The UK takeover regime is not good for private buyers. But its protections help prevent the likes of Elon Musk from bidding on Twitter.
The UK’s takeover regime is not good for private equity buyers. It became even more difficult after Kraft Foods Inc. bitterly acquired confectionery rival Cadbury in 2010. But are its rules too restrictive?
If leveraged financial markets recover, UK shares should be top hunt for private equity industry. However, domestic M&A rules are often seen as a brake.
Blair Jacobson, co-head of European credit at Ares Management, said at a Financial Times summit last week that “everything in the UK is bearish” and that a weak pound is an advantage for equal funds U.S. dollar. At the same time, he also warned that negotiating the demands of the regulator to take over could be difficult.
It’s a common observation from the acquisition industry. UK transactions are governed by a 433-page “code” enforced by the Takeover Council. The smallest possible bid spread and the regulator forcing the hypothetical buyer to clarify their concerns. After the 4-month siege of Cadbury, a rule was introduced that required bidders to formalize any offer within 28 days, unless the takeover target was satisfied with an extension.
Above all, acquirers must have secured funds – confirmed by their advisors – before making a formal offer.
A business buyer with ready cash, support Bank relationships and payment options for the takeover using its shares will not be too phased by all of this. But this rating is a challenge for private equity because it relies on huge amounts of debt. If a deal were to leak, the clock would start ticking and there wouldn’t be much time left to complete the tire pedaling and secure financing. The argument, therefore, is that the rules keep acquiring companies away from riskier deals to avoid the possibility of being seen to try and then fail.
However, UK checks and balances look reasonable. Last year’s boom in deals shows that rules don’t stand in the way of takeovers: It culminated in the acquisition of grocery supermarkets Wm Morrison, the UK’s biggest in more than a decade.
Meanwhile, the story in WE created by billionaire Elon Musk’s bid for Twitter Inc. is a reminder of why the UK’s focus on speed and certainty in trading is a good thing. Twitter shareholders and employees have been through a roller coaster ride. Since Musk’s deal was signed on April 25, the market has been worried about the financials. That doesn’t happen in the UK with the regulatory requirement for funding to be 100% out of pocket, even if the bid target board would happily sign an agreement with wise funding commitments. good.
Musk’s efforts to retract his Twitter offer sparked lengthy lawsuits. While it may seem equally difficult to reverse an agreement on both sides of the Atlantic, the decision process will take less time to conclude under the UK’s regulated approach. Simply put, UK The rules maximize the chances of completing the transaction at the announced price as quickly as possible.
London is an open market for making transactions. Listed companies cannot exercise so-called poison defenses with the potential to disappoint contractors (as Twitter has done). In the event that the private equity buyer is hanging an attractive price, it is very difficult for the target company to use the prescribed timetable to kill the transaction.
If there were impediments to UK acquisitions, they would be less procedural and more political, like a national security veto by the government. Private equity firms can complete transactions if they pay enough. Given the grief Morrison has piled on lenders, some may even wish that the buyback regime had been much harder.
Wasting time will be shortened. But the low valuation and weak currency are more help for contractors than UK regulation is a hindrance.
