Business leaders warn hostile buyouts code does not go far enough

Business leaders have broadly welcomed the Takeover Panel's revised code to protect large UK listed companies from hostile buyouts but warned that it does not go far enough.
 
The Panel's review was triggered by the furore following Kraft's controversial £11.6bn takeover of Cadbury and its decision to shut down the UK confectioner's Somerdale factory in Keynsham near Bristol after promising to keep it open during the acquisition process.
 
As a result, the regulator said that the new rules were intended to redress imbalances that gave hostile bidders a "tactical advantage" and made it too easy for them to succeed. The most significant measure is the crackdown on so-called 'bear hugs', where predators state their interest in a target company, but wait for a significant period of time before submitting a offer so that market pressure mounts.
 
Bidders will now have only four weeks to make a formal bid unless they agree otherwise with the company concerned and must henceforth disclose their intentions towards them.
 
Detailed financial information on the bidder and on the financing of the offer will also have to be specified in order to avoid the 'virtual' unfunded bids that became common during the credit boom years. But there will likewise be a ban on 'break fees', which are payable by target companies should they walk away from an agreed offer.
 
Roger Barker, head of corporate governance at the Institute of Directors, said that the membership body broadly welcomed the cautious approach that the Panel had taken by not supporting some of the more radical options on the table such as raising the threshold for the acceptance of hostile bids from 50% plus one.
 
But he added: "We are disappointed that the Panel has not supported our proposal that all bids for major UK listed companies should be conditional on achieving the support of the shareholders of the acquiring company."
 
Such a situation would be in the interests of shareholders and increase the "legitimacy of takeover activity in the eyes of employees and other parties with a stake", Barker said.
 
Lobby group the CBI, meanwhile, warned that there was still a need for a "full debate" on the role of short-term investors who only buy shares during the bid period but can help determine the outcome of takeover battles.