UK Should Review Takeover Rules, Former Cadbury Chairman Says
February 09 2010 - 2:31PM
Dow Jones News
LONDON--The Cadbury PLC (CBRY.LN) takeover saga has amplified
concerns about whether current U.K. rules on mergers and
acquisitions work against the long-term interests of British
business, Cadbury's former chairman Roger Carr said Tuesday.
Carr, who stepped down as Cadbury chairman earlier this month
after accepting a GBP11.9 billion hostile bid from Kraft Foods
Inc., called for an overhaul of takeover regulation in the U.K. in
a lecture to the Said Business School in Oxford, England.
U.K. merger rules effectively reward short-term traders such as
hedge funds at the expense of shareholders with an interest in
building a business over the longer term, Carr said.
His remarks come amid a heightened debate among U.K. lawmakers
and business people about whether the U.K.'s takeover rules are
allowing too many successful, homegrown businesses to be sold off
to foreign bidders and whether the government should play a more
proactive role in protecting businesses from foreign takeovers.
Carr said that although viewed under the current rules the deal
struck by Cadbury was a success, it raises questions as to whether
these rules benefit British businesses more broadly. Cadbury's
board accepted an 850 pence-per-share offer from Kraft last month,
bringing to a close a frequently acrimonious five and a half month
takeover battle. The final price represented a 50% premium to
Cadbury's undisturbed prebid share price.
"Under the current rules [the deal] was a clear success--in
value creation for Cadbury shareholders. But viewed in a wider
context--it raised concerns as to how Cadbury--one of Britain's
most successful companies--had fallen to foreign ownership," Carr
said.
Carr said that short-term shareholders had played an
increasingly vocal role in determining the future of Cadbury as the
bid process wore on. Over the 19-week period between the disclosure
of Kraft's interest and Cadbury's final acceptance, 26% of
Cadbury's shares were sold by long-term shareholders, while the
eight largest buyers were hedge funds or other short-term traders.
Cadbury's board was then forced to accept Kraft's offer because of
its fiduciary duty to shareholders.
In a series of recommendations, Carr called on the U.K.
government to redress the balance in bid situations in favor of
long-term shareholders. Suggestions include reducing the level at
which movements in securities have to be formally disclosed to 0.5%
from its current 1%, and raising the level of acceptance for
takeovers to above 50%. He also recommended "disenfranchising"
shares acquired during a bid period, to prevent short-term traders
from influencing the outcome of a bid against the interests of
longer-term shareholders.
If the government believes a British company should remain in
British ownership, Carr said, it should say so clearly before a bid
situation emerges. He noted, however, that foreign ownership is a
"two-way street," and that U.K. companies benefit from ownership of
overseas companies and assets.
Company Web site: www.cadbury.co.uk
-By Jessica Hodgson, Dow Jones Newswires; +44 207 842 92 93;
jessica.hodgson@dowjones.com
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