Tuesday, March 22, 2011
The Takeover Panel in the UK is moving forward with reforms adopted in the wake of Kraft's acquisition of Cadbury. One of the reforms is a near ban on termination fees.
Among the biggest changes will be a tightened “put up or shut up” period, requiring a publicly named bidder to declare its formal intentions within 28 days, from a system where the clock starts ticking at the request of the target company.
Other changes include banning incentives that give special protection to the first bidder, commonly known as break fees.
This move highlights two different directions that regulatory bodies have moved with respect to the question of deal protections. On the one hand, we have Delaware. It's reasonableness standard with respect to any ex post review of deal protections is pretty deferential of board action. Absent allegations of loyalty conflicts, a board acting in good faith basically has a green light to grant deal protection measures. On the other, we have an series of ex ante rules that govern what a board can or cannot do in advance of an acquisition, including setting strict limits on termination fees. These are two very different ways of looking at the world. If you were to only read Delaware case law, you'd think that no bidder would ever come forward absent strong deal protection measures. But, when you look at the UK's takeover market you know that it's just not the case. There is room for diversity in regulatory approaches.