Takeover Panel to rock City with war on M&A loopholes

In a move that would shake up the City, the UK Takeover Panel is proposing that the use of preconditional bids in public M&A be curtailed.

This could close a loophole currently exploited by bidders to gain more flexibility in the way they finance deals.

The Lawyer can reveal that the panel is set to release a consultation paper on preconditional bids, which have been increasingly used to allow bidders to make their offers contingent upon securing finance for the deal.

The system was originally developed by the regulators to allow bidders time to get regulatory clearance. On a preconditional bid, the panel’s strict takeover timetable does not start until the condition is fulfilled so as to give bidders more time to do the deal.

Lawyers tend to approve of regulatory preconditional bids, but many support reform, arguing that other types of bids create unnecessary shareholder uncertainty.

Since the 1990s, the number of non-regulatory preconditional bids has increased. High-profile examples are Orb’s 1999 bid for Gander Properties and Philip Green’s 2002 bid for Arcadia. Carnival’s 2002 bid for P&O Princess was notable for its numerous, non-regulatory preconditions.

A source close to the panel told The Lawyer that key personnel “regretted previous decisions” which had eroded the principle that preconditional bids should be available solely on regulatory grounds.

The panel should take a flexible attitude to finance on deals where there is regulatory delay, say M&A lawyers, because it is unreasonable and expensive for bidders to hold their finance in place while regulators consider the deal.

However, previously the panel only allowed bidders to finalise working capital arran-gements after regulatory consent. More recently, it has allowed finance for the take-over itself to be put in place after approval. The panel will look closely at this issue.

Deputy director general of the panel Anthony Pullinger declined to comment on the panel’s intention to release a consultation paper.
However, he said: “It’s well known that we’ve been thinking about preconditions, where we have an increasing number of proposals [from bidders].”