Out-Law / Your Daily Need-To-Know

Stricter business takeover rules needed, Miliband says

20 Jan 2012, 11:00 am

Stricter rules on business takeovers are needed to protect the long-term interests of UK companies, Ed Miliband has said.

In an opinion piece published in the Financial Times, the leader of the Labour Party challenged "rules that encourage wealth creation focused on short-term returns, fail to reward productive behaviour and skew distribution towards the top".

Citing the purchase of Cadbury by US company Kraft as an example, Miliband said it was "no accident" that the majority of takeovers were decided by "short-term decision-making by people who never had any interest in the long-term success of the company concerned".

"Some argue that the government should just stay out of the way, but the rules that govern the system shape outcomes," he said.

Proposals currently being considered by the Labour Party include a requirement of a minimum of two-thirds rather than a simple majority of shareholders before a takeover can succeed, as well as limiting voting rights to those who held their shares before the offer period opened.

The Takeover Panel, which creates and enforces a Code governing how companies can and cannot be taken over, made changes to its rules in September last year to protect shareholders in companies that become the targets of hostile takeovers. Bodies making an offer for a company now have to be named at the time of the announcement of that offer, and they must make a firm offer within four weeks of that date or withdraw from the process. Any fees in relation to the offer must also be publicised, and deal protection measures and inducement fees to existing shareholders have been banned.

However, the Panel "almost unanimously" rejected a proposal to raise the total number of shareholders needed to approve a takeover to more than the current '50% plus one' required for shareholder resolutions under UK company law. It also rejected the idea of denying voting rights to people who had acquired shares only once an offer had been made for a company as this would "compromise the principle of 'one share, one vote'" as well as affect the value of the shares traded during the takeover process.