The fall-out from the takeover of Cadbury by Kraft at the beginning of the year continues. What started with public comments made by the likes of Peter Mandelson, was followed in April by a report published by the Business, Innovation and Skills Committee ("BIS Committee"). In turn, the Takeover Panel published its public consultation paper in June (for more information, see our article in the June 2010 Corporate Newsletter). While we await the Panel's response to its consultation, the government has published its response to the BIS Committee report. In this article we highlight key points raised by the response.
On the controversial point of whether a public interest test should be reintroduced, the government is fairly decisive in its response. It notes that while it welcomes all forms of investment in UK business, including by overseas investors, it wants to ensure that investment decisions are made in the long-term interests of UK companies and shareholders. Nonetheless, it goes on to note that this "does not mean we should return to the old-fashioned public interest test" and that it "has no current plans to amend the legislation governing the power to intervene in mergers on public interest grounds". Indeed, it states that it is satisfied that the existing powers provide the appropriate scope to take action to protect legitimate national interests that might be affected as a result of a merger.
Instead, the government states that it plans to review whether there are other aspects of the merger framework which could be tightened up, such as an increase in merger fees and a requirement for pre-notification of some mergers, as is done in other European jurisdictions, in order to "prevent some of the hasty deal-making (and the difficulties associated with breaking up mergers after the event)". It does not, though, elaborate on what such pre-notification measures may be.
The rest of the response is something of a holding statement, with the government stating that it is interested in seeing responses to the Panel's consultation, and that it will publish a paper on the regulation of takeovers in the light of those responses. What the government does say, however, is that, in doing so, it will want to look, in particular, at the following key areas:
● do bids make economic sense from the perspective of the bidder?
● do target boards too often act as if their sole role is to get the highest price?
● is the outcome of takeover bids decided by investors with short-term time horizons?
While the next chapter is undoubtedly the Panel's response to its consultation, it is, therefore, unlikely to be the end of the story. However, with much of the Panel's consultation touching on matters that can be construed as being more for the government than the Panel, and with market sentiment seeming to suggest that the Takeover Code works fairly well as currently drafted, there may not be much of a twist at the end.