U.K. Deal Crackdown Forces Mystery Bidders to Reveal Themselves
Mystery suitors for U.K. companies will be forced to declare themselves next week as regulators implement stricter guidelines to increase transparency and protect shareholders.
Bidders for seven companies, including Central Rand Gold Ltd. (CRD) and CryptoLogic Ltd. (CRY), will have to identify themselves under new rules that go into effect Sept. 19. They will then have 28 days to craft formal offers and provide details on financing, advisers and fees, or walk away for six months, according to Takeover Panel guidelines.
The policies, part of a broader regulatory overhaul after Kraft Foods Inc. (KFT)’s $20 billion purchase of the U.K.’s Cadbury Plc last year, aim to protect investors in target companies and reduce the advantages hostile bidders had under previous rules. While the moves may increase certainty around transactions, they also threaten to stall dealmaking, already down 44 percent in the U.K. this quarter from a year ago.
“This could lead to a slowing in M&A activity, in what is already a pretty tough market,” said Philip Broke, a partner at law firm White & Case LLP in London. “Companies in situations that have not become public will probably be nervous if it becomes public after Sept. 19 because they will have to make a quick decision on whether they can be ready.”
The new rules require bidders to reveal themselves if a target has disclosed talks with a potential unidentified buyer or if the discussions become public through news reports.
The four-week window for formal offers may deter hostile bidders, which typically need time to build a case to win over investors at the target company. There has been one hostile takeover offer for a U.K. company this year, Alere Inc. (ALR)’s July bid for diagnostic test-maker Axis-Shield Plc (ASD), according to data compiled by Bloomberg.
“Requiring potential offerors to clarify their position within a short period of time will increase the protection for offeree companies against a protracted ‘virtual bid,’ referring to when a company announces it is considering making an offer, but does not commit to do so,” Robert Gillespie, director general for the panel, said in an e-mailed statement.
The changes may help to make transactions more solid because suitors will conduct further due diligence and attempt to set financing before making approaches, said Nick Rumsby, an M&A partner at law firm Linklaters LLP in London.
“There will be a lot of debate about when to approach because they have to be ready if the details leak,” he said. “Otherwise they risk embarrassment if they can’t put a bid on the table within the 28-day period, or secure the target’s agreement to an extension.”
Merger and acquisition volume in Europe has fallen 26 percent so far this quarter from a year earlier, to $150 billion, according to data compiled by Bloomberg. U.K. deals sank to $63 billion, with U.S. companies including Fidelity National Information Services Inc. (FIS) and Cooper Industries Plc (CBE) dropping plans to acquire British companies last month.
Under the takeover agency’s previous guidelines, bidders could stay anonymous after negotiations became public and had no deadline for formal bids until targets requested them, which sometimes took months.
“There is a real chance that potential offerors will decide they don’t want to be named, so they will stop any discussions and agree to stop work for six months,” said Rumsby. “Being named as a potential offeror, combined with a mandatory four-week deadline, will focus people’s minds on bid tactics and preparation in a way they probably don’t think about at the moment.”
ATH Resources Plc, a coal-mining company, and Maxima Holdings Plc, a computer-systems management firm, both said this week that talks with unidentified bidders collapsed.
Companies in an offer situation where the bidder is unknown include Alexon Group Plc (AXN), Arena Leisure Plc (ARE), Pointon York Group Ltd., Specialist Energy Group Plc (SEGR) and Travelzest Plc (TVZ), according to the Takeover Panel’s website. There are more than 30 potential deals before the panel.
Regulators began reviewing the code last year after Northfield, Illinois-based Kraft’s hostile six-month effort to buy candy maker Cadbury. The panel criticized Kraft for misstating its intentions over keeping a U.K. plant open, the panel’s first public reprimand in three years. Lawmakers including then Business Secretary Peter Mandelson argued that companies making bids should focus on long-term interests, not short-term gains.
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