UK panel proposes new takeover rules

The independent Panel on Takeovers and Mergers unveiled new proposals on Friday which would make it easier for target companies to shake off a takeover attempt by a private equity firm.

The panel, which is responsible for administering and supervising rules on takeovers and mergers, argued bidding firms have too much of a “tactical advantage”, and it was necessary to rebalance the playing field more in favour of target companies.

ACCEPTED PROPOSALS

Changes include a revamp of the “put up or shut up” regime, which forces bidders to either make a formal offer for control of a company or walk away from doing so for six months.  Bidders who make a “virtual bid” – whereby a firm announces consideration of making an offer without any actual legal commitment to do so – must now do so within four weeks of making an offer announcement.

Takeovers made tougher

The new rule provides target companies with more certainty over how long the offer process would last and addresses situations in which bidders would attempt to put pressure on a target company’s board of directors through long lasting discussion with shareholders.

“This is perhaps going to be the biggest impact on private equity,” says Norton Rose partner, Paul Whitelock, in an interview with PEO, sister publication of PERE. “They’ve always been most involved in virtual bids, and these new rules will mean firms will have to be much more prepared before approaching a target or making a possible offer announcement,” added Whitelock, who specialises in public and private company M&A deals.

Whitelock noted private equity by nature is quite leveraged and given its own and its lenders diligence requirements, needs more time than other business models to complete complex financing arrangements.

“Four weeks for a bid might simply be too difficult for some firms,” added Whitelock. 

Another change could include the abolishment of inducement payments, or break fees, which target companies must pay if they walk away from an agreed offer.  The panel noted such fees could reduce the value of competing offers, or even deter them altogether.

Greater disclosure requirements in relation to advisor fees and the financing of a takeover or merger are also being proposed by the panel, which argued the rule would be inexpensive for firms. Disclosure requirements will also be strengthened regarding a bidding company’s intentions towards the employees of a target company, whom the panel also feels should have greater ability in making their views known to management regarding any takeover.

REJECTED PROPOSALS

The panel, however, rejected a number of more radical suggestions to the code, including a proposal to increase the “50 percent plus one” share threshold needed by bidders to acquire a target company. Doing so would conflict with currently existing company laws, the panel noted.

Proposals which would reduce the rights of shares acquired by a bidder during an offer period was also jettisoned by the panel, arguing it would “compromise the principle of ‘one share, one vote’”.

Granting shareholders in a bidding company similar protections provided to target company shareholders was also opposed by the panel. The panel noted doing so would be a “significant expansion” of their role, and that the current legal system already offers protections in this area.