UK takeovers: The UK’s M&A watchdog is giving a little bit of help to companies facing the threat of a takeover - but thankfully not too much. New rules will limit the scope for bidders to lay siege to their targets by making non-binding proposals, forcing them to back off if they don't launch formal bids that shareholders can accept. Controversially, break fees will be banned. The changes go just far enough to defend bid targets from being snatched on the cheap, without protecting underperforming management.
There was always a danger that the political ruckus surrounding the sale of British snacks group Cadbury to US rival Kraft Foods would culminate in reforms that gummed up the market for corporate control. Roger Carr, Cadbury's former chairman, subsequently suggested raising the acceptance bar for successful takeovers to around two-thirds of a company's shares, from just over 50 per cent today. Carr also floated the possibility of suspending votes for short-term traders. Neither proposal would have been justified in a free market.
The Takeover Panel's actual reforms are less radical. The big change is that a bidder must follow an offer proposal with a formal bid within four weeks, unless the target agrees otherwise. That certainly sounds like enough time for a suitor to firm up its intentions, especially since a formal bid triggers another 60-day timetable.
Another change will force a bidder to be more open about the impact of any deal on a target's employees. That has little relevance to what ought to be the guiding principle of the rules - ensuring that the target's investors get full value in a change of control. It is also debatable whether the Panel should be interfering in market practice and forbidding companies from agreeing break fees between themselves. That should surely be for the market to decide. But the reality is that break fees, which have become the norm, represent a potential cost to the target company and therefore dampen the level of possible counter-bids. As for the new requirement to disclose advisers' fees, there's no harm in the world knowing what these key influencers have at stake.
Britain's coalition government may still decide to meddle with UK company law in order to erect additional barriers to defend companies from being taken over, especially by foreign predators. But these changes are enough to level the playing field. The hope must be that the politicians recognise that.