Potential offerors will have 28 days to make a bid once changes to the Takeover Code are implemented
Following the controversy over Kraft’s takeover of Cadbury in early 2010, the Code Committee of the Takeover Panel (the Panel) has been consulting on changes to the Takeover Code (the Code). The overall effect of those changes should be to make the takeover process less tactically advantageous to hostile bidders. We outline the principal proposed changes to the Code in this post and the expected timetable in this post.
Introducing a fixed period in which a firm intention to make an offer must be announced
One of the principal changes to the Code will be to alter the “put up or shut up” rule. Under the existing Rule 2.4(b) of the Code, an offeree company can request – at any time during an offer period that follows the announcement of a possible offer by a named bidder – that the Panel impose a time limit for the potential bidder to clarify its intentions.
The ability to impose a time limit is, however, a discretionary one for the Panel, and the potential offeree company has to make its case. The result can be that a potential bidder is able effectively to lay siege – via a so-called “virtual bid” – to a potential offeree company until the Panel insists that the bidder “puts up or shut up” i.e. makes a bid or walks away. In the Kraft-Cadbury deal, that virtual bid period lasted months until Kraft was forced to state its intentions, with a consequently destabilising effect on Cadbury.
In order to provide a greater level of protection for offeree companies, the Panel is proposing in a new Rule 2.6 that, within 28 days of a potential bidder being publicly identified, that potential bidder must:
- announce a firm intention to make an offer;
- announce that it does not intend to make an offer, in which case the potential bidder would be restricted from making an offer for the offeree company for at least six months; or
- together with the board of the offeree company, obtain an extension from the Panel to the 28 day deadline.
Alongside this new 28 day deadline is a related proposal to increase the protection for offeree companies against protracted virtual bid periods: that a potential bidder should be identified where an announcement by an offeree company commences an offer period.
Mandatory naming of bidders
At present, Rule 2.4(a) of the Code does not require a potential bidder to be named when a possible offer is announced. The Panel intends, by a new Rule 2.4, that where an announcement by an offeree company commences an offer period, that announcement must identify any potential bidder with whom the offeree is in talks or from whom it has received an approach.
The identification of a potential bidder should reduce the tactical advantage that bidders have been able to obtain over offerees, by putting them “in play” but not committing themselves. The requirement will be to identify any potential bidder; so if the offeree is in talks with multiple potential bidders, each such bidder will be identified.
The result
The result of these two rule changes is that a potential bidder will have 28 days from the date of the announcement in which it was first identified, to announce a firm intention to make an offer or to withdraw. The private equity community has strongly opposed the introduction of this 28 day period, arguing that it is an insufficient period in which to conduct due diligence and to arrange financing.
Neither the mandatory naming of bidders, nor the 28 day deadline, will apply when the offeree company has initiated a formal process to sell the company by means of a public auction.
The current proposed implementation date for these changes is on or around 19 September 2011, as we discuss in this post.
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