The aim was to assess changes to the Code designed to support companies defending themselves against hostile takeovers. The Code Committee of the Panel on Takeovers and Mergers has now reported on the proposals it will be looking to implement and identified those it feels are either inappropriate or outside its remit. Some of these changes - including the prohibition of inducement fees and the four-week fixed offer period - may cause concern amongst potential bidders and their advisers.

Virtual Bids

The proposed changes will substantially increase the pressure to maintain confidentiality for as long as possible, so that the offering company isn't put in the difficult position of having to make its full financial offer or declare that it is not bidding within a compressed four-week period. By increasing confidentiality provision, the Code Committee proposals also reflect FSA concerns about the level of secrecy surrounding takeover offers. These announcement requirements will probably not apply in a formal auction process.

Statements

Offering companies will have to provide far more information than is currently the case. For example, they will have to provide details about any changes that will happen as a result of the takeover. They will also have to specify which operations of the target business will continue and what will happen to employees and fixed assets. Companies making an offer and their advisers will be particularly concerned about the proposed requirement that these stated intentions 'will be expected to hold true' for a year from the offer becoming unconditional (unless the Panel grants special permission).

Disclosure

Offer documents will have to provide more financial information. This includes details such as debt structure and, in some cases, a pro-forma balance sheet for the combined group. An estimate of the fees of all advisers will have to be provided and broken down by category.

Deal Protection

One of the most controversial elements of the proposed changes is the prohibition of inducement fees and other deal protection measures, including non-solicitation undertakings.

The effects of this change are likely to be most heavily felt in public-to- private transactions, where largely financial investors rely on inducement fees to underwrite a large part of their costs if the offer fails. However, deal protection measures may still be permitted where the target company initiates a public auction process.

The consultation process also highlighted concern that directors of target companies often believe they are obliged to consider only price when evaluating offers. The Committee is recommending that the Code should state explicitly that this is not the sole criterion and that wider issues should also be taken into account.

The Committee proposes no change in several areas. It felt that the acceptance condition should not be raised above 50% plus one and that it would be unworkable to remove the rights of shareholders who acquire shares during the offer period. The Committee also felt that reducing the period of time in which the offering company has to send offeree shareholders a formal offer document would not provide any benefit to shareholders.

Further consultation papers are to be published shortly, seeking views on specific proposed changes to the Code. On completion of this consultation exercise, the final changes to the Code will be published.

For more details, read our original briefing, " Takeover panel consultation following Kraft" by clicking here.

Ask a question

If you have any questions please contact

Ian Binnie, Partner T +44 (0)20 7524 6766 This e-mail address is being protected from spambots. You need JavaScript enabled to view it

More articles from Entrepreneur Country:

• The Entrepreneur Country Forum: The Unfair Advantage
• PM announces UK copyright laws to be reviewed
• The Wayne Rooney effect Part II: How to manage expectations
• Former trade secretary replaces Lord Sugar as enterprise tsar
• MiiCard wins out as start-ups vie for VC attention in Sibos' Dragon's Den
• 78% of entrepreneurs tell Lord Sugar 'you're fired'
• The Wayne Rooney effect- Why downside protection does not make you money
• Online Dragon Julie Meyer advises fired 'Apprentice'

Like this article and want to be part of Entrepreneur Country? Please click the relevant link below or leave a comment.

Twitter - @Encountry