Overseas developments – UK Takeover Panel

The takeover bid by Kraft for Cadbury in the UK, which closed earlier this year, has generated a fair bit of discussion in the UK about the conduct of takeover bids. This has resulted in two recent developments that may be of interest.

Review of UK rules

There have been calls for a review of some basic rules affecting takeovers in the UK. These calls appear to have largely come from people associated with Cadbury who considered that control of the company was determined by shareholders with short term interests in mind, rather than long term stakeholders.

Consistent with that view, proposals have been made to make it more difficult for hostile bidders to succeed by relying on short term investors determining the outcome of the bid. The proposals are set out in a 108 page consultation paper which is available on the UK Panel’s website.

Interestingly, the paper includes statistics that, in the four years to 31 March 2010, there were 472 takeover bids announced in the UK. Only 15% of these were not recommended at the outset. Only 8.5% remained unrecommended at end of the offer period.

The key suggestions are that the 50% minimum acceptance condition threshold (which is mandatory for most bids in the UK) is too low and should be raised to, for example, 60% or two-thirds of the voting rights in the target company and that voting rights should be withheld from shares in a target company acquired during the offer period (so that those shares would be ‘disenfranchised’ for the purposes of the takeover bid). Both of these suggestions appear to conflict with the usual position that all shares have voting rights by law and a resolution of only 50% is needed to change the board of a company.

Other changes suggested include:

• reducing the 1% trigger threshold for disclosure of shareholdings to 0.5% 
• requiring bidders to provide more information in relation to the financing of their bid and their implications and effects, and requiring the target company to set out their views on a bidder’s intentions in greater detail
• giving shareholders independent advice on an offer (separate from that given to the directors)
• requiring disclosure of details of fees payable to advisers
• giving protections similar to those afforded to target shareholders to shareholders in the bidder (for example, a right to vote on a bid)
• re-examining the ‘put up or shut up’ regime
• further regulating break fee arrangements and other deal protection measures, and 
• re-introducing restrictions in relation to the acquisition of shares between 15% and 30%.

The Panel’s consultation paper sets out arguments for and against all of these changes. However, reading between the lines, it appears that the appetite for change may not be as great as proponents of the changes might have hoped.

Kraft criticised by Panel

After Kraft’s takeover bid was announced, Cadbury announced that its Somerdale facility in the UK would be subject to a phased closure from 2009 to 2010. Kraft, in promoting its bid, said that its current plans contemplate that the UK would be a ‘net beneficiary in terms of jobs’. It said that it ‘believed’ it would be in a position to continue to operate the Somerdale facility. This statement was repeated several times during the bid.

A week after the bid was declared unconditional, Kraft announced that, following extensive talks with senior management of Cadbury, it had reluctantly accepted that Cadbury’s plans to close the Somerdale facility were so far advanced that it was unrealistic to reverse them.

The UK Panel issued a ‘statement of public criticism’ which said that Kraft had not prepared its documents to the highest standards of care and accuracy as required by the UK rules. The Panel also said that Kraft’s financial adviser had not made appropriate enquiries in order to fully discharge its responsibilities, but said that the adviser’s conduct was not sufficient to merit public criticism.

This article was written by Rodd Levy, Partner, Melbourne.

More information

For information regarding possible implications for your business, contact