UK regulator moots arming British companies against takeovers

The UK regulator has bought in a raft of changes to the rules governing mergers and acquisitions following US food giant Kraft Foods' takeover of iconic British brand Cadbury this year as lawmakers watched helplessly amidst widespread criticism.

After four months of deliberations, the UK Takeover Panel today proposed arming British companies against takeovers by amending the takeover code, dubbed ny many as the 'Cadbury Law,' but stopped short of radical changes as sought by Cadbury's former chairman Roger Carr, other UK companies and critics of the UK takeover law.

Following the hostile takeover of Cadbury by Kraft, which lasted five months and became one of the most acrimonious in the UK's corporate history, Carr had urged the UK government to overhaul rules on mergers and acquisitions as the current rules were not in the long-term interests of British business.

The Takeover Panel, the independent body that regulates takeovers has concluded that the present takeover code that was adopted in 1968 gives a tactical advantage in the event of a hostile takeover to the offeror over the offeree company to the detriment of the offeree company and its shareholders.

Some of the recommendations by the Panel are:

1. To require that, following an approach, the potential offeror is named in the announcement which commences an offer period regardless of which party publishes the announcement.
2. To require that, except with the consent of the Panel, any publicly named potential offeror must, within a fixed period of four weeks following the date on which the potential offeror is publicly named.
3. Prohibiting deal protection measures and inducement fees other than in certain limited cases.
4. Increasing transparency and improving the quality of disclosure and requiring the disclosure of offer-related fees.
5. Requiring the disclosure of the same financial information in relation to an offeror and the financing of an offer irrespective of the nature of the offer.
6. Providing greater recognition of the interests of offeree company employees and improving the ability of employee representatives to make their views known.

But the Takeover Panel stopped short in recommending the major changes asked by UK firms like raising 'the"50 per cent plus one'' minimum acceptance condition for a takeover offer, and to disenfranchise hedge funds and others who buy stock during a bid battle.

Carr had said that the UK takeover rules should be changed to 60 per cent of shareholders approving a takeover, rather than the present 50.1 per cent in order to reduce the power of hedge funds, which buy a company's stock after a bid has been made.

In the Kraft-Cadbury deal, eight of the largest buyers of Cadbury's stock were hedge funds or other short-term traders, who booked profits in millions in a very short span of time.

Venting his anger at hedge funds, Carr even proposed that hedge fund speculators should be banned from voting in a hostile takeover bid.

''It may be unreasonable that a few individuals with weeks of share ownership can determine the lifetime destiny of many,'' Carr had said.

The then Business Secretary Lord Mandelson had watched helplessly as the 5-month hostile takeover saga unfolded and in a last ditch effort had warned the Northfield, Illinois-based Kraft of making a fast buck on the Cadbury deal.

At the time Kraft made its first hostile bid in September 2009, the company's chairman and chief executive Irene Rosenfeld had said that the acquisition would benefit the UK in terms of jobs, as it would operate the Cadbury's Somerdale plant, which has been earmarked for closure.

But within days of Kraft obtaining the approval of a majority of Cadbury shareholder's in February 2010, Kraft went back on Rosenfeld's promise and said that a particular plant would have to be closed as Cadbury had proceeded far ahead with shifting the plant operations to Poland, which it claimed to have been unaware of while making the bid.

For masterminding the takeover of the 186-year old UK confectioner, Rosenfield was awarded a 41 per cent pay rise, from $18.7 million in 2008 to $26.3 million in 2009.

(See: Full recommendations of the UK Takeover Panel)