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The introduction of the revised Takeover Code on 19 September represents an attempt by the Takeover Panel to remove a tactical advantage hostile offerors have enjoyed over target companies. Corporate lawyers at Fieldfisher anticipate that this will result in a fundamental shift in takeover strategy, including an increase in the number of hostile bids.
Over recent years, many bidders have announced that they are considering making an offer without committing to making such an offer, in what is referred to as a “virtual bid” period. This was seen in the announcement made by Kraft in relation to Cadbury in September 2009. Extended virtual bid periods have allowed bidders to pursue possible offers at minimal cost to themselves. However, the uncertainty created by possible offers has potentially damaging implications for target companies as they may encounter difficulty executing corporate transactions and retaining and attracting employees, as well as customers and suppliers being reluctant to enter into long term contracts.
This is set to change with the introduction of the revised Takeover Code. Under the new regime, when a possible offer announcement is made, the target company must name the potential bidder with whom it is in discussions. A strict timetable will also be introduced which gives the bidder a four week deadline from the time of the initial announcement to make a decision on whether or not to make a bid or to obtain a deadline extension (which will need the consent of the target company).
Corporate partner Amerjit Kalirai, who was recently seconded to the Takeover Panel for two years, says: “As a result of the new rules on public identification of offerors and the introduction of strict deadlines, the number of hostile bids is likely to rise since the offerors who are not welcome by the target company won't get an extension of the deadline and will be forced to make a hostile bid or to concede defeat. We will also see a decline in the overall number of bids, since many potential bidders will avoid being identified early on in the process of evaluating a potential offer and others will not wish to commit to making an offer so quickly after a leak.”
Amerjit continues: “Another interesting change to existing bid strategy is that the bidder will be much more concerned to avoid a leak than before and may also delay making its approach to the target company in relation to the offer. This is to minimise the chances of a leak and thereby having to make a decision regarding an offer sooner than would otherwise be the case.”
All bidders will need to be named on 19 September by target companies that have already announced a possible offer.
For further press information please contact:
Louise Eckersley, Senior PR Manager, Field Fisher Waterhouse LLP on +44 (0)20 7861 4120