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29 November 2013
Outsiders find it difficult to get their heads around the Takeover Panel. Although it has policed UK mergers and acquisitions since 1968, the panel has somehow retained an air of mystery, thanks in part to its low profile.
Easily pigeonholed as a relic of the City's old boys' network, the panel is not bound by precedent and the key members of its executive, including director-general (DG) Richard Murley, are not even permanent members of staff.
Murley himself is softly spoken, with an air of quiet authority - quintessentially English, in fact. Educated at Oxford and trained at Linklaters and then at Kleinwort Benson, when it was still an independent UK investment bank, he is more than qualified to wear the old school tie.
With the DG's background it is tempting to dismiss the whole regulatory body as an outdated gentlemen's club, but that would be a mistake. It is deeply respected by practitioners who use it regularly, while Murley himself is particularly praised for his grasp of the detail - an area where insiders say he oudoes his predecessors.
Some M&A lawyers have grumbled about the panel's recent spurt of complex consultations, but the regulator is still viewed by lawyers as infinitely preferable to the more bureaucratic Office of Fair Trading (OFT) and the Competition Commission, which both regulate the competition aspects of mergers.
"Bidders can ring us up by lunchtime and have a ruling by teatime. And that means a lot to them in a fast-moving bid," says Murley.
This is not to say that bidders are always happy with the regulatory body. Murley can not talk about any individual cases, but there were a few strong words between panel executives, including Murley, and the Brascan consortium on the bad-tempered battle for Canary Wharf. All Murley will say is: "The [overseas bidders'] advisers, whether lawyers or bankers, have a lot of explaining to do as to how the panel works, particularly if the clients are North American and from a legalistic system."
Ultimately, what users seem to think of the Takeover Panel depends on whether they are on the winning side. "Obviously, they only like the flexibility if it works in their favour rather than against them," says Murley. "It depends on the individual ruling whether it happens to suit their tactical purpose. We can be heros one minute and villains the next."
Murley, like most panel executives, is on secondment from another organisation. He was loaned out by Goldman Sachs for two years in 2003, but has enjoyed his panel role enough to stay on for an extra six months. He is staying to see through the implementation of the EU takeover directive, which will give the panel a statutory underpinning for the first time.
Commentators initially thought that the directive would make it easier for those involved in a merger to challenge panel rulings. However, Murley does not believe there will be much litigation as a result. "We see no particular reason why the changes the directive has put in place should change the way the court looks at whether it should interfere," he argues.
He points out that there is already a route of appeal within the panel process, albeit one which is used rarely. It will be difficult for parties to litigate against panel decisions until they have exhausted their options to appeal before the appeal tribunal. Murley says: "[Even then], there's quite a strong judicial flavour to the panel appeal process. It complies with the Human Rights Act and therefore there's a good basis for the courts to continue to take the approach that they don't want to interfere."
The panel's attitude to its own future has been heavily trailed and will not surprise practitioners, but its attitude to the new pensions regulator will. The recent Pensions Bill has been decried as the death-knell of M&A because it will make bidders, including private equity houses, liable for black holes in the pension funds of target companies. While it may be practicable to adjust price in order to fund deficits, it will be virtually impossible to avoid a time-consuming encounter with the new pensions regulator. Crucially, Murley will not allow bidders the comfort of a formal bid that is conditional on clearance from the pensions regulator. Instead, he says bidders will be able to use the Takeover Code's Rule 2.4 to launch what is commonly called a 'virtual bid', where negotiations with the target allow the bidder to try before it buys.
This will cause some consternation, but for Murley the panel's view on pensions regulators is in line with the regulator's fundamental principles. "Pension funds are clearly going to be very subjective areas and the code very clearly set its face in the consultation last year against allowing bidders subjectivity," he says.
A major consultation last year saw Murley and co massively rein in the types of conditions that bidders could attach to their offers. "We'd certainly take a very dim view of a bidder who made a bid in anticipation of something that's very likely to happen, because they would be in breach of their obligation not to embark on a bid that they don't think they can conclude," he says.
The condition should also be drawn to the attention of shareholders. "You don't put it on page 35 of a 45-page press announcement, halfway down 15 pages of boring conditions," insists Murley. "It needs to be up the front where people can see it, because if it has the importance that the offeror is telling us it has, they need to reflect that in the way they put out their paperwork." Increased regulation of formal bids is one of the reasons why the majority of takeover activity now takes place in the virtual bid arena. Greater private equity interest in public companies has also been another key driver.
"Private equity houses, or bidders who have a lot of leverage, effectively require due diligence and offerees and advisers are prepared to allow it," says Murley. "A concomitant is that you see more auctions effectively conducted before the Rule 2.5 period."
The panel has a March year-end and in the year just gone it regulated 20 per cent fewer formal bids than the year before. Here, in a sense, it is making a rod for its own back, as only formal bids generate the fees on which the panel's survival depends, but reams of copy is dedicated to takeover rumours. "We see a huge number of rumours, which everybody sees," says Murley. "We investigate all rumours. The vast majority we're told are not true."
Despite speculation to the contrary, the panel has no plans to increase the regulation of virtual bids. "I don't think there's anything significant that we have up our sleeve in terms of further changes. We feel we have enough regulatory levers to pull," says Murley.
The most draconian measure available to the panel is a 'put up or shut up' order of the kind used against Malcolm Glazer in his ongoing battle for Manchester United. Effectively, the panel has now told Glazer that he must either bid for the football club by 17 May or leave it alone for the next six months.
Murley says: "We have a hair trigger approach to getting companies in an offer period, particularly after they've had an approach. As your readers will know very well, it doesn't take much to get the panel to force you to put out an announcement, and you're then into an offer period."
On press reporting and PR spin around bids, he says: "We take the view that, when a company is in an offer period, there's a strong element of caveat emptor. You should treat all rumours with caution. So that's a fairly clear message that you shouldn't believe everything you read or hear about."
As a former lawyer (however briefly), Murley has an interesting perspective on the changing role of lawyers before the panel. Although he still sees more bankers and financial advisers, he says there is definitely a trend for lawyers to interface directly with the panel, and that it is a growing one.
While it is increasingly hard to find an M&A lawyer over the age of 55, it is virtually impossible to find a banker of that age. The Takeover Code is not only extremely complex, it has grown organically and those extra years arguably put lawyers in an excellent position to interpret it.
However, here Murley has a word of warning: "There's no doubt that there's a significant body of expertise in lawyers, as there is in banks, on the code. What I think is very difficult is that the code is not law and it's not designed to be interpreted like law; that's a very important point. It's still very important that lawyers remember that it's a different process and that they must consult. It's terribly important to consult. Most things that go wrong with the code, most of the occasions when people get into trouble, is when they fail to consult. That's probably one of the key messages."
Most of the top firms (with one notable exception, which Murley declines to name) now send secondees to the panel. They probably go back to their firms with Murley's direct line tattooed onto their brains.