There’s a proposal in the UK to revise the rules governing public takeovers. This has been prompted by the takeover of Cadbury by Kraft, but has been bubbling under the surface for years and gains attention each time there’s a large, contested offer. The forthcoming election has given the proposals new life as well.
There are certainly arguments to be made to make some tweeks to the takeover code, but the overhall suggested by some of the white paper ideas seems to many to be the proverbial ‘meat cleaver’ approach where a paring knife would suffice.
What’s been suggested? According to Financial News and discussed in an article entitled ‘M&A industry gears up for changes to the Takeover Code’, the full list is the following:
- Raising the threshold for acquirers to secure ownership of a target from 50% to 66.7%
- Forcing companies involved in a transaction to disclose the fees they pay their advisers
- Reducing and formalising the time frame between a bidder announcing its interest in a company and the publication of a ‘put up or shut up’ deadline
- Halving the disclosure requirement for investors in a takeover target from 1% to 0.5%
- Restricting voting rights on a takeover to investors who held their position in the target before the announcement of an intention to make an offer
- Forcing bidders to disclose greater detail how they intend to finance bids and their future plans for the acquired business
- Forcing institutional investors to make public when they have accepted an offer
- Forcing target boards to explain in greater detail the reasons behind accepting an offer
- Making company boards accountable to employees and other stakeholders as well as shareholders.
The reaction in the City has generally been negative. Although there are always problems arising from some parties in every contested M&A deal, the general feeling is that the current system works, it is well known and investors are certainly familiar with how the takeover code operates.
It is unlikely anything will change soon in any case. First, the aforementioned election makes any change impossible until resolved. Second, unless there’s another very large contested deal in the UK where the target is perceived by many to be a ‘national asset’ such as some considered Cadbury to be, it is likely that this attention by the politicians on takeovers will have been fleeting as they move on — and properly so — to other issues in the economy that demand immediate attention, which this issue does not.
Where will it end up? I believe that there will be some tweaking at the edges. And by-the-way, this happens all the time. Each year, the Takeover Panel issues consultation papers, and since 2000, this been as high as five (and each individual paper may have multiple suggestions). Most are not as radical as the above changes such as increasing the ownership change threshold to 66.7% or prohibiting certain shareholders from voting on the change of control, but it is unlikely those big changes would be approved anyway.
Note that some of these suggestions (such as the final one) would move the UK more in the direction of Continental European companies in terms of their accountability, and another suggestion — greater disclosure of fees, for example — are clearly populist suggestions of a political nature.
Debate should be encouraged at all times. But ‘if it ain’t broke, don’t fix it’. At the moment, it is my opinion that the way that mergers and acquisitions proceed in the UK currently works — and works well most of the time both for investors and boards. When it doesn’t work, there is recourse through the Takeover Panel, the Stock Exchanges and the courts. (Of course, there’s fall-out for employees (see my other blog on how M&A deals cause redundancies) and other stakeholders, but those groups also have recourse.) However, unless the new government in May wishes to look at the entire way that companies operate in the UK, focus shouldn’t be only on one aspect of their operations (M&A). But let’s discuss…