The Government has published a Command Paper responding to the BIS select committee report on mergers & acquisitions and takeovers.
The BIS report had examined the widely criticised Cadbury takeover and commented that the takeover had highlighted the need to address all takeover activity to ensure that it was carried out in the best interests of the UK economy. In addition, the report stated that a wider public policy review should be undertaken to consider the role of shareholders and management of companies more generally.
The Command Paper covered the following areas:
Review of Takeover Regulations
The Government states that it is satisfied that the existing legislative framework governing the power to intervene in mergers on public interest grounds provides appropriate scope to take action to protect legitimate national interests. Instead, it intends to review whether there are other aspects that could be tightened, e.g. increasing merger fees and introducing a requirement for pre-notification of some mergers.
The Government also notes that the responses to the review of UK takeovers undertaken by the Takeover Panel (see UK Corporate Update 15 June 2010 for further detail on the Takeover Panel review) will play an important part in its own review and that it will look at three areas in particular:
- whether bids make economic sense from a bidder perspective; the Government cites evidence that bidders achieve only small increases in value or declines in the case of hostile takeovers;
- whether target boards only act to get the highest offer price; the Government believes that it is important that target boards carefully consider whether a bid represents long term shareholder value; and
- whether the outcome of takeovers is decided by short-term investors.
- The Government sets out its principle-based approach to takeover regulation as follows:
- the UK should continue to enjoy open markets; no distinction being drawn between foreign or domestic ownership;
- a company should be more than a series of short term financial transactions. Its directors should have a clear strategic vision and sense of purpose;
- shareholders have an important responsibility to consider takeover bids carefully and to seek to gauge long-term value;
- the relationship between shareholders and directors is of fundamental importance to good corporate governance;
- too many UK takeovers fail even by the limited criterion of shareholder value; and
- a return to the public interest test for takeovers is not currently planned.
Corporate Governance Issues
Whilst noting the recently revised UK Corporate Governance Code and the introduction of the new Stewardship Code, the Government wants to look at broader corporate governance issues, including:
- the way institutional shareholders and their fund mangers perform their role as responsible owners of listed companies; and
- ways to strengthen engagement between listed companies and shareholders. As set out below BIS is consulting on ways to improve the quality of narrative reporting.
Kraft/Cadbury
The Government will monitor Kraft’s delivery of the commitments it has made in respect of Cadbury.
Click here for the Government Command Paper.
Click here for the BIS select committee report.
