Takeover Panel to clamp down on broken promises

The panel may also demand that companies appoint supervisors

16 September 2014

Companies are to be held to commitments made in takeover tussles under new rules being trailed by the Takeover Panel after a raft of ownership battles.

The move comes in the wake of the controversy generated by Pfizer’s failed bid for AstraZeneca, which saw the US drug giant made supposedly “binding” commitments to keep various activities in the UK that critics derided as virtually worthless.

The panel, which acts as a referee during mergers and acquisitions in Britain, will in future draw a distinction between an “intention” and a “commitment”.

Companies will be allowed to freely make the former as long as they do so with “due care” and on the basis that any intention is an “accurate statement of that party’s intention at the time that it is made”.

But to make Pfizer-style commitments they will first have to seek permission, agree a time period and “prominently state any qualifications”.

They will have to secure the agreement of the panel to use qualifications if they later want to get out of commitments, and also explain themselves in statements to the market.

The panel may also demand that companies appoint supervisors to ensure they are keeping their promises, which will then report back to it.

The new rules could see it seeking legal enforcement of its rulings under the 2006 Companies Act for the first time. In theory it could even seek an injunction if a bidder committed, for example, to keep a factory open after completing a deal and then reneged on it.

Kraft Foods of the US, caused outraged when it was seen to have reneged on a pledge to keep an historic UK Cadbury factory open only to move the business to Poland. The plant was ultimately sold.

Panel insiders said there had been “confusion” over the status of that pledge and that the new rules would clear this up.

Pfizer made great play of its commitments to keep facilities in the UK, including 20% of its R&D staff, amid a storm of criticism from the medical and scientific establishments over its bid for AstraZeneca.

But critics noted that it would only need to cite “material change of circumstances” to get out of them. The panel accepts that this is unsatisfactory because there is no clear definition of what this means.

In its consultation document the panel said that the new rules would “benefit not only offerors and offeree companies” who would be able to choose whether or not to make “undertakings” genuinely binding but also help “other stakeholders, who will have greater clarity as to the status of such statements”.

The proposed rule changes come after increasing controversy over foreign takeovers of UK firms, amid concerns that existing rules make it too easy for bidders.

The TUC’s General Secretary, Frances O’Grady, said: “Any toughening up of the rules to ensure that companies keep to undertakings given during a takeover process will of course be reassuring to employees of the company being targeted.

“But it won’t be such good news if this change means that the existing requirements for companies to stick as closely as possible to their stated intentions gets watered down in some way so that it becomes easier for them to wriggle out of assurances to save jobs and keep workplaces open.”

Takeover Panel to clamp down on broken promises

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