25 March 2002
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7 July 2014
It seems that Carnival has ruined the party for dual-listed companies (DLCs). The Takeover Panel has now had a change of heart and decided that the Takeover Code should apply to dual-listed mergers.
From one perspective this is a shame. If the P&O Princess-Royal Caribbean merger had been covered by the code, we might have been deprived of one of the juiciest hostile takeover bids for a while. Unlike most takeover battles, where the investment bankers and the chief executive officers hog the headlines, the legal anomalies of DLCs made lawyers the kings of the Carnival. In fact, it's a mercy that the deal came during an M&A slump, because lawyers spent a significant number of billable hours filling the business pages with expert comment.
While most have enjoyed the spectacle of Carnival, the consensus from lawyers and the wider business community is that the Takeover Panel is right to open up the debate on DLCs. The Carnival shenanigans were a concrete example of an unfair double standard. Both Royal Caribbean and Carnival were interested in a UK company, but while Royal Caribbean could use contentious legal devices in its merger agreement, Carnival was bound by the code when making any takeover offer.
Some lawyers murmured that P&O and Royal Caribbean had pushed it just a little too far by including a 2 per cent break fee in the merger contract - double the amount allowed for a code transaction. However, Freshfields Bruckhaus Deringer and Slaughter and May, representing P&O and Royal Caribbean, rightly fell back on the Takeover Panel's prior approval of the DLC deal.
The most damning critic of the P&O-Royal Caribbean deal was the Association of British Insurers (ABI). Championing shareholders' rights, the ABI came out strongly against the proposed cruise line joint venture, which was widely perceived as a poison pill. The ABI viewed the device as an attack on the sacred rights of shareholders to sell out to the highest bidder without interference from corporate board members, whose primary motivation is job protection.
The decision in principle, that DLCs should come within the code, represents a significant volte-face by the Takeover Panel. The panel announced in its 2000 statement of accounts that many DLCs would not be considered to be an offer as defined in the code, and a flurry of double-headed mergers followed. Nobody would ever choose a DLC merely to get around the code; share flowback and a political reluctance to allow national champions to abandon domestic exchanges are much more important considerations. But the panel's announcement nevertheless cleared the path for a DLC boom.
The code committee put out a two-paragraph statement saying that it had already decided in principle that DLC mergers should be brought within the code. It didn't say much else, which is unusual in that the takeover panel would ordinarily release a concrete set of proposals when suggesting reform. Panel sources claim that the injustices of the Carnival bid meant a swift public response was paramount. Some lawyers have complained of a knee-jerk reaction, but the panel has promised a full public consultation before the detail is filled in.
What lawyers fear most is a botched job that will dent business enthusiasm for DLCs. The best prognosis would be a debate encompassing the broader issues of break fees and poison pills, which were what really got the ABI's back up. Freshfields pioneered the use of break fees, importing them from the US as part and parcel of work for US investment banks, while Slaughters, with its UK corporate constituency, fought hardest against their introduction. Today you can hear advocates of break fees even in the hallowed halls of Slaughters, surely a sign that the Takeover Panel should reconsider them as part of a comprehensive review of the code.