Philip Green doesn’t seem to like lawyers much. According to The Times, he told a small business conference two weeks ago that lawyers charge you a lot for nothing except a lot of paper.
In the case of Safeway, Green’s lawyers at Simm-ons & Simmons must have done their bit for global deforestation last week when formulating his Safeway legal strategy document – ‘Operation Pin Down the Takeover Panel’.
Stories in The Times claim that Green has asked the Takeover Panel to gag the other bidders, leaving the way clear for him to launch a formal bid while the competition is bogged down in a regulatory quagmire.
The panel doesn’t comment publicly on who has been whispering in its ear, but if Green has genuinely asked the question, it could set a vital precedent. As such, it represents a good opportunity for the panel to show its mettle.
Under panel rules, interested bidders have two routes to their targets’ hearts without making a formal Takeover Code offer. First, a company can make a preconditional bid, which unlike a formal offer will only start the code timetable running when the conditions are satisfied.
This halfway house has been used frequently in recent years, sometimes when bidders don’t have all their finance in place. Green used a preconditional offer himself on his bid for Arcadia last year.
However, the preconditional rule most benefits industry bidders that have serious competition issues in the UK, EU or US. In two of the three jurisdictions, you can’t even file for regulatory clearance before you launch a formal or preconditional bid.
Also allowed under Rule 2.4 of the code is a practice given the charming moniker “bear hug”. Basically, this means that a bidder can tart around its target for a while without getting out the engagement ring.
If the game goes on for too long, the panel can enforce a shotgun wedding with a ‘put up or shut up’ order – which it did with private equity house KKR earlier in the Safeway saga. But there have been plenty of other trysts where the panel has held back from this nuclear option.
Green’s problem is that he is the only bidder currently in a position to actually make a formal bid – Tesco, Wal-Mart/Asda, Sainsbury’s and Wm Morrison are still bogged down making slides and flip charts for the Competition Commission.
Green, cleared by the Office of Fair Trading (OFT), now has no regulatory veil to hide behind. And he has had a bit of a tussle with Safeway, which saw the two sides trade insults in the press last week.
The Green/Simmons camp claimed it had insufficient information to make a formal bid. The Safeway side said it was time for Green to put his cards on the table. Green’s real problem is that if he genuinely still wants Safeway, he needs to bid now in order to pick it up on the cheap. The advantage he offers to shareholders is certainty.
If he were to make a formal bid and the supermarkets were to pitch in with nebulous preconditional offers or, even worse, vague promises to better Green’s offer, he would lose that advantage.
The panel is way off-road on this one – the only time it has considered a similar situation was on Deceaux’s failed bid for the More Group in 1998. In that instance US bidder Clear Channel won through while French company Deceaux was still bogged down with the regulator.
Green’s fantasy scenario would be for the panel to outlaw preconditional offers and even ‘bear hugs’ from the other bidders.
To do so, the panel would have to gag the bidders so completely that no information whatsoever on their intentions was leaked to the press – something that any journalist will tell you ain’t never gonna happen.
Plus, even if it did work, it’s surely not in shareholders’ interests to deprive them of higher offers from industry bidders.
Alternatively, the panel could insist that Tesco and co must either make preconditional offers based on the decisions they expect from the Competition Commission or drop out of the race.
The problem is in the detail. Frankly, it’s not the panel’s job to rule on competition issues, and it just doesn’t have the expertise to make complicated calls on what could be used as any easy get-out clause by the supermarkets.
The panel mustn’t get sucked into a situation where it is second-guessing what the Competition Commission will say on divestments.
If the panel is considering a request from Green, it will first consult with the other bidders and will face tough questions from both sides. On the other hand, it is perfectly possible that no request has actually been made to the panel.
Having the issue in the press has obvious tactical advantages for Green – it puts pressure on the panel.
If Green hasn’t asked the panel to look at this issue, the new Takeover Panel director general Richard Murley needs to kick off his tenure by slapping down bidders who use the press to fight their battles.
If Green has asked for clarification (to which he is surely entitled), Murley should set out clearly and publicly what will happen in a scenario where just one bidder can launch a formal offer while the others are held up by the regulators.
Either way, the panel needs to start generating some paper of its own – and quickly.