Proposed changes to make hostile takeovers more difficult
Thursday 21 October 2010
A raft of changes to UK takeover rules was put forward today as part of a so-called "Cadbury Law" after the chocolate firm's controversial takeover by US giant Kraft.
The Takeover Panel outlined proposals to make hostile takeovers more difficult, although it rejected some of the more radical calls for overhaul.
Key recommendations include ensuring companies take into account the impact of a takeover on employees and giving them greater opportunity to make their views known.
The panel also plans to restructure its "put up or shut up" regime to force companies to make a formal bid or walk away, while also introducing rules that will see all fees disclosed.
Kraft's £11.6 billion takeover of Cadbury caused a furore, in particular for its treatment of employees and its decision to shut the firm's Somerdale factory having initially suggested it would be retained.
Today's proposals will require firms to stick by statements made on employees and office locations for at least a year - a proposal that could have changed the way Kraft communicated its intentions on the Somerdale site.
Firms should also be publicly named when an approach is revealed and will then automatically have four weeks to announce their intention to make an offer.
This would help reduce the time under which a hostile takeover target feels "under siege", according to the Panel.
Cadbury's takeover sparked debate over the UK takeover rules, with the group's former chairman Roger Carr making passionate pleas for firms of national interest to be offered greater protection against hostile bids from foreign firms.
Kraft had already been slammed by the Takeover Panel for misleading Cadbury's employees and shareholders over whether it would save the Somerdale plant, near Bristol.
But a number of key figures - including Business Secretary Vince Cable - have made the case for stricter rules.
The Panel today rejected the more extreme measures put forward by many, such as raising the threshold for acceptance of hostile bids from 50% plus one.
It also dismissed recommendations for shares bought in hostile takeover battles to forgo their associated voting rights and will not reduce the 28-day deadline for producing an offer document.
Lindsay Tomlinson, chairman of the Takeover Code Committee, said: "The Code is not concerned with the financial or commercial advantages of a takeover or with questions of wider public interest.
"Nevertheless, it is clear that some rebalancing of the rules is needed to check the evolution of market practice which has run in favour of the offeror.
Robert Gillespie, director general of the Takeover Panel, said the rules should "require offerors to be more fully prepared before making an approach and protect offeree companies from the unwelcome advances of 'virtual bidders'.
"They will also reduce the time period in which recent acquirers of shares can put pressure on an offeree company following an approach."
Mr Cable welcomed today's proposals, but also pledged to continue a separate review of the "wider questions around corporate governance and short-termism".
He said: "It has become too easy for bidders to make hostile offers and to succeed even though there are questionable benefits. It is pleasing that the Panel have decided to take concrete steps to address this central concern."
Trade union Unite said the Panel's recommendations "fall far short of the Cadbury's Law that is urgently needed to stop the destabilisation of British business".
Jennie Formby, Unite's national officer for the food and drink sector, added: "Unite is disappointed that the Takeover Panel did not make more robust recommendations.
"The bidding company must be required to be totally transparent about their intentions and finances.
"Shareholders should be more deeply entwined with their companies' fortunes to stop predatory purchasing by hedge funds only interested in a quick sale and a fast buck, and we need to return to the point where the Government can intervene in takeovers of companies that impact on the national interest."
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