Code change in the UK causes rush of announcements by targets
Bidders were flushed into the open en masse when the UK’s new takeover rules came into effect in September.
Several companies were outed as potential acquirers under new requirements that targets name a bidder in announcements to the market.
For example, Canadian firm Red Label Vacations was named by Travelzest, an AIM-listed online travel group, as a prospective bidder.
And online gaming firm Probability revealed it had received interest from William Hill, leading to a 40 percent spike in the target’s share price.
The new rules also dramatically speed up the timetable for bids. Once a potential bidder has been named, it has just 28 days to either announce a firm intention to make a bid, or walk away.
This means companies will have far shorter periods in which to sound out support from shareholders, as well as conduct due diligence.
Limiting virtual bids
The reasoning behind the accelerated timetable is to prevent bidders from conducting drawn-out takeovers – known as ‘virtual bids’ or ‘bear hugs’ – where a possible offer is announced well before any solid bid in an attempt to wear down the target.
This tactic was used by Kraft two years ago in its pursuit of Cadbury. At the time, Cadbury chairman Roger Carr said the timetable should be tightened up ‘to ensure the phony war does not become an unapproved, extended and destructive first round [of a takeover]’. In September he got his wish, albeit far too late to keep Cadbury independent.
Lawyers expect the changes to have the desired effect by making it harder for would-be acquirers to conduct a lengthy takeover.
Law firm Charles Russell, in a briefing to clients, says it expects the amendments will reduce ‘announcements by prospective bidders either as a means of putting public pressure on a reluctant target, or of testing market reaction to a potential deal’.
The 28-day deadline, and lack of certainty about an extension, means prospective bidders need to be better prepared before making an approach, adds the firm.
