In September, changes to the Takeover Code were implemented, which have significantly strengthened the position of companies that are subject to takeover interest.
The position of such target companies was called into question following the recent takeover of Cadbury by Kraft. Kraft initially approached the UK chocolate brand privately in August 2009 with an offer to buy, but managed to drag out the takeover through to January 2010. During this prolonged period of time, Cadbury’s share price dropped significantly as a result of the rumours regarding the bid. This kind of instability is not unusual in such cases and can be harmful to the target company, forcing them to accept lower offers than they would have expected to do so before such interest became apparent.
The reforms to the Takeover Code require any target company which becomes aware of a potential interest to make a public announcement of such interest, identifying every potential bidder with whom the target company is in talks with and any approaches that have been made to the target company which have not been outwardly rejected.
This announcement will instigate an “offer period’ which means that the potential bidder has a maximum of 28 days from the date of the announcement to either make a firm offer or confirm that it does not intend making a formal offer to the target company. A six-month cooling off period will be imposed on any potential bidder which decides not to make an offer.
These deadlines should ensure that during the takeover process, the balance of power is shifted back into the hands of the target company and any delay in completion will not have a detrimental effect on the purchase price.