Takeover Panel tables M&A code overhaul

The Takeover Panel has moved a step closer to drastically overhauling its code as it seeks to remove the "tactical advantage" for hostile bidders targeting UK companies.

The body has been considering changes to the Takeover Code for some time, but insiders said Kraft's controversial takeover of Cadbury last year "crystallised the concerns that were already there".

Yesterday, it published the latest proposals for changes to the Takeover Code, which cover the timetable of deals, the abolition of deal protection, disclosure of advisory fees and greater recognition of employee's interests.

Stephen Wilkinson, the joint global head of M&A at law firm Herbert Smith, said: "There was a sense it was too easy to take over UK companies. These proposals would mark a significant change to the code. We have been through two rounds already and much behind the scenes lobbying, so these proposals are not a huge surprise."

The panel initially set out its response to a public consultation paper on the code in October, when it first outlined the moves designed to reduce the bidding companies' advantage and redress the balance. Since then the ideas have been fleshed out. The most dramatic proposal relates to the timetable of a deal. At the moment targets have to approach the panel to issue the suitor with a "put up or shut up" order. This forces the bidder to table a firm offer or walk away in the following six to eight weeks.

Under the revised rules the clock will start ticking as soon as information about a potential bid leaks, or there is an erratic share price movement, and the bidder is given just 28 days. That bidder's name must also be disclosed.

Paul Whitelock, a corporate finance partner at the law firm Norton Rose, said: "This in effect creates a 'put up or shut up order' from day one."

The panel wants the order to increase the protection for targets against protracted "virtual bid" periods – when bidders express an interest but never make a firm offer, a practice that has grown heavily in the past 15 years. The body also hopes to block most deal protection measures and break fees and increase transparency and quality of disclosure. Included in the increased levels of disclosure will be a publication of the costs for advisory work and the financing fees for the first time.

The panel also wants greater recognition of the interest of the target's employees, including clarity over the bidder's intentions for jobs once a deal has been done, and called for an improvement of the ability of employee representatives to make their views known.

Mr Whitelock said: "Post Cadbury and the panel's previous statement, the tightening up on the rules about holding a bidder to statements it might make as to plans for a target company are as expected." Yet, he added the new rules extend to cover any statements made during the offer and not just the offer document itself, which "means that bidders will have to take care as to any future statements of their plans".

This followed criticism for Kraft over how it handled the £11.5bn takeover of Cadbury. Anger was particularly fuelled when Kraft pledged to reprieve the closure of Cadbury's Somerdale factory near Bristol before a takeover agreement was reached, only to promptly shut the plant after the deal was completed.

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