Lawyers slam “populist” Takeover Panel consultation

Among the options understood to be under consideration is the disenfranchising of shares bought by short-term shareholders such as hedge funds during a bid period.

Also on the agenda is a review of the ‘put up or shut up’ deadline in a bid to reduce the time it takes for a takeover bid to be finalised. The Takeover Panel may also look at increasing the threshold of shareholders required to approve a hostile approach.

The announcement comes in the wake of negative publicity in the mainstream press around Kraft’s successful takeover of UK chocolate-maker Cadbury, which dragged on for six months.

But some City lawyers have attacked any potential changes as “populist” and “protectionist”.

“I think it’s important that there’s not a populist knee-jerk reaction to this,” said one M&A partner at a magic circle firm. “One should question how much interference in the market is desirable – this would in effect be protectionism and that’s not what’s needed.

“It’s odd that the UK’s been willing to sell its nuclear energy business, ports and airports without anyone seeming to care, but you sell a chocolate company and suddenly it’s a major issue.”

Potential changes could also make it easier for management boards to block takeovers, even when shareholders are eager to sell.

One means of doing this would be to disenfranchise newly bought shares, so that those shareholders who had only recently invested would not be allowed to vote.

But the City partner said such a move would fly in the face of the panel’s remit: “The whole thrust of the Takeover Panels rules is that it’s for the shareholders, not the board, to determine the outcome of a bid.”

Stephen Nash, a takeovers partner at Eversheds and former Takeover Panel secondee, agreed that some of the mooted proposals could be unworkable.

He said: “Certain commentators have highlighted the increasingly important role that short-term shareholders such as hedge funds appear to be playing in determining the outcome of public bids, and suggested that such shareholders should not be permitted to vote their shares.

“This would appear an untenable restriction on those person’s property rights and ought, in any event, to be outside the scope of the panel’s remit.

“Calls for wholesale or dramatic changes to the current system of regulation should be treated with caution.”