Since almost all regulation of merger and acquisition activity entrenches management and hurts shareholders, it’s not too surprising that the 172-page consultation document released by the U.K.’s takeover panel recommends a host of measures that will make it harder to oust bad executives through corporate takeovers.
Under the British proposals, takeover targets will be required to identify their pursuers as soon as the approach is made, even if no formal or informal bid has been received. That disclosure would trigger the “Put Up or Shut Up” rule, with a fixed four-week deadline to make an offer or withdraw. In the past, the Panel could set a deadline but generally only did so after talks had dragged on for some time.
Four weeks isn’t a lot of time to get that study done of the target’s finances and operations. It will discourage potential bidders from publicly disclosing their interest in order to put the target under pressure. This shifts the balance of power to targets. (A target can have the deadline extended for a preferred bidder.)
This spirit of transparency extends to the bankers, lawyers and PR-types, who would have to disclose their fees under the proposed regime.
Industry commentators, especially in private equity, say the proposals are damaging, and it is easy to see why. Sponsors of bids backed by debt and their bankers understandably require a great deal of due diligence, and the proposed tighter schedule, combined with a ban on break fees, makes deals less likely. Financial buyers also will chafe if break-up fees are banned, for they would receive no reimbursement for the costs of due diligence and framing an offer–costs a strategic buyer can more easily shoulder.
Weir supposes that this is mostly a protectionist measure. The British public was outraged when Kraft Foods bought Cadbury. But I’m not convinced. I suspect that what is really behind the measure are entrenched corporate executives—who are using the protectionist instincts of the public to provide political cover for their own interests.
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