The United Kingdom’s Panel on Takeovers and Mergers has recently proposed amendments to its Takeover Code that would change the rules regarding hostile offers in order to correct what it called a “tactical advantage” for bidders. The Panel opined that it has “become too easy for ‘hostile’ [bidders] to succeed” and that “short-term” investors (i.e., those investors who buy shares of a target company during the offer period) have unduly influenced the outcome of these hostile offers.
These conclusions by the Panel represent a shift in U.K. regulation regarding hostile takeovers. U.K. regulators have historically been averse to granting companies the kind of protections traditionally afforded to U.S. target companies. This change in protection, however, is not entirely unexpected considering the outrage that followed the closing of a former Cadbury plant, which Kraft Foods, during its hostile bid for the British confectioner, had agreed to keep open.
The Panel proposed amendments in three areas: 1) requiring bids to commence more promptly; 2) encouraging competing offers by prohibiting deal protection measures and inducement fees; and 3) requiring bidders to provide additional disclosures about the financing of their offers as well as their plans for the target.
The first area of change stems from the concern that if there is a prolonged period between an announcement of an intention to bid and commencement of the formal bidding process, there could be a significant buy-up of the target’s shares by merger arbitrageurs, thereby almost completely assuring the bidder’s success. The proposed amendments address this problem by requiring that a bidder “put up [a firm, fully financed offer] or shut up” within four weeks of the first public announcement of a bidder’s approach.
In addition to introducing a blanket prohibition on deal protection agreements and inducement fees, the Panel hopes to promote competition by encouraging the target boards to take factors other than offer price into consideration when giving their opinion and recommendation on an offer.
Finally, the Panel’s amendments impose new disclosure requirements on bidders. For example, in cash deals, bidders would be required to provide the same financial information they would have needed to provide in a stock-for-stock exchange offer. Further (and presumably in direct response to the Kraft-Cadbury takeover), bidders must disclose their plans for the target employees, locations and other fixed assets and must “hold true for a period of at least one year” after the offer becomes unconditional.
Read the full Panel review here.