UK M&A watchdog presses on with takeover rules

Despite protest from the UK’s private equity industry, the UK’s “Takeover Panel”, an independent body that regulates mergers and acquisitions, is moving forward with sweeping changes which would make it tougher to acquire a target company.

In a 172-page report  fleshing out proposals first made in October, the Takeover Panel 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. The report follows the controversial takeover of British confectionary giant Cadbury by US-based food conglomerate Kraft in early 2010.

Among the proposed changes is a revamp of the “put up or shut up” regime. Under the new regime 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 follow that up with a firm bid within 28 days of making such an offer..

“This is perhaps going to be the biggest impact on private equity,” Norton Rose partner and M&A specialist Paul Whitelock said in an interview. Virtual bids are often used by buyout firms to test the waters with a target company and shareholders while allowing time for complex financing arrangements and diligence work with lenders to occur, he said.

“These rules will mean firms will have to be much more prepared before approaching a target or making a possible offer announcement,” he adds. Four weeks may not be enough time for firms who have become accustomed to having up to 12 weeks before making a bid, cautions Whitelock. 

The panel is further proposing the abolishment of inducement payments, or break-up fees, which target companies must pay if they walk away from an agreed offer. Other changes include greater disclosure requirements in relation to advisor fees and with respect to a bidding company’s intentions towards the employees of a target company.

Industry representatives, including the British Private Equity and Venture Capital Association, have expressed dismay over the panel’s proposals. The changes “impose unnecessary and unhelpful constraints on financial bidders”, said a spokesperson for the BVCA, adding the proposals will do little to prevent a repeat of the Cadbury takeover row.

The panel will take comments until 27 May and thereafter decide when the changes should go into effect. Industry sources say they expect the rules to be implemented some time in summer.