Bidders in takeover battles will have to be much more explicit when they promise to improve their target's profits, following a new rule introduced after the Granada takeover battle for Forte.
During the battle, led by Granada chairman Gerry Robinson, the company, advised by Lovell White Durrant, issued a circular saying it could improve Forte's profits by £100m in the first full financial year following takeover.
Forte, advised by Linklaters & Paines, appealed to the takeover panel, saying Granada had no grounds for making the claim. But a hearing of the panel found it had no rules to apply to this situation.
At the time, the takeover code only imposed conditions on profit forecasts a company made about itself. But now the executive has amended the rules to ensure bidders making statements about profit enhancements of their targets are also embraced by the code.
They must show the grounds for their calculations and must employ accountants to confirm they are made with due care and attention.
In a statement on the rule change, the takeover panel said: “It was impossible to treat the information in Granada's circular and other published financial information as creating either a floor or a ceiling for the profits of Forte or Granada for that period.”
“Granada was making a guess,” said Linklaters' corporate partner Mark Stamp. “If you make a profit forecast to ward off a hostile bid, you are basing it on your knowledge of your business. Granada, in stating how it could increase the profits of its target, would not have had that knowledge.”
However, at a later date, Granada issued a revised circular that explained on what information it had based its prediction and that accountants had approved it.