On 1 June 2010, the Takeover Panel issued a public consultation paper (PCP 2010/2) initiating a review of the Takeover Code in the light of widespread commentary on and discussion of takeover bids following the takeover of Cadbury plc by Kraft Foods Inc. in the first quarter of 2010.

In particular, the Panel is aware that a number of commentators have expressed concern that it may be too easy for a hostile bidder to obtain control of more than 50 per cent. of the voting rights of a target company and that the outcomes of takeover bids, particularly hostile offers, are unduly influenced by the actions of short term investors.

The Panel is equally aware that other commentators have argued that the acquisition and disposal of shares (and other interests) in target companies during the course of takeover bids, including on a short term basis, is a legitimate commercial activity and, in particular, that the Code should not be used as a means of deterring that activity.

The introduction to the consultation paper serves to remind that the Code is designed principally to ensure that shareholders in a target company are treated fairly and are not denied an opportunity to decide on the merits of a takeover bid. The financial and commercial merits of takeovers are not the responsibility of the Panel, but are matters for the companies concerned and their shareholders.

Mindful of ensuring that the Code continues to take account of changing market circumstances and practices, and in a break from its usual practice of proposing specific amendments, the Panel has sought to set out the background to various relevant issues, the arguments for and against a possible change, and the potential consequences that would need to be considered if the change were to be introduced.

Suggestions considered in the consultation paper include:

  • raising the acceptance condition thresholds;
  • withholding voting rights from shares acquired during an offer period;
  • expanding disclosure obligations relevant to shares and other securities;
  • expanding the content requirements for offer documents and target board circulars;
  • requiring independent advice for target shareholders and restricting "success fees";
  • extending protections to bidder company shareholders;
  • re-examining the "put up or shut up" and "virtual bid" regimes and shortening the offer timetable;
  • ensuring inducement fees and other deal protection measures do not allow bidders unduly to frustrate competing offers; and
  • reintroducing safeguards on substantial acquisitions of shares.

Comments on the consultation paper should be submitted by 27 July 2010.

View the consultation paper (106 page pdf).