Takeover Panel to review "put up or shut up" rule, according to press reports

The Daily Telegraph said that the Panel would use its promised review of the practical impact of changes to the Takeover Code, which came into force last September, to examine the effect of the so-called 'Cadbury law' on the takeover market.

The Takeover Code governs how companies can and cannot be taken over. The Takeover Panel, which is the regulatory body which created and enforces the Code, made the changes to its rules to protect shareholders in companies that become the targets of hostile takeovers following the acquisition of Cadbury by US company Kraft. Companies planning a takeover now must make a firm offer for the target company within four weeks of expressing their interest. If they do not meet this 'put up or shut up' (PUSU) deadline, they are prevented from bidding for that target again for the next six months.

According to the Telegraph, around 40% of takeover deals tabled in the last year have failed to meet the initial deadline, resulting in them having to reveal more sensitive information to the market and make requests for deal extensions. The paper cited the recent proposed merger of commodities companies Glencore and Xstrata, and the abandoned deal between aerospace companies BAE and EADS, as being affected by the change.

However Alison Starr, an expert in takeovers with Pinsent Masons, the law firm behind Out-Law.com, said that 28 days was a realistic limit for serious bidders on standard or P2P takeovers although it is a challenge where there are cross-border issues.

"It is certainly the case that bidders now need to be better prepared with their funding arrangements prior to making an approach to the target board, not least as they are now at risk of being identified in a possible offer announcement," she said. "We have found that the 28 day limit is a realistic period of time for a serious bidder to work on the terms of its offer and assess the likely support from key shareholders in relation to a UK-based transaction but it does not allow sufficient time where there are cross-border issues."

She added that there was an exception to the rule when the target company put itself up for sale as part of a formal sale process.

"We are seeing a number of enquiries on this as more companies assess the options available to them," she added.

The Takeover Panel was unable to comment on its review processes. However its deputy director general Tony Pullinger told the Telegraph that the new system was working well.

"The Panel has always sought to strike a fair balance between the differing interests of parties involved in bids," he said. "In imposing a Put Up or Shut Up deadline in every case the Panel intended to address the tactical advantage which bidders had obtained over target companies and to level the playing field."