Tighter Rules Mean Tougher Takeovers

Published in Investing on 19 September 2011

New takeover rules force 'secret' bidders to show their hands.

Today, new rules from the UK Takeover Panel came into effect, forcing several firms into admitting to 'hush-hush' takeover bids.

Put up or shut up

Here's the official announcement from the Takeover Panel Executive, setting out the changes to approaches and bidding practices.

The core changes to the Takeover Code aim to improve 'equality of information to shareholders' as follows:

  • Rule 2.4(a): When a company announces a 'strategic review' and starts an offer period, any potential bidders already in talks with that company must be identified in the same announcement.

  • This announcement must also specify a date for a 28-day 'put up or shut up' (PUSU) deadline in accordance with the new Rule 2.6(a).

  • The Executive 'encourages companies and their advisers to consult the Executive not only before making a strategic-review announcement but also before making any statement that confirms that the strategic review is continuing.'

  • New Rule 2.3(d): Any attempt by bidders to seek secrecy -- by, for example, specifying that a potential offer will be withdrawn if the target identifies the bidder -- will be a breach of the Code.

  • A ban on break fees and other 'poison pill' tactics designed to deter other bidders.

Companies come out of the woodwork

The 'no announcement required if no truth' rule is still in force, which means that companies not in offer talks need not reply to, say, press speculation of a potential approach.

As a result of these new rules, a whole raft of companies has stepped forward today, admitting to 'mystery' bidding talks. These include the following (in A-Z order):

Coolabi (LSE: COO)North Promotions
Merchant Securities (LSE: MERC)Sanlam UK
MWB Business Exchange (LSE: MBE)MWB Group Holdings
Parseq (LSE: PSQ)Rami Cassis (CEO), Nova Capital
and HarbourVest Partners
Probability (LSE: PBTY)William Hill (LSE: WMH)
Sportingbet (LSE: SBT)Ladbrokes (LSE: LAD)

All six target companies have set a PUSU deadline of 17 October, which should make that an interesting Monday morning!

The deadline for such announcements is 5pm today, so we may see a few late runners. Among the rumoured candidates for last-minute announcements are fashion retailer Alexon (LSE: AXN) and racetrack owner Arena Leisure (LSE: ARE).

Tougher takeovers

These tighter rules have come about following criticisms of the £11.5 billion 'takeover siege' of great British firm Cadbury by US rival Kraft (NYSE: KFT.US) in early 2010.

These changes are expect to tip the balance of power from bidders to targets and, at the same time, could reduce incidents of trading on inside knowledge.

From today, when a target is approached, it may admit to the approach and identify the potential bidder, as well as setting a mandatory 28-day PUSU deadline. This will cut down on frivolous, opportunistic and speculative approaches, helping boards of directors to concentrate on managing their businesses and boosting shareholder returns.

More from Cliff D'Arcy:

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snoekie 20 Sep 2011 , 6:02pm

And about bl**dy time!

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