Be Careful What You Wish For – New Rules For Company Takeovers

Author:Ms Hilary Winter, Katie Cotton and Dominic Sedghi
Profession:Orrick
 
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Background

On 15 September 2014, the Code Committee of the Takeover Panel issued Consultation Paper PCP 2014/2 (the "Consultation"). The Consultation suggested various changes to the Takeover Code (the "Code") to deal with the treatment of public statements by bidders about how they intend to run the business of a target company following the successful completion of a takeover offer.

The Consultation was driven substantially off two high-profile cases:

Kraft's takeover of Cadbury in 2010. Kraft stated it would keep a Cadbury factory located in Somerset open following the takeover. It subsequently closed that factory and transferred production to Poland. In response, the Panel issued its first public censure for three years but was unable to reverse the transaction or impose fines or damages. Pfizer's possible offer for AstraZeneca in 2014. Pfizer made a number of public commitments regarding a possible takeover, including construction of a research hub in Cambridge, retaining scientific leadership in the UK, employing at least 20% of the combined group's R&D workforce in the UK, and retaining manufacturing facilities in Macclesfield, Cheshire. Ultimately, no formal offer was made. Reaction and issues

In 2011, in reaction to the Cadbury takeover, the Code was amended to clarify that a statement by a bidder as to future plans for a target following a takeover would be regarded as a firm commitment under the Code to take those actions. A breach of that commitment would be a breach of the Code.

A bidder must include statements in its offer document regarding its intentions for the target's future business, the continued employment of its employees, the strategic plans for the target and their impact on employees, and its plans for funding employer contributions to the target's pension schemes. Apart from this, the Code does not prescribe what statements of intention a bidder can or cannot make.

In theory, the Panel was previously able to enforce these commitments by issuing an order to comply, seeking a court order, issuing a public or private censure, or (ultimately and only in extreme circumstances) 'cold-shouldering' the bidder.

The public debate over the possible offer for AstraZeneca highlighted the degree of confusion over the Panel's powers in these circumstances. The Panel had virtually no monitoring powers and so, in practice, could intervene only once a breach had taken place. However, after a breach had taken place, in reality...

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