Kraft/Cadbury saga prompts UK takeover shake up
Revisions to the UK Takeover Panel’s code on mergers and acquisitions include a 28-day ‘put up or shut up’ limit on the time between companies going public in declaring an interest and potential acquirers presenting a formal bid to their target’s shareholders.
This contrasts with the run up to the Cadbury takeover, when Kraft besieged the British company with unwanted attention for months before finally pushing the deal through.
The Takeover Panel is the body responsible for supervising mergers and acquisitions involving companies listed on the London Stock Exchange.
Preventing instability
Companies that are subject to bids - or rumours of bids - often experience instability. That instability can be harmful and could even force target companies to accept a bid that would otherwise be rejected. Under the new rules, once a potential acquirer is identified publicly it will have just 28 days to make a bid or face having to sit through a six-month cooling off period. Target companies are also obliged to name potential suitors publicly straight away in order to start the clock ticking.
A second revision to the code limits termination fees and other deal protection devices. Under the old rules, targets could agree to pay an initial bidder up to 1 per cent of the value of the proposed transaction if a third party subsequently agreed to acquire the company. The Takeover Panel has now banned termination fees altogether, along with any other protection for the initial bidder that might “deter competing offerors from making an offer, thereby denying offeree company shareholders the possibility of deciding on the merits of a competing offer.”
Kraft/Cadbury concerns
The takeover code amendments were implemented this week in response to concerns raised by the acquisition of Cadbury by Kraft.
Kraft initially approached Cadbury privately with a £10.2bn offer on 28 August, 2009 and went public with its intentions on 7 September. Two weeks later, Cadbury asked the Takeover Panel to set a deadline for the bid, and the Panel responded with a cut-off date of 9 November.
By the time the deadline rolled around, a falling share price had eroded the value of Kraft’s formal bid to £9.8bn, which Cadbury dismissed as “derisory”.
Kraft then explained its bid to Cadbury shareholders in a 180-page circular on 4 December, kicking off a 60-day countdown under the old takeover rules. Cadbury issued a rebuttal on 12 January, but on 18 January, 2010 the board finally recommended the sale to Kraft for £12 bn.
The entire process took over four months.
