Yahoo Finance Government backs tighter rules on takeover of UK companies
Bidders for UK stock market listed companies must lay out more detailed plans for their target, including location of its head office and research and development investment, under proposed rules put forward by the takeover watchdog and backed by the government.
The new rules, which were published in a consultation document on Tuesday, also give companies, unions and other employee representatives more time to respond to bids in changes which follow the controversial £115bn attempted takeover of Unilever by Kraft Heinz earlier this year.
Ahead of the general election in June, the Conservatives promised that deals driven by “aggressive asset-stripping or tax avoidance” would no longer be welcome. Theresa May vowed that bidders would have to be clear about their intentions, and their promises will have to be legally binding.
Her pledge came after unions voiced fears over the 9,000 jobs in Britain that could have been affected by the Unilever deal, with Unite calling for a change to takeover rules that would take more account of employees.
Unilever chief executive Paul Polman argued that defending companies needed more time to audit detailed cost-savings set out by their potential owners.
The acquisition of Cambridge-based technology firm ARM by Japan’s SoftBank last year also highlighted concerns over the loss of important British technology assets to overseas buyers. Under pressure from the UK government, the Japanese bidder eventually made legal commitments to keep ARM’s headquarters in Cambridge and at least double the UK workforce in the next five years.
Greg Clark, the business secretary, welcomed what he called “valuable changes” proposed by the Takeover Panel which he said would “give companies subject to a bid more time to prepare their response”.
He also pledged to publish proposals this autumn that address the national security concerns that can arise from foreign investment. He said these would “set out further measures to safeguard national security, while ensuring the UK remains a global champion of free trade and investment”.
Under rules introduced in 2011 after the much-criticised takeover of Cadbury by Kraft, which resulted in a factory being closed despite promises to the contrary, bidders must already make clear their plans for the target business, its employees and pension scheme.
But bidders’ statements under that rule have often been vague and sometimes misleading, so the panel now wants more specific information on the location and function of a company’s headquarters, plans for research and development and any material changes to the conditions of employment or the balance of skills and functions among management and employees, or redeployment of fixed assets.
A statement of these intentions must be made at the time a bidder announces a firm offer to shareholders and any later changes made clear. The new rules stop short of demanding that all plans announced must be legally binding. However, the bidder must say if its plans are merely intentions or a firm undertaking, which it would then have to confirm to had taken place within 12 months of the deal being finalised.
Previously the detail of plans for a company being taken over could be delayed until the offer document was posted, potentially 28 days after the formal bid was made.
The offer document and intensions of the future for employees, might alternatively have been published on the same day as the formal offer, giving only two weeks for unions or target companies to put forward their views on the deal within a circular which must be sent to shareholders under a set Takeover Panel timetable.
Under new rules the offer document cannot be posted until two weeks after the firm offer, unless otherwise agreed by the target company, giving more time for board directors and unions to respond.
“What the panel is doing is forcing bidders to crystallise and reveal their plans in greater detail earlier in the process, when they commit to a deal,” said Oliver Lazenby, an expert in corporate law at Freshfields Bruckhaus Deringer.
“The panel would say that any considered bidder would have thought about those things anyway and it shouldn’t be a huge inconvenience to include them in a public statement. But it could be argued this is adding further to the burden on bidders particularly in takeovers of distressed companies.”
Unite national officer Rhys McCarthy said: “This is a step in the right direction, but it doesn’t go far enough to address the UK’s woeful takeover rules where the overriding factor is usually how much money can be thrown at shareholders rather than other considerations such as the national interest, jobs and communities.”
The Takeover Panel said comments on the planned changes should be filed by 31 October.
