Following the unseemly debacle surrounding Kraft’s takeover of Cadbury (and some of us remember similar issues many years ago in the Guinness/Distillerstakeover) the Takeover Panel have launched a review into certain aspects of the regulations concerning takeovers and have invited comments. Here are mine.

Any changes to the Takeover Code must ensure that the UK remains a leading destination for foreign investment and as a leading location for corporate HQs and operations.

It would be undesirable for takeover policy to be perceived as a pretext for protectionism, as part of an industrial strategy, or as the outcome of a political lobbying process. There is a clear danger that the introduction of a new public interest test for takeovers would be perceived as such.

That is not to say that the existing takeover policy is perfect. Beyond the Takeover Code, there is strong case for a new requirement that all bids for major UK listed companies should be conditional on achieving the support of the shareholders of the acquiring company. As things stand the shareholders of a target company have a voice but it isn’t necessarily the case that shareholders of an acquiring company are consulted as that depends on the laws of the country where that company is established. Making it a condition that any company trying to take over a UK listed company must have approval from a majority of its shareholders would clearly be in the interests of those shareholders and would also increase the legitimacy of takeover activity in the eyes of employees and other stakeholders.

Some commentators argue that it is not feasible to demand shareholder approval from the shareholders of a non-UK company because such companies are outside of the UK’s jurisdiction but in my view it is quite legitimate for the UK to be able to define the “rules of the game” that apply in respect of a takeover of a UK company.

All listed companies have problems trying to engage their shareholders in the management of the company. Certainly shareholders complain when things go wrong but the fact is that it is very hard to get them to attend General Meetings or even to vote on resolutions by proxy. This is partly because many shares are held by nominee companies and logistically they just can’t cope. However the recently introduced UK Stewardship Code for Institutional Investors may help change this state of affairs.

That said I am not convinced that raising the acceptance threshold above 50% for a takeover offer is the best way to tackle investor disengagement. If introduced such a change would create an anomaly within company law where a simple majority of shareholder votes could dismiss the board and direct the company, but be insufficient to decide the outcome of a takeover.

Neither do I think that there is a case for limiting votes to those shareholders on the register before the bid so excluding short-term investors. There is no merit, per se, in being a long-term holder of a company’s shares. Indeed it is often long-term investors who are least engaged with the company whereas short-term investors often exert a beneficial effect on a company’s governance through active company dialogue.

So there we have it. Changes are clearly needed but there is a lot of discussion still to be engaged in.

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Category: Guide to City Jargon

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