On 19 September 2017, the Takeover Panel, a regulatory group that controls the rules governing corporate takeovers in the UK, launched a consultation on proposed amendments to the Takeover Code. The proposed amendments would tighten up the rules relating to statements by a bidder about its intentions for the target’s business if its offer is successful.

The context

The push for reform reflects ongoing political concerns over foreign takeovers of UK companies stemming from US giant Kraft Food Inc’s takeover of British national treasure Cadbury in 2010 for £11.5bn. During the hostile takeover process, Kraft had stated that it planned to continue the use of a UK factory; but a week after its bid was successful, it announced the closure of the factory, resulting in at least 400 job losses. The lack of meaningful consequences for Kraft’s actions led to political and public pressure to change the Takeover Code and beef up the Takeover Panel’s powers. Some changes were made to the Code in 2011 but political pressure to institute further protectionist measures continued.

This latest consultation, published on 19 September 2017, is an explicit response to this pressure. The introduction to the consultation states, “in proposing the amendments…. the Code Committee has taken into account recent commentary and public discussion in relation to takeovers and mergers as well as suggestions made by various parties, including the Department for Business, Energy and Industrial Strategy“.

The proposals

The proposals include:

  • Requiring the bidder to make specific statements of intention in respect of the target’s research and development functions, the balance of skills and functions of the target’s employees and management, and the location of the target’s headquarters and headquarters functions. This would be in addition to the other statements of intent already required under the Code in regards to its plans for the target.
  • Requiring the bidder to make its statements of intention earlier than is the case currently, at time that the bidder announces its offer, rather than when the offer document is published.
  • In a hostile takeover, delaying the publication of the offer document for 14 days from the announcement of the bidder’s firm intention to make an offer, so that the target has time to prepare its defence.
  • Requiring successful bidders to report back to the Panel on their compliance with post-offer undertakings and intention statements given during the course of the offer.

Osborne Clarke comment

The political context in which these changes are being made sets them apart from the technical changes to the Code that are usually proposed by the Panel: it is certainly unusual to witness this sort of political interference in the Panel’s business. And it will be interesting to see how the business of corporate takeovers unfolds in a post-Brexit world, when the UK will have to strike a balance between defending its interests and being “open for business”.

Whatever the impetus for the changes, they are likely to have the most impact on high-profile takeovers – such as those involving well known consumer brands or the UK’s security interests – where the ownership of the target and bidder’s intentions are of interest to the wider public.