Mergers, acquisitions and takeovers: the takeover of Cadbury by Kraft - Business, Innovation and Skills Committee Contents

Memorandum submitted by The Takeover Panel




  The Panel Executive understands that the Business, Innovation and Skills Committee is to hold an oral evidence session on 12 January 2010 on the principles underlying mergers, takeovers and acquisitions and Government policy in that area.

  The Panel Executive is therefore providing this submission in order to summarise: the constitution of the Panel; the nature, purpose and scope of application of the City Code on Takeovers and Mergers (the "Code"); the approach of the Panel to the regulation of takeovers; and the General Principles and Rules set out in the Code.


  The Panel is an independent body, established in 1968, whose main functions are to issue and administer the Code and to supervise and regulate takeovers and other matters to which the Code applies in accordance with the General Principles and Rules set out in the Code.

  On implementation in the UK of the European Directive on Takeover Bids (the "Directive") on 20 May 2006, the Panel was designated as the supervisory authority to carry out certain regulatory functions in relation to takeovers pursuant to the Directive. The Companies Act 2006, which implemented the Directive, sets out the Panel's statutory duties and powers.

  The Panel comprises up to 35 members, including a Chairman (who is normally a senior QC) and up to three Deputy Chairmen, all of whom are appointed by the Panel on the recommendation of its Nomination Committee.

  Panel members include senior individuals appointed by the following bodies:

    The Association for Financial Markets in Europe (formerly the London Investment Banking Association);

    The Association of British Insurers;

    The Association of Investment Companies;

    The Association of Private Client Investment Managers and Stockbrokers;

    The British Bankers' Association;

    The Confederation of British Industry;

    The Institute of Chartered Accountants in England and Wales;

    Investment Management Association; and

    The National Association of Pension Funds.

  Other members are appointed by the Panel and are drawn from senior practitioners in the market, major UK companies and the Trades Union movement.

  Each Panel member is designated as a member of either the Hearings Committee (which deals primarily with questions of interpretation of the Code) or the Code Committee (which makes the Rules).

  The day-to-day work of the regulation of takeovers is carried out by the Panel Executive, which operates independently of the Panel and comprises a mix of permanent staff and secondees from investment banks, law firms and accountancy firms.

  The Panel is self-funded and receives no Government funding.


  The Code is designed principally to ensure that shareholders are treated fairly and are not denied the opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment by an offeror. The Code also provides an orderly framework within which takeovers are conducted. In addition, it is designed to promote, in conjunction with other regulatory regimes, the integrity of the financial markets.

  The financial and commercial merits of takeovers are not the responsibility of the Panel: these are matters for the companies concerned and their shareholders. Wider questions of public interest are the concern of government authorities in the UK and, in some circumstances, the European Union, through, for example, the Office of Fair Trading, the Competition Commission or the European Commission.

  Thus, save for requiring certain levels of disclosure, the remit of the Code and the Panel does not extend to:

    — questions of public policy;

    — competition issues;

    — the business and operational plans a bidder may have for a target company following a successful bid; or

    — the commercial merits of a takeover.

  The scope of the application of the Code is determined by the nationality and status of the offeree company. Broadly speaking, it applies to offers for UK, Channel Islands or Isle of Man registered public companies that are either traded on a regulated market in any of those jurisdictions or, if not so traded, that are considered by the Panel to have their place of central management and control in the UK, the Channel Islands or the Isle of Man. The Code does not generally apply to an offer for a non-UK company, even if made by a UK company (so, for example, the Code did not apply to the Royal Bank of Scotland's offer for ABN Amro). The Code also applies to offers for private companies in certain circumstances.


  The essential characteristics of the Panel's approach to takeover regulation are flexibility, certainty and speed. The Panel follows a principles-based approach to regulation which enables it to set high standards and to prevent circumvention of its requirements. The Panel Executive gives advice to parties to takeover bids and their advisers and makes rulings on matters of interpretation of the Code. The Panel deals quickly and pragmatically with matters which arise during takeovers and has flexibility to adapt its Rules to changing market conditions. This helps to ensure that bids are not delayed by tactical litigation, which could have the effect of frustrating the ability of shareholders to decide the outcome of an offer and extending the period of uncertainty for the company's management, employees, customers and suppliers.

  Decisions of the Panel are binding but may be appealed to the Takeover Appeal Board, which is independent of the Panel.


  The Code comprises six General Principles and 38 Rules, based on those Principles. The General Principles are expressed in broad general terms and the Code does not define the precise extent of, or limitations on, their application. They are applied in accordance with their spirit in order to achieve their underlying purpose.

  The General Principles, which derive from the Directive, are as follows:

    1. All holders of the securities of an offeree company of the same class must be afforded equivalent treatment; moreover, if a person acquires control of a company, the other holders of securities must be protected.

    2. The holders of the securities of an offeree company must have sufficient time and information to enable them to reach a properly informed decision on the bid; where it advises the holders of securities, the board of the offeree company must give its views on the effects of implementation of the bid on employment, conditions of employment and the locations of the company's places of business.

    3. The board of an offeree company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid.

    4. False markets must not be created in the securities of the offeree company, of the offeror company or of any other company concerned by the bid in such a way that the rise or fall of the prices of the securities becomes artificial and the normal functioning of the markets is distorted.

     5. An offeror must announce a bid only after ensuring that he/she can fulfil in full any cash consideration, if such consideration is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration.

    6. An offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

  The detailed Rules are extensive and not capable of an accurate summary in this short submission. However, by way of illustration, they cover matters such as:

    — when a takeover approach has been made or is being considered for a company and there is rumour in the market or untoward movement in the target company's share price, an announcement of a "possible offer" is required so as to avoid the creation of false markets;

    — when a possible or proposed offer announcement has been made, the company concerned enters an "offer period" and is then subject to certain restrictions. For example the target company cannot carry out transactions which would constitute "frustrating action" and be prejudicial to the potential offeror without the approval of its shareholders. In addition, dealings in its securities (and of the offeror, if it is offering securities) become subject to a heightened disclosure regime so as to facilitate transparency of ownership and voting control during an offer period;

    — when a possible offer is announced, the target company may ask for a "put up or shut up" deadline to be imposed on the bidder, by which time the potential offeror must either announce a firm offer or state that it is not making an offer, in which case, it may not make a new offer for a period of six months;

    — when a firm intention to make an offer is announced (as opposed to a possible offer) an offeror may not withdraw its offer or reduce its price save in very limited circumstances (such as a reference to the Competition Commission or European Commission);

    — if an offeror buys shares for cash during an offer period, a cash offer must be made to all shareholders at the highest price paid in a specified period; offerors may not treat shareholders unequally by, say, offering shares to some and cash to others;

    — the mandatory bid rule: any person who acquires interests in shares in a company carrying 30% or more of the voting rights of that company (or who increases an interest that is already between 30% and 50%) must make a cash offer to all other shareholders at the highest price paid for those interests in the previous 12 months;

    — the requirement to make a bid if interests in shares of 30% or more are acquired cannot be circumvented by parties who act in concert to obtain or consolidate control of a company splitting the 30% limit between themselves; if a member of a concert party buys shares so that the concert party in aggregate goes through the 30% threshold, a bid must be made;

    — during the course of an offer, documents published and announcements made must be prepared with the highest standards of care and accuracy. In particular, parties to an offer must not make statements which might mislead the markets; for example, if a party says publicly that it will not make an offer for a company, it is not permitted to change its mind within six months; similarly if a party says that it will not increase an offer, it is not permitted to change its mind and make a higher bid, except with the Panel's consent;

    — in order to ensure that a target company is not exposed to an undue period of siege and that shareholders have sufficient time to consider an offer and the arguments for and against accepting it, once a firm offer is made, various timetable constraints apply and the offer must either be declared unconditional or lapse by no later than 60 days following the publication of the formal offer document;

    — the contents both of offer documents (including information about the offeror's intentions regarding the future business of the offeree company and its employees) and of documents giving the offeree board's opinion (including its views on the effect of the offer on all the company's interests) and advice from its independent advisers. Representatives of employees must be informed of the bid and their views must be appended to the offeree board's opinion if received in good time before its circulation; and

    — an offer may only be declared unconditional if the offeror receives acceptances of over 50% of the voting rights in the target company so that shareholders are in no doubt that the offeror would, on successful completion of its offer, have statutory control of the company.

5 January 2010

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2010
Prepared 6 April 2010