Monday, September 19, 2011
The Takeover Panel amendments that were the result of a review in the wake of Kraft's acquisition of cadbury go into effect today. You can find a summary of the changes and transitional arrangements at the Takeover Panel's site. The most important include:
1. The offeree is required to disclose the identities of "any potential offeror with which the offeree company is in talks or from which an approach has been received."
2. After a potential offeror is identified, the offeror has 28 days to "put up or shut up."
3. General prohibition on transaction related inducement fees (termination fees).
4. Improved ability of employees representatives to make their views on the offer known.
The prohibition on termination fees is the most interesting change. Most of the rationalization for termination fees in the US is that termination fees are required in order to assure potential acquirors to invest the resouces needed to put together a bid. Without the termination fees, potential bidders will disappear - not content to invest resources in a bid that might eventually fail. Here, the Takeover Panel is weighing benefits of the compensatory function of the termination fees against the social costs of reduced competition associated with the potentially deterrent effect of termination fees and is erring on the side of increased competition. At some point in the next year, a finance graduate student somewhere should probably do an event study to check to see if elimination of termination fees ends the UK deal world as we know it. My guess is that it will still be there.