The return of the early morning call

The unintended consequences from changes to the Takeover Code

Without fanfare and with a sense of resignation changes to the UK's Takeover Code were introduced on 19 September 2011. The reasons for these changes lie with the Kraft bid for Cadbury and a growing unease about the vulnerability of UK listed companies to overseas bidders. In essence, the pitch was uneven and slanted in favour of the bidder.

The changes made to the Takeover Code could herald the return of the corporate raider made famous in the 1987 film, "Wall Street". The speciality of the corporate raider was surprise. The story of Sir Rocco Forte who was caught unprepared by Granada on a Yorkshire grouse moor when it launched the hostile bid for the Forte empire is a story enshrined in the corporate financier's memory.

So, in summary for the adviser the effect of recent amendments to the Code is simple. Be wary of public holidays, especially the Christmas break.

The Takeover Code was amended so that only those who were committed to proceeding with a takeover offer would be encouraged. Half-hearted bidders now run the risk of being publicly named and put to a strict 28 day period referred to as, "put-up or shut-up" in which to move from interest to commitment. At the same time arrangements to protect potential bidders, for instance by way of break fees have been removed. The risks for a takeover bid have comprehensively been shifted from the target to the bidder.

So practically speaking what does all this mean?

For listed companies, directors should be considering whether they have a takeover defence manual. If not, then one should be put in place as soon as possible. For those companies which do have such a manual, then check if it needs updating to include tactical changes arising as a result of the Code alterations. At a simple level however, directors should ensure that the list of key advisers and their contact details is up to date.

Stake-building in a target's shares before and during the offer period may again become popular. This could mean the return of the "dawn-raid". Corporate brokers will need to be particularly vigilant, picking up gossip and rumour and watching for unusual activity or volumes passing through the market as an early warning of a potential bid. A more active use of section 793 Companies Act 2006 notices which seek to identify beneficial holders of shares, could be a renewed feature of public M&A work.

Remember your employees can now give their views on any takeover offer. Such views are put forward by a representative committee of employees. If no such committee exists then listed companies might want to consider putting one in place.

The Code has been amended so that the requirement to name bidders falls away in circumstances where a target company has sought to put itself "for sale". A rash of companies issuing "intention-to-sell" announcements may disguise the presence of an interested but unfunded bidder.

Target companies may now want to consider maintaining at all times an online data room so that in circumstances where an unsolicited approach is made, White Knights can be taken up a learning curve very rapidly. In this context Taylor Wessing through its New Street Solutions division can provide such data rooms and produce on-line vendor due diligence reports. Planning for the eventuality and defence of a takeover bid does not mean wishing for such an outcome.

The new environment for public M&A transactions in the UK will feature, in all likelihood, a greater proportion of unsolicited or hostile bids, stake-building and pre holiday surprises. This is what deal-makers can expect over the next few years.

Lawyers Tim Stocks