Cable: UK needs tougher takeover rules(2)

UK business secretary Vince Cable wants to leave no ‘wiggle room’ for foreign firms to renege on promises made during a takeover.

Lawmakers in the UK are being urged by the government’s top business policymaker to toughen the country’s takeover code.

On Sunday UK business secretary Vince Cable told the BBC there must be “no wiggle room” for firms to walk away from promises made during an acquisition or face “tough” fines.

The business secretary acknowledged legal changes would likely be needed to enforce tougher takeover rules but said there was consensus in the government for reform. Takeover reform became a bigger item on politicians’ radars after Pfizer’s £70 billion ($119 billion; €88 billion) for UK drug company AstraZeneca. Critics of the Pfizer bid said the company’s assurances during the acquisition process were vague and raised concerns of UK job cuts and a drop in medical research.

Cable said that the government “had got some very good assurances from Pfizer” at the time, but wants them to be binding, adding “we may well get into the area of having financial penalties” as a means of ensuring that companies stand by their takeover promises.

Following the Cadbury takeover and other controversial deals, Cable also proposed tighter laws to strengthen the “national interest test”. At present a formal public interest test only allows ministers to intervene in an acquisition when financial stability or media plurality are threatened.

Some in the legal community welcome reform too, saying the rules could be sharpened to leave less uncertainty in their application. For instance the “material change in condition” test – which enables a bidder to walk from a deal if the target suffers a sudden major change – is in need of additional clarity, said Philip Rogers, a corporate partner at law firm Clyde & Co. Rogers said a lack of clarity around this test set the stage for US-based Kraft, which experienced a high-profile acquisition of Cadbury in 2010, to close one of the UK chocolate makers plants after it experienced a drop in performance.