New rules could see companies harder takeover targets

The Takeover Panel revised the UK’s merger regime after an outcry over US firm Kraft’s purchase of Cadbury in 2010, which was also questioned by business leaders and politicians.

Target companies will have to reveal the identity of any suitor if they say they are in talks, or if those talks are leaked in the press.

Would-be acquirers will have just 28 days after that to make a formal offer, including details on financing. Break fees, which penalise any party that walks away from a deal, will be banned.

“I am concerned about the change to the put-up-and-shut-up rules and the new requirement to disclose the identity of unnamed bidders at the outset. This may put some bidders off,” said Tom Willett, chairman of corporate finance for Europe, the Middle East and Africa at RBS.

He added bidders may need longer than four weeks to structure acquisition financing and obtain the necessary approvals from lenders, particularly if the deal is complicated.

According to figures from Thomson Reuters, deals involving a British target or acquirer are already slowing down. With the third quarter soon concluding, activity stands at $88.5bn, compared to $130bn in the same quarter a year ago. Under the existing rules, bidders could remain anonymous even when talks became public and there was no deadline for a formal bid unless the target asked for one to be imposed.

That meant that some companies could endure weeks or even months of uncertainty.

Mark Preston, head of UK advisory at RBC Capital Markets, said the changes recalled legislation that was in place about six years ago, before break-fees were imported from the United States.

“The new rules will put an end to half a decade of bad habits and abuses in negotiating tactics,” he said. “The hope is it will restore the soundness and confidentiality that should prevail in business negotiations between responsible adults.”

Preston was referring to how the new rules will discourage companies from leaking details of potential merger talks to effect the eventual price of a deal. The new rules will have a heavier impact on hedge funds.

“It’s not great news for the event-driven community as it will affect hostile takeovers quite significantly. But it’s not horrible because in the end the final version is not as stringent as what politicians first proposed,” said a UK-based hedge fund manager.

He added the 28-day deadline could deter international buyers, especially in the US and Canada, who are not used to such a short timeframe.