including Vince Cable, the business secretary, that British companies were being acquired for short-term gain, at the expense of the best interests of their employees and their shareholders.
The panel last year heavily reprimanded Kraft for promising to keep operating Cadbury’s Somerdale factory in south-west England, before announcing its closure just seven days after completing the deal.
As part of Monday’s proposed shake-up, bidders would be held to any statements about their strategy for target businesses made during an offer period.
“Bidders will have to take care as to any future statements of their plans,” said Paul Whitelock, a partner at law firm Norton Rose.
The new rules will also require much fuller disclosure of investment bankers’ advisory fees as well as the sums paid to lawyers, accountants, public relations firms and other consultants in a big transaction, in a move aimed at giving shareholders better insight into its full costs.
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