Thursday, September 5, 2013
You'll remember that that in the UK they adopted the Cadbury Law in part as a backlash to the acquisition of that august candy maker by US based Kraft in 2010. Bloomberg has an excellent piece with an assessment of the law now that we've had some experience with it. While there were a number of changes in the takeover regime that came with the Cadbury Law, the one that seems to have had the biggest (and most protective) bite is the addition of a hair-trigger to the "put up or shut up" rules:
The so-called Cadbury Law stipulates that any hint of a transaction involving a U.K.-listed target -- unusual stock movement, a news article based on anonymous sources, or even a tabloid market column that cites stock-trader chatter -- can force a company to issue a press release confirming or denying the existence of negotiations and identifying any potential bidder.
At that point, an acquirer has 28 days to “put up or shut up” -- either making a firm, fully financed bid or walking away for six months, unless the target requests an extension. ...
Underscoring how practices have changed, earlier this month Vodafone twice issued press releases confirming media reports on its talks to sell its stake in Verizon Wireless -- even though bids for assets aren’t the focus of the new rules.
The regulations are meant to discourage so-called virtual bids that send stocks on a speculative tear, putting target companies in a defensive position and harming shareholders and employees if the bid never materializes, the Takeover Panel has said.
The effect of the hair-trigger is to force potential acquirers to disclose their interest well before a period where they might actually be comfortable to make a bid. The consequence is that it puts the power to provide extensions of the 28 day tolling period into the hands of the target. A hostile target board can use this power to put off a buyer.
What's interesting about the Cadbury Law and its effects a year or so on is that we (academic types) used to be able to point to the UK as the natural experiment for what a shareholder friendly regime might look like - a regime where target boards had little power to stand between an offeror and shareholders. Compare that regime to the US where states are extremely deferential to management in tender offer situations. But now, that balance is shifting. Boards in UK companies with the hair trigger rules now in effect have the ability through the use of leaks and forcing disclosure to wrest control of the process and insert themselves between offerors and shareholders.