M&A experts not so sweet on ‘Cadbury Law’: Part One
The prospect of a ‘Cadbury Law’ – legal changes that would make it more difficult for foreign firms to takeover successful UK public businesses – hit the headlines again last week, with the news that Kraft is relocating Cadbury’s UK HQ to Switzerland.
Moreover, under the instigation of secretary of state Vince Cable, the Deparment of Business, Industry and Skills (BIS) is currently looking into "market short-termism", while the industry-constituted Takeover Panel is still consulting over possible legal changes to protect British businesses from hostile takeovers.
Kraft’s protracted pursuit and eventual £11.5bn takeover of Cadbury, eventually approved by the latter’s board in January, angered politicians and public alike, when Kraft reneged on a pledge to maintain 400 jobs and production at Cadbury’s Somerdale site.
Takeover Panel reports
The process led to experts and laypersons alike pushing for legal changes to make takeovers of UK plcs more difficult – the bulk of which were considered in an October 21 report from Takeover Panel (which administers the City Code on Takeovers & Mergers).
Measures recommended by the panel included limiting the time a bidding firm has between expressing an interest and tabling a bid (to stop it destabilising a target), and greater transparency regarding bidders’ plans for target firms' staff and infrastructure.
More radical changes not endorsed included raising the ‘victory’ threshold (the percentage of target shareholder votes needed to approve a bid) now set at 50.1%, and banning ‘short-term’ shareholders from voting on whether to accept takeover bids.
The last measure – supported by business secretary Vince Cable – is framed to disenfranchise hedge funds (which often invest soon after takeover talk begins to benefit from a share spike), to stop them from voting in favour of accepting an offer, then promptly dropping shares thereafter.
Cable pushes for stronger changes
Cable hinted in late October that he wanted to push the panel’s recommendations further amongst the wider business community, but top UK corporate lawyers told FoodManufacture.co.uk that the panel’s proposal went far enough.
Corporate finance partner Julian Wild (pictured), who heads Rollits food group and recently advised Northern Foods on its Dalepak sale, told FoodManufacture.co.uk that sweeping changes risking hurting the very British businesses they were designed to protect.
“Put simply, I am not personally in favour of national protectionism, and the fact that the UK is an easy place to do deals and do business is a big plus, he said.
“The same couldn't be said of France, for example, look at Yoplait [where the government is currently reserving the right to block any prospective takeover], or Germany.I wouldn't be in favour of a load of measures aimed at making deals harder to do.”
Wild also insisted Cadbury was “only a British company by heritage” at the time of the Kraft takeover: “Cadbury was already an international business (no longer just UK-focused), had happily sold its Schweppes business to the highest bidder.
“It also had an international shareholder base, many of whom were in the US.”
Charles Bond, corporate partner at Cobbetts, agreed with Wild that the UK should be wary of protectionism: “If you want to attract overseas investment – especially to The City which took a beating during the recession – then you need an ‘open door’ policy.
“If that means overseas companies buying ours, it may be the price we have to pay given stagnant GDP growth in comparison with countries such as China.”
Broken promises
Nonetheless, Wild supports the panel’s recommendation to force firms to table formal bids within four weeks of expressing an interest.“I do think the process dragged on far too long and I would certainly favour a 'put up or shut up' approach.”
He also expressed distaste for Kraft's infamous broken pledge to Cadbury workers concerning its Somerdale factory: “The most unpalatable thing about the Kraft bid was that Kraft gave certain assurances during the deal (for instance, keeping Somerdale open) and then reneged on that immediately after deal was done.
“That is totally unacceptable. If assurances are given in order to win over shareholders and employees, those should be binding commitments.”
* Part 2 of FoodManufacture.co.uk's special news feature on the 'Cadbury Law' covers further legal and trade union opinions on potential changes to the Takeover Code.
