Wednesday, April 7, 2010
The UK Parliament's Committee on Business Innovation and Skills has just released its report on Kraft's acquisition of Cadbury (here). The report criticizes Kraft for what it calls Kraft's "cynical ploy" in promising to keep UK manufacturing facilities during the bidding and then immediately announcing their closure upon completion of the deal. The report also laments the reported role of institutional (or short-term) investors in deciding the outcome of the contested sale and makes a number of recommendations in line with Lord Mandelson's earlier recommendations., These include:
• Raising the voting threshold for securing a change of ownership to two-thirds;
• Lowering the requirement of disclosure of share ownership during a bid from 1% to 0.5% so companies can see who is building stakes on the register;
• Giving bidders less time to “put up or shut up” so that the phoney takeover war ends more quickly and properly evidenced bids must be tabled;
• Requiring bidders to set out publicly how they intend to finance their bids not just on day one, but over the long term, and their plans for the acquired company, including details of how they intend to make cost savings;
• Requiring greater transparency on advisors’ fees and incentives; and
• Requiring all companies making significant bids in this country to put their plans to their own shareholders for scrutiny.
The Takeover Panel's consultation on reform of its rules is expected to be completed on May 21, 2010.
Friday, March 5, 2010
Last week I noted that there appeared to be some blow-back from Kraft's successful acquisition of Cadbury's. The former Chairman of Cadbury made a speech in which he called for changes to the rules of the Takeover Panel to ensure that the interests of long-term (read: British) shareholders are not sacrificed to the interests of short-term (read: foreign) shareholders. The British Trade Minister supplied some supportive words and wouldn't you know it -- the next day, the Takeover Panel announced that it will formally review its rules:
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 does the Code deal with issues, such as competition policy, which are the responsibility of government and other bodies.
In the light of recent commentary and public discussion, and suggestions for consideration from the Secretary of State for Business, Innovation and Skills and others, the Code Committee has decided to initiate a consultation to consider whethercertain Code provisions and the timetable for determining the outcome of offers could usefully be improved.
The situation is not helped at all by Kraft's moving with "indecent haste" to cut jobs in the UK. This after pledging just a couple of months ago to add jobs to a post-merger Cadbury. Of course, Kraft isn't all that concerned with the takeover rules it leaves behind once it has accomplished its transaction. Although they will be dragged before Parliament to explain themselves.
The secondment of Peter Kiernan as Director General was due to commence on 1 March. However, pending completion of some ongoing matters, it has been agreed that his appointment as Director General should be deferred.
Might it have anything to do with the fact that Kiernan advised Kraft in its acquisition of Cadbury? I dunno. Maybe.
Tuesday, February 23, 2010
It seems there may be some blow-back following Kraft's takeover of Cadbury. Lord Davies, the British Trade Minister and Cadbury's former chairman Roger Carr are suggesting that following Kraft's successful acquisition of British icon Cadbury that the Takeover Panel should make some changes to their rules to ensure this sort of thing doesn't happen again. Specifically, they suggest:
Among its provisions is a rule that deals must be conditional on at least half of a company’s shareholders accepting the offer. In his speech earlier this month, Carr said certain changes to the Code may be needed ‘to make hostile bids more difficult to win’.
He suggested a ‘radical’ change to takeover rules, namely: ‘Raise the acceptance for takeovers above 50%, to dilute the risk of shortterm holders overriding the wishes of a committed longer-term shareholder base by simple majority.’
This threshold could be lifted to 60%, he argued. Alternatively, Carr said shareholders who buy into a company during a bid could be disenfranchised.
Monday, January 18, 2010
Abstract: This paper argues that in revising the Takeover Bid Directive, EU policymakers should adopt a neutral approach toward takeovers, i.e. enact rules that neither hamper nor promote them. The rationale behind this approach is that takeovers can be both value-creating and value-decreasing and there is no way to tell ex ante whether they are of the former or the latter kind. Unfortunately, takeover rules cannot be crafted so as to hinder all the bad takeovers while at the same time promoting the good ones. Further, contestability of control is not cost-free, because it has a negative impact on managers’ and block-holders’ incentives to make firm-specific investments of human capital, which in turn affects firm value. It is thus argued that individual companies should be able to decide how contestable their control should be. After showing that the current EC legal framework for takeovers overall hinders takeover activity in the EU, the paper identifies three rationales for a takeover-neutral intervention of the EC in the area of takeover regulation (preemption of “takeover-hostile,” protectionist national regulations, opt-out rules protecting shareholders vis-à-vis managers’ and dominant shareholders’ opportunism in takeover contexts, and menu rules helping individual companies define their degree of control contestability) and provides examples of rules that may respond to such rationales.
Tuesday, November 10, 2009
Continuing the theme of comparative takeover regulation: here's a new paper, A Simple Theory of Takeover Regulation in the United States and Europe, from Ferrarini and Miller forthcoming in the Cornell International Law Journal investigating a federal approach to takeover regulation in teh US and Europe.
Thursday, November 5, 2009
What could happen next?
As soon as Stan Kroenke hits 30 per cent of Arsenal’s shares, he will have to launch a takeover bid for the whole company.
What would the Takeover Panel make of this?
The City regulator that monitors dealings in UK companies would expect Kroenke to have enough cash to launch a fully funded bid immediately if he hit 30 per cent. He would have to bid for the rest of the shares at the highest price he had paid in the preceding 12 months. On May 1, he paid £10,500 each in a 4 per cent block. That has to be his bid price.
Suppose Kroenke did not have the available funds?
The panel has been keeping an eye on the situation and would be angry with Kroenke if he hit 30 per cent without having the cash to buy the club. Kroenke’s only option would be to apologise to the panel, which would make him sell the shares to get back below 30 per cent.
How closely is the American being watched?
The panel has looked at Kroenke’s stake-building to see if he is “acting in concert” with other Arsenal shareholders, which includes Danny Fiszman, from whom he bought shares for which he still owes £50 million. “Acting in concert” means you have teamed up with other shareholders to gain control without telling the panel, which is against City rules. However, the panel decided this year that Kroenke had not teamed up with other shareholders, despite arguments to the contrary from Alisher Usmanov, the Russian, who owns 25 per cent of the club.
Monday, July 30, 2007
The Managing and Supervisory Boards of ABN AMRO today announced that they would no longer recommend the Barclays offer to combine with ABN AMRO. Instead, the boards announced that they were not "currently in a position to recommend either" the Barclays offer or the Royal Bank of Scotland consortium "[o]ffers for acceptance to ABN AMRO shareholders". As at the market close on 27 July 2007, the Barclays offer was at a 1.0% discount to the ABN AMRO share price and the RBS consortium offer was at a premium of 8.5% to the ABN AMRO share price; 9.6% higher than the Barclays offer.
This essentially leaves the battle for ABN AMRO in the hands of its shareholders. Nonetheless, there are structural differences which may influence the contest. The RBS consortium is proceeding through an exchange offer structure (see the Form F-4 here, it is a nice precedent for a U.S./Dutch cross-border exchange offer). The Barclays offer is pursuant to a Dutch merger protocol. RBS has launched its offer and Barclays today stated that it intended to make its offer documentation available on August 6. Given the need for all of the parties to obtain regulatory and other approvals, it is likely that they will remain on the same timing track. Thus, ultimately, the contest now largely depends on the share price of Barclays increasing during this time period sufficiently to justify its acquisition proposal: an uncertain prospect in today's volatile markets.
Monday, July 23, 2007
Barclays today announced that it had raised its offer for ABN AMRO. The increased offer is €13.15 in cash and 2.13 Barclays shares for each ABN AMRO share. The increased offer is worth €35.73 per ABN AMRO share based on the July 20 closing price of Barclays. On this basis, the total consideration offered by Barclays is €67.5 billion with approximately 37% in cash. This €2.9 billion increase in offer consideration is still lower than the bid by the Royal Bank of Scotland consortium. That mostly cash bid is offering €71 billion or approximately €38.40 per share. Apparently, Barclays is hoping its share price will increase on the new offer making its bid more attractive to ABN AMRO shareholders.
In connection with the increase, Barclays also announced that China Development Bank and Temasek Holdings will invest €3.6 billion in Barclays. China Development Bank will invest €2.2 billion by buying 201 million Barclays shares at 720 pence a share. Temasek will invest €1.4 billion by buying 135 million shares at 720 pence a share. Contingent upon completion of an acquisition of ABN AMRO, the two parties will invest an additional €7.6 billion in Barclays. Barclays plans to purchase up to €3.6 billion worth of its shares to address the dilution caused by this share issuance.
Needless to say, the twist here is the second large investment by the Chinese government in recent months in a western financial institution. The previous one was the $3 billion invested in Blackstone Group by a financial arm of the Chinese government. According to Barclays, Blackstone also had a role in this purchase, advising the China Development Bank. And, with over $1.2 trillion in foreign reserves, expect more of these investments by the Chinese government.
Monday, July 16, 2007
Fortis, RBS and Santander announced today that they intend to proceed with their proposed offer for ABN AMRO. The consortium left the consideration per ABN AMRO share being offered unchanged at €38.40 but raised the cash component to approximately 93% (€35.60 in cash plus 0.296 New RBS Shares for each ABN AMRO share). The offer values the equity of ABN AMRO at €71.1 billion or $98.03 billion.
The prior bid has been 79% cash. It was also conditioned upon a shareholder vote with respect to the LaSalle Bank sale and withheld €1 a share to cover costs for litigation over ABN's LaSalle bank unit. This condition and the withholding have been dropped in this bid in the wake of the Dutch court ruling upholding the sale of LaSalle Bank to Bank of America. Instead, RBS issued a press release today stating that the net cash received from the LaSalle sale will go to RBS. The new RBS consortium offer puts significant pressure on Barclays to raise its competing all-share bid which currently values ABN AMRO at about €65 billion.
ABN AMRO's securities are registered with the SEC and it has greater than 10% of its shareholders resident in the United States disqualifying the RBS-led group from using the SEC's cross-border exemptions. Accordingly, there will be two offers made by the RBS consortium: one to U.S. shareholders and ADS holders wherever located governed by U.S. rules and one to all other shareholders governed by Dutch rules. In connection with the U.S. bid, RBS will need to prepare and file with the SEC a registration statement on Form F-4. However, unless ABN AMRO cooperates, the RBS consortium will not need to include in the F-4 the usually required U.S. GAAP pro forma financial information for the combination. This omission is permitted by Rule 409 of the Securities Act since the information is reasonably unavailable (usually required ABN AMRO auditor consents can also be omitted under Rule 437). And it is a way for hostile bidders in cross-border transactions to gain timing parity by having to avoiding the time-consuming process of preparing this financial information.
Friday, July 13, 2007
Today the Dutch Supreme Court overturned the provisional injunction imposed by the Dutch Enterprise Chamber on May 3, 2007 restraining ABN AMRO from completing the sale of LaSalle to Bank of America without approval of its shareholders (read ABN Amro's reaction here). The decision means that the sale will almost now certainly proceed. This transaction was generally viewed at the time as a crown-jewel sale implemented to deter other bidders from interfering in Barclay plc's recommended takeover of ABN Amro. As such, the decision and likely sale are a setback for the European consortium of banks (Royal Bank of Scotland Group Plc, Fortis Group and Banco Santander) who have tabled a competing bid for both LaSalle Bank and ABN Amro. The RBS consortium's current offer is 79% cash and is valued at $97.78 billion while Barclays's all-stock offer currently values ABN at €63.24 billion.
The ruling is not a complete surprise. Last month the legal adviser to the Supreme Court, the advocate general, had opined that Dutch law didn't require a shareholder vote. Still the equities of the situation spell a different result -- ABN Amro has done everything in its power to tilt this bidding contest towards its chosen suitor, Barclays, to the detriment of its shareholders. Today is not a winning day for shareholder rights advocates.
NB. The result would likely be the same in the United States. ABN Amro's merger with Barclays is a stock one and there does not appear to be any change of control. Accordingly, ABN Amro's boards' decision to merger would be reviewed by a Delaware court under the business judgment rule and "Revlon duties" would not apply. And there would likely be no required vote on the LaSalle Bank sale as it does not appear to constitute "all or substantially all" of ABN Amro's assets, the prerequisite for such a vote under Delaware law. Nonetheless, the Delaware courts, of late, have been willing to step in to halt inequitable practices in M&A transactions (e.g., Hollinger Inc. v. Hollinger International Inc).
Tuesday, July 10, 2007
Groupe Danone S.A. yesterday announced its intentions to make a € 55.00 in cash per ordinary share bid for all of the outstanding shares of Royal Numico N.V., a Dutch company listed on Euronext Amsterdam. The Supervisory Board and Executive Board of Numico also announced that it would unanimously recommend that Numico shareholders accept the offer. The price values baby-food maker Numico at $16.8 billion dollars, and is a 44% premium to Numico's average closing price over the last three months.
Analysts were highly critical of the price being paid by Danone. “This is the most expensive large-cap deal in the global consumer space ever,” stated Andrew Wood, an analyst at Sanford C. Bernstein in New York. And many are speculating that the price and large acquisition are an anti-takeover maneuver by Danone to discourage takeover bids. “This is a defensive operation for Danone,” said Chicuong Dang, an analyst at Richelieu Finance. “They are making themselves bigger and less attractive to bidders such as PepsiCo or Coca-Cola.” (quotes as reported by Bloomberg).
Danone and Numico have yet to reach a definitive agreement on the making of the offer. But the parties announced that the offer is expected to commence in August 2007 and would be subject to at least 66 2/3% minimum condition. Interestingly, Numico has agreed to restrictions on its ability to initiate or encourage discussions with third parties in respect of any proposal that may form an alternative to the Offer. And Danone is entitled to a break fee of EUR 50 million in the event (i) the Numico Boards withdraw their recommendation; or (ii) an unsolicited offer is declared unconditional. Though the break-fee is small, these are American style transaction defense provisions that you do not normally see in Dutch deals. But the Dutch government has opted out of the 13th EU Company Law Directive on public takeovers to permit Dutch companies to utilize lock-ups of this nature. As takeover activity increases in the Netherlands, expect Dutch companies to further utilize American-style transaction defenses.
Tuesday, June 12, 2007
The U.K. Financial Services Authority today published feedback to its discussion paper on private equity (download the feedback here, and the discussion paper here). In the feedback, the FSA stated that it will continue to focus on what it perceives to be the "significant risks" of private equity market abuse (insider trading) and conflicts of interest. In order to strengthen its oversight of the market, the FSA also announced increased data collection requirements. This will encompass:
- Conducting a bi-annual survey on banks' exposures to leveraged buyouts; and
- Enhancing regulatory reporting requirements for private equity firms to incorporate information on committed capital in addition to the existing requirement to report drawn down capital.
These initiatives appear to be moderate and prudent ones designed to ensure that creditors do not over-commit capital to private equity fostering a collapse similar to the one which occurred at the end of the 1980s.
Also yesterday, Treasury Assistant Secretary for Financial Markets, Anthony W. Ryan, made yet another speech warning of the systematic risks posed by hedge funds. To illustrate the problems of fat tails and outlier risk he cites the paper Thomas J. Miceli, Minimum Quality Standards in Baseball and the Paradoxical Disappearance of the .400 Hitter, Economics Working Papers, University of Connecticut (May 2005). Ryan cites the paper gor statistical information, but otherwise it is a solid paper about the problems of minimum quality standards in markets with imperfect information. Enjoy.
Tuesday, May 29, 2007
The Royal Bank of Scotland Group plc, Fortis and Santander today announced the terms of their proposed €71.1 billion offer for ABN Amro. If completed, it would be the largest financial services deal in history. According to the consortium, its bid is at a 13.7% premium to the competing €64 billion bid from Britain's Barclays plc supported by ABN Amro. The consortium is offering €38.40 per ABN share comprising 79% cash with the remainder consisting of new RBS shares. But the group will also hold back €1 a share in cash (or $2.5 billion) as a reserve against litigation costs and damages that might arise from the Bank of America's lawsuit against ABN Amro to enforce the sale of LaSalle Bank to it. In a just world this would be money that would come out of the pocket of ABN Amro CEO, Rijkman Groenink and the ABN Amro Supervisory Board for mucking up this sale process instead of their shareholders.
The group detailed the financing arrangements for the bid, and also detailed their plans to break-up ABN Amro upon its acquisition: RBS will acquire ABN Amro's Global Wholesale Businesses (including the Netherlands but excluding Brazil), LaSalle Bank and International Retail Businesses for a consideration of €27.2 billion. The full offer document can be accessed here. The group will now proceed to have their required shareholder meetings and expect to commence the full offer in August of 2007. However, this is a pre-conditional offer -- certain conditions must be satisfied before the full offer can commence. The most significant pre-condition is one requiring a favorable ruling on the currently pending litigation over the LaSalle matter. It requires that:
The preliminary ruling of the Dutch Enterprise Chamber that the consummation of the Bank of America Agreement should be subject to ABN AMRO shareholder approval has been upheld or otherwise remains in force, whether or not pursuant to any decision of the Dutch Supreme Court, or of any other judicial body, and ABN AMRO shareholders have failed to approve the Bank of America Agreement by the requisite vote at the ABN AMRO EGM.
Thus, like many a U.S. takeover, the final disposition of ABN Amro will be decided by the courts. The Dutch Supreme Court is expected to rule in July or August. Until then, there will continue to be significant uncertainty in the market over the RBS-bid and the future of ABN Amro.
NB. The RBS group has also decided to take a different course in this offer document with respect to the acquisition of LaSalle Bank. The consoritum offer itself, once it commences, is now conditioned upon "ABN AMRO shareholders hav[ing] failed to approve the Bank of America Agreement by the requisite vote at the ABN AMRO EGM convened for that purpose." The group's previous offer was cross-conditional on ABN Amro reaching an agreement to sell LaSalle directly to RBS. Now, it appears RBS is content to acquire only ABN Amro, and subsequently purchase LaSalle.
Thursday, May 17, 2007
DaimlerChrysler AG, is a German company, and though it is listed on the New York Stock Exchange it is governed by more-relaxed SEC rules governing "foreign private issuers". We are seeing the difference these rules make with respect to Daimler's disclosures concerning the Chrysler sale to Cerberus announced earlier this week. Had Daimler been a domestic U.S. company, Daimler would have been required to file the Chrysler sale agreement, and any material related agreements, within two business days of its execution. Instead, since Daimler is a foreign private issuer it only needs to disclose this agreement to the SEC if it is required to provide the agreement to its home country regulator. This doesn't appear to be the case here, so we have been left in the dark as to the exact closing conditions and risk for the Chrysler sale. This has been compounded by Daimler's refusal to fully disclose information concerning the sale and the drip-out approach to information it has produced. Here are a few examples:
1. Union Condition. It would not be until a conference call on Monday that Dieter Zetsche, CEO of DaimlerChrysler would state that “[t]his deal is not conditional on any aspects of collective bargaining.”
2. Financing. It would not be until Tuesday that a few details of Cerberus's financing package would be leaked. A group of five banks has committed more than $60 billion in financing; approximately $50 billion will be used for refinancing and $12 billion will be available as an undrawn credit line to operate Chrysler's business.
3. Pension. It would not be until Wednesday that the head of the United Auto Workers, Ron Gettelfinger, would disclose that "Cerberus has committed to contributing an additional $200 million to the pension fund and Daimler is providing a conditional guarantee of $1 billion for up to five years". Daimler had previously refused to comment on this matter but reports have stated that the pension is overfunded.
This information gap and the haphazard way information is coming out concerning the sale leaves open a number of important questions including: What exactly are closing conditions to the deal? Where is Cerberus getting the five billion in new Chrysler equity and how much of it is in committed financing? What exactly are any other continuing obligations of Daimler with respect to the transaction? Why are Daimler and Cerberus shoring up Chrysler's pension plan? On what basis is Chrysler's pension over-funded (is it on a PBO or ABO accounting basis)? And does Daimler expect the scrutiny of the Pension Benefits Guaranty Board of the transaction, and if so, is there a likelihood it could require additional contributions to Chrysler's pension fund (see my post on this here)? Inquiring minds want to know.
Update: The PBGC issued a statement today on its talks with Chrysler and Cerberus. The Interim PBGC director stated:
Daimler has agreed to provide a guarantee of $1 billion to be paid into the Chrysler plans if the plans terminate within five years. Under its new ownership capitalized by Cerberus, Chrysler will make $200 million in pension contributions over the next five years above and beyond the legally required minimum.
From the statement, it appears that on this basis the PBGC will not raise any further issues with the transaction.