David Prosser: Don't ban these takeovers. Just make them harder
Saturday 03 July 2010
It is not just the weakness of the pound that makes British companies attractive targets for their acquisitive US counterparts; our laissez-faire regulation makes it far easier for foreign buyers to snap up businesses in this country than anywhere else in Europe.
For every deal that provokes the sort of controversy prompted by Kraft's purchase of Cadbury, many more foreign takeovers of British companies sail through without even a raised eyebrow.
Kraft's behaviour during the Cadbury takeover – suggesting it might keep a factory open that its target had planned to close, before going back on its word after sealing the deal – upset many people. Still, it is difficult to come up with a coherent strategic case for preventing a chocolate producer that already has a global footprint being sold into foreign ownership. To have defended Cadbury would have been to pander to the sort of protectionist instincts that we decry when British companies find themselves on the wrong end of them in other countries.
That would be true of most companies. There are a few exceptions: you can make a case for keeping a defence business such as BAE Systems British, for example, or possibly for protecting our infrastructure providers. But that's about it.
Does that mean the ongoing review of whether our rules on takeovers need updating is misplaced? Not at all. There are some very real concerns about our system that the Takeover Panel is quite right to address. You can draw your own conclusions from opinion poll research that shows City advisers on mergers and acquisitions generally back the status quo, while the majority of chief executives want an overhaul of the Panel's rules.
There are two proposals in particular that strike a chord. First, the rule that requires the holders of only 50 per cent of shares in a company (plus one more share) to back a deal sets the bar too low for many investors. Raising the requirement to two-thirds for as fundamental an issue as a change in ownership has a certain logic to it. Similarly, barring investors who have only joined the company share register in the short term – say in the six months before the bid has arrived – from voting on a takeover has a good deal of appeal. It prevents investors joining the fray simply to make a quick buck in a takeover situation, rather than with any regard to what is right for the company in the long term.
The Takeover Panel's plan for a revamp of the rules has been dubbed the "Cadbury Law", which suggests the proposals are designed to ward off foreign buyers. They are not and nor should they be. But our takeover regulation is too light – and one by-product of a shake-up might well be to make it tougher for American companies to buy British.
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