October 21, 2010
British Takeover Panel Says It's "Too Easy for 'Hostile' Offerors"
The New York Times DealBook reports the the British Takeover Panel is planning to amend its Takeover Code (pdf statement here) to make it harder for hostile offerors to takeover a company. The panel explained that offers can destabilize the company and that the bid outcome is “influenced unduly by the actions of so-called short-term investors.”
The Takeover Code
is designed principally to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment by an offeror. The Code also provides an orderly framework within which takeovers are conducted. In addition, it is designed to promote, in conjunction with other regulatory regimes, the integrity of the financial markets.
The Code is not concerned with the financial or commercial advantages or disadvantages of a takeover. These are matters for the company and its shareholders. Nor is the Code concerned with those issues, such as competition policy, which are the responsibility of government and other bodies.
One of the flaws the panel cites in the current system is that bidders bypass the board and go directly to the shareholders. To address these (and other) concerns, the Times reports:
The measures the panel says it plans to adopt include shortening the period between when an approach is announced and a firm offer is received, requiring more complete disclosure on the part of both companies, giving more voice to employees and introducing more transparency in reporting fees tied to deals.
At least some of these proposals don't seem to align directly with the statement of the Code's purposes. At first glance, for example, I can't help but note that talking to employees sounds like a stakeholder protection, not a company or shareholder protection, although I concede there is often value in knowing what the employees think.
Furthermore, I am not sure what to think of the entire proposal. On the one hand, I tend to think that companies are often being managed with the short-term stock price in mind -- to the point that sometimes it appears management is running the company to keep the day-traders happy. (To be clear, I think that's bad.)
On the other hand, more offers can make a company more accountable to the shareholders. If shareholders are willing to sell at a given price, then they should have the option if there is a willing buyer. If most of the shareholders think that current management is better for the long term they won't sell. Sure, short-term sellers may be looking to cash in quickly, but that's true anyway. We can't make it so that all shareholder have the same interests no matter what regulations are put in place.
Ultimately, the Takeover Panel thinks that power has shifted to provide the offering group a tactical advantage over the target company. Perhaps they are right, but I'm still a little skeptical. At first glance, anyway, this seems like one of those places where shareholders already have the power they need, they just aren't exercising it to the liking of the panel. I'm not sure that's the right motivation for changes in the rules.
October 21, 2010 | Permalink