Can The Uk M&a Market Survive Takeover Code Changes?
Can the UK M&A market survive Takeover Code changes
?
by Caroline Clayfield
Earlier this week, the UKs Takeover Panel introduced tougher rules for firms looking to acquire British businesses, but why was this deemed necessary and why are UK businesses cautious in welcoming the changes?
Following the unsolicited takeover of iconic British confectionery brand, Cadbury, by US giant Kraft in 2010, there were widespread calls for changes to be made to the Takeover Code. Krafts decision to close a Cadbury factory that it had pledged to keep open before in the run-up to the deal was seen as a cruel and underhand move and angered the UK government. Lord Mandelson, who was Business Secretary at the time, made no attempts to hide his thoughts on the subject stating that there was a strong case for throwing some extra grit in the takeover system.
Fast-forward to 19 September 2011 and those changes have finally been made. The Takeover Code has been reviewed and four main adjustments have been introduced, which some UK companies fear could put a swift end to the currently thriving British M&A market.
The changes include a ruling that will make bidders submit a formal offer within 28 days of showing initial interest. Target firms must also now reveal the identities of all bidders at the start of this 28-day period.
These two changes together are causing the most concern. Critics worry that with post-interest confidentiality no longer an option, bidders will be few and far between. Some could be put off of showing interest at all as they would rather their identity not be revealed before they are certain of their intentions to buy.
Despite the concerns, in reality the changes are likely to simply alter the way M&A activity is carried out in the UK. Confidentiality will now be protected at all costs at the stage when a potential buyer is considering its options. Many foreign firms will be forced to undertake their due diligence processes before showing interest while doing their utmost to prevent a leak of their identities or their intentions.
Nick Rumsby of Linklaters told The Independent that the main impact of the new regulations will affect those trying to undertake hostile takeovers. He added, Bidders may have done their due diligence from afar and gone further on their financing lines before they approach a target so that if there is a leak resulting in a four-week deadline they will be able to move quickly.
This 28-day period is perhaps the most concerning of the regulations as it means that for many firms, they will have a month to perform due diligence and this can sometimes leave bidders simply running out of time.
However, despite the widespread concerns, other changes, such as more protection for employees affected by takeovers and increased transparency over fees paid to those involved with a deal, should be welcomed. These are important measures to strengthen target firms when faced with a hostile bidder and should benefit British businesses and their employees.
M&A activity in the UK is currently extremely strong, increasing by 19 per cent in the second quarter of 2011, compared with the first three months. The shrinking gap between what buyers want to pay and what sellers are willing to accept is shrinking, thanks to the economic climate. The fact that private equity buyers are starting to line up to spend the cash they accumulated during the recession years is also helping to boost M&A activity.
The general consensus is that British M&A can withstand the changes to the Takeover Code due to the numerous strong brands that are coming on to the market. Deloittes head of M&A told City AM, "We remain confident that the UK market will remain strong. However, he added that the European debt crisis was perhaps a more pressing issue.
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