This post was contributed by Paul Whitelock, Partner, Norton Rose LLP
September 2011 saw the most significant overhaul in many years of the UK takeover regime.
Changes to the UK Takeover Code followed a year-long review into how takeovers were conducted and, in particular, whether it was too easy to acquire a UK-listed company. The result is a “new” regime that doesn’t seek to impede takeovers, but rather reshape a framework seen by some as too bidder friendly.
The changes aim to level the playing field and end the increasingly common trend in the UK for “kite flying” or “virtual bids”— bidders announcing possible offers that often come to nothing but are hugely disruptive for target companies.
Bidders must now make firm, fully financed offers within 28 days of announcing a possible offer or, unless the Takeover Panel extends this deadline, walk away.
In addition, if it’s announced that the target company is in talks regarding a potential offer, this announcement must publicly identify all bidders the target company is talking to. This means it’s now more difficult for bidders to remain under the radar.
To further strengthen the target’s negotiating position, the Takeover Panel has effectively prohibited break fees and other deal protection measures that were commonly included in merger agreements.
The UK previously had a highly prescriptive regime on break fees, limiting such fees to 1% of the overall offer value. Many felt this struck the right balance between bidder and target shareholder interests.
Bidders now have little scope to extract break fees from target companies, or to agree exclusivity or other provisions aimed at limiting a target’s room for manoeuvre.
The remaining Takeover Code changes increase offer documentation transparency in areas such as the bidder’s financial standing, how it might finance its offer, its overall advisory costs and its intentions for the target and its employees—statements of intention the Takeover Panel will hold the bidder to following completion of the offer.
In the lead-up to the changes there were concerns that certain measures, i.e., compressing the offer timetable, identifying bidders early in the process and abolishing break fees, would be a brake on takeover activity.
Although the changes are certainly affecting takeover tactics, continuing economic uncertainty makes it difficult to conclude if these new measures are hindering takeovers.
There have been a number of significant bids announced since the start of the year, suggesting that, while the new rules may require more careful navigation by bidders, they aren’t seen as a real impediment to takeover activity.
For international bidders in particular, UK-listed target companies remain attractive assets.