Tim Human’s monthly M&A column
The UK has dramatically changed its takeover rules in the last year: bear hugs were banned, disclosure forced on bankers’ fees, and targets must now name bidders in announcements to the market.
But that’s not enough for Ed Miliband, the leader of the opposition Labour Party, who wants further tweaks to the system.
Miliband’s gripe, outlined in an article in the Financial Times, is that short-term shareholders have too much say on the outcome of hostile takeovers. UK firms need protection ‘against fund managers chasing the fast buck,’ he argues.
While Miliband’s beef is with shareholders, however, he is still looking to shareholders for the solution. He wants to empower the ‘good’ investors that value the long-term prospects of the firm, not the ‘bad’ ones that care only about their short-term P&L.
Specifically, he is looking at a proposal to ban investors from voting on a takeover if they bought shares after the bid was announced.
He is also considering an idea to raise the threshold required to approve a bid from a majority of votes, as it is now, to two thirds.
Cadbury case study
In making his point, Miliband refers to Kraft’s hostile takeover of Cadbury, when hedge funds took control of 30 percent of the share register, making the success of the bid almost inevitable.
‘There is no starker example of the short-termism that blights British enterprise than some of the hostile takeovers of recent years,’ he writes.
Ideas like Miliband’s have been suggested before – for example, by former Cadbury chairman Roger Carr – and they have come up against a few problems.
First, by requiring a two-thirds approval vote to take over a firm, situations could arise where a majority of shareholders support a bid, but it still gets blocked. This feels undemocratic.
Meanwhile, disenfranchising investors who buy after a bid is announced goes against the principle of one share, one vote, which is much prized in the UK.
A further issue is the blanket assumption that institutional investors can be relied upon to look after a company’s long-term interests: what does Miliband think Cadbury’s long-term shareholders were doing when they sold out to the hedge funds, apart from ‘chasing the fast buck’? Institutions like a quick profit, too – just like the rest of us.
