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More and more foreign buyers are finding the U.K.'s takeover laws difficult to navigate.
Following the collapse of Pfizer's bid for AstraZeneca, Ian Read, the U.S. company's chief executive, slammed the U.K's laws as "overly complicated, overly bureaucratic." This could be read as a serious case of sour grapes – but it may also reflect genuine concerns about whether more Britain's stringent regulations are hampering deals.
"It's fundamentally a different philosophy in the U.K.," Robert Adam, a partner at Baker & McKenzie who spent two years working at the Takeover Panel, told CNBC.
The new laws, brought in following Kraft's successful $19.6 billion takeover of British stalwart Cadbury, came into force in 2011.
Once any whiff of a deal breaks in a credible media source, the Takeover Panel can force the bidder to make a statement if the rumors of a deal are accurate. The bidder then has 28 days to make the deal happen.
"The rules introduced in 2011 have started to shift the balance of power back towards target companies – they give targets greater control over the timetable in the early stages," Adam Bogdanor, partner at Berwin Leighton Paisner, told CNBC.
There haven't been many cross-border non-agreed bids for U.K. companies in the megamerger league since then, which is why they are only coming to the top of the agenda now.
The rules had their first high-profile test when Severn Trent fended off three bids within a month from the LongRiver consortium last year. The utilities company's share price has subsequently plummeted.
The need for speed
Potential acquirers need to move quickly as soon as news of a bid leaks. It's difficult to balance the need for secrecy with the need for bodies on board, but having at least banking advisers lined up and a credible valuation of the business helps.
Going over the board's head, directly to shareholders, known as "going hostile", risks a lot of shareholders' money in a billions of dollars deal, without access to the company's books.
There is also no break fee payable to the bidder if an agreed deal falls through.
One advantage of the speed engendered by the rules is that U.K. companies are also less likely to pursue the "poison pill" defences some U.S. acquisition targets have tried.
There hasn't yet been any evidence that the rules have put off any M&A activity in the interim. The M&A cycle has been static for most of the decade, according to figures from Mergermarket, as companies rebuilt their balance sheets following the credit crisis of the previous decade, and avoided risk.
In future, some more publicity-averse investors, like sovereign wealth funds or private equity, may be put off, according to Adam.
"There are individual entities who are shy about doing things in the glare of publicity, and this is something certain clients are nervous about," he said.
Greater government say?
There are also concerns that, with the U.K. political storm around Pfizer's bid for AstraZeneca, the government may increase its powers to halt deals.
"At the moment, the opportunity for the U.K. government to intervene is limited. If the Labour Party wins next year's elections, there is a chance this may change, and this may affect the political climate," Bogdanor pointed out.
Pfizer now has six months before it can come back to the table for AstraZeneca – or three if its target's board decides to reengage. There were plenty of reasons other than the Takeover Code which meant the deal didn't work out this time, but the pharma giant will no doubt be even more careful of the rules if it comes back.
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