October 21, 2010
Takeover Panel Retreats
In the world of takeovers there is only one big ideological divide (and some smaller ones, but I'll ignore them for the timebeing). On the one side, there are those who believe that when it comes to questions about mergers or other corporate transactions the board should have the last word with respect to whether or not shareholders should be permitted to accept, or consider, an offer. The US approach to corporate law has generally taken this approach. On the other side there are those who believe that with respect to mergers or other corporate transactions that the shareholders should be permitted to decide questions about offers on their own without the interference of management, who may, after all, have divergent interests. The UK and its Takeover Panel have generally stood for that proposition.
Last Spring's acquisition of Cadbury by Kraft has changed some of that - moving the divide closer to the US position. The political backlash following the acquisition was the impetus for a review of the current takeover rules. Following a lengthy consultation, the Takeover Panel appears to have changed its mind - it has just issued its consultation report. The Takeover Panel now believes that hostile offers are bad:
After considering these concerns, and the views of respondents, the Code Committee has concluded that hostile offerors have, in recent times, been able to obtain a tactical advantage over the offeree company to the detriment of the offeree company and its shareholders.
In view of this conclusion, the Code Committee intends to bring forward proposals to amend the Code with a view to reducing this tactical advantage and redressing the balance in favour of the offeree company. In addition, the Code Committee has concluded that a number of changes should be proposed to the Code to improve the offer process and to take more account of the position of persons who are affected by takeovers in addition to offeree company shareholders.
In general, it looks like they will be considering adopting rules designed to slow down arbs who move in quickly after a target goes into play and require super majority tender conditions:
i) amending rules which were designed to reflect the provisions of company law (in the case of raising the minimum acceptance condition threshold for offers above the current level of ‘50% plus one’ of the voting rights of the offeree company);
(ii) overriding basic economic rights (in the case of ‘disenfranchising’ shares acquired during the offer period); and
(iii) extending the Code to apply to matters that are currently the responsibility of other regulatory bodies (in the case of providing protection to shareholders in offeror companies).
US-styled deal protections and takeover defenses are still off limits. I suppose that's good news for those of us who like the variation in takeover regulation across jurisdictions. On the other hand, it looks like the Takeover Panel intends to adopt a UK version of constituency statutes that will permit the board to consider many variables, not just offer price, when deciding whether or not recommend and offer. These amendments will provide employees with a greater voice in the decision process - though no veto.
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