The first review by the UK Panel on Takeovers and Mergers (the “Panel”) of the so-called Cadbury reforms to the UK Takeover Code concluded that the reforms had been largely successful in protecting target companies from being placed under siege by protracted bid periods. Observers of the UK deal scene will recall that the reforms were adopted in September 2011 following the political controversy surrounding Kraft’s offer for Cadbury plc. The changes were intended to shift the balance of UK takeover regulation in favor of target companies and, among other things: (1) tightened the rules on announcement of potential public deals by requiring that leak announcements name all potential bidders; (2) revised the so-called “Put Up or Shut Up” regime to require bidders to either launch an offer or walk away within 28 days of the first announcement of the talks; and (3) imposed more onerous disclosure requirements on bidders. In addition, break-up fees and related deal protection measures were banned, other than in certain limited circumstances. These reforms were hardly welcomed by the private equity community.
The review by the Panel, which published its findings in November of 2012, indicated that it had no immediate plans to revise or reverse the Cadbury reforms. According to the Panel, in the year ended September 18, 2012, there were 81 “firm” proposals to make a takeover offer, 65 of which resulted in the change of control of a target company. About half of these offers were subject to a “Put Up or Shut Up” deadline, though the Panel granted an extension to that deadline in the fifteen cases where the target company consented. Those critical of the reforms have suggested that this data might be more a reflection of a generally slow M&A market rather than the impact of the rule changes themselves—UK takeover activity in 2012 was about 10% down compared to 2010 and 2011 and significantly down compared to the heady days of 2006 and 2007, which saw 151 and 144 such deals, respectively.
In any event, it is fairly clear that the Cadbury reforms are here to stay, regardless of whether their effectiveness was dependent on the deal climate. As discussed in the 2012 Summer/Fall edition of the Debevoise & Plimpton Private Equity Report, the Panel has proposed a series of more minor changes to “tidy up” some of the anomalies currently in the Code, but is not proposing any rule changes which would dilute the Cadbury reforms. The Panel has also recently announced rule changes which will give enhanced rights to trustees of defined benefit pension plans with respect to the treatment of such plans in a takeover and require bidders to disclose details of any deficit reduction arrangements they propose in respect of a target’s pension scheme.
It is premature to reach any definitive conclusions about the impact of the changes to the Code on private equity activity in the UK, though there is some anecdotal evidence that private equity bidders in the UK market have been deterred from approaching target companies by both the prohibition on deal protection measures and inducement fees and the possibility that leaks and rumors about those talks could trigger a requirement to announce their identity and start a 28-day “Put Up or Shut Up” period. It is also possible that the new rule changes around pension trustee rights could have a chilling effect on private equity bidders, who may be particularly sensitive to the precedential impact of the disclosure of their deficit reduction arrangements with particular targets and trustees.