Clifford Chance

The View from Clifford Chance - Takeover Code

Welcome to the first edition of Clifford Chance's media newsletter. Written for journalists, The View highlights viewpoints from our partners on a selection of hot topics. In this first edition, London Corporate Partners Patrick Sarch and Tim Lewis share their thoughts on the Takeover Code review: the changes to which are expected to be announced any day now. If you'd like to hear more, please contact a member of the PR team, contact details can be found in the Media Centre.

We'd welcome any feedback or suggestions of topics to be covered in the future.

Thoughts on the Takeover Code review

By London Corporate Partners, Tim Lewis and Patrick Sarch

The Takeover Panel is poised to publish details of the proposed amendments to the Takeover Code in the light of Kraft/Cadbury, following its statement in the Autumn setting out the parameters of the new regime.

Overall, Clifford Chance thinks the Panel has done a good job in proposing changes which will obstruct and deter opportunistic and unwelcome bidders, without appearing too protectionist in the process.

However, there are some aspects in the proposed new regime that Clifford Chance expects to be less than welcomed by interested parties on the buy-side, who at this stage have one last opportunity to lobby for a change of heart by the Panel.

At the top of the list is likely to be the 4 week fixed Put Up or Shut Up (PUSU) period. The 4 week deadline seems to have been chosen arbitrarily as the mid-point between the current 6 – 8 week period and the much shorter period demanded by some respondents to the initial consultation.

According to Clifford Chance Corporate Partner, Patrick Sarch, increasing the fixed PUSU period to 6 or 8 weeks would give much needed additional time in the case of an early leak. But Clifford Chance does not see the necessity for an arbitrary fixed deadline at all.

"We would like to see the Panel retain some discretion in this area. We would expect to see the Panel hold both sides' feet to the fire and quiz them on why more time is needed and why more time is reasonable. Under the new rules if the target and the bidder both want an extension, we would expect the Panel normally to agree. But in a hostile bid if the target opposes an extension the Panel would be barred from agreeing to it. We think that is wrong. We understand the need to ensure targets aren't under siege for a disproportionate period, but for a serious bidder in a 'bet the company' deal, it's sometimes unavoidable to take a bit longer and it is target shareholders who would miss out on the opportunity to decide on the deal as a result of an unreasonably restrictive set of rules", he says.

The other contentious area where there may still be some wriggle room is the proposed blanket ban on deal protection measures. The Panel is expected to hold firm to the ban on inducement fees, so any change in this area is likely to focus on contractual undertakings which do not materially deter rival bidders or impede a target's ability to withdraw or change its recommendation.

Clifford Chance thinks that the proposed ban on inducement fees and other deal protection measures risks setting the UK apart from other Western economies in this area. "Different countries have different rules on this, but it would be extraordinary if the UK was in a small minority of countries where contracting parties which are properly advised are unable freely to contract with one another," Mr Sarch says. "It is not for the Panel to say certain things are not permitted where both parties are otherwise willing to do them. This is the wrong tool to fix the problem."

Whilst unsupportive of some of the Panel's proposals, Sarch concludes, "Although the changes are going to make life more difficult for bidders in many ways, particularly in complex hostile transactions, we think the Panel has steered a thoughtful line between responding to the politically charged calls for change in the light of Kraft/Cadbury and not ultimately making a huge difference to the way things will happen in practice in most cases."