Protecting companies from bids protects bad management
Should a company remain independent when almost two-thirds of its shareholders want to sell it? The business secretary thinks so. Lord Mandelson has added his name to those who think the minority should outvote the majority on takeovers.
Roger Carr, chairman of Cadbury prior to Kraft’s takeover, started this ball rolling by saying a bidder should have the support of 60 per cent of shareholders, not the simple majority by which bids are currently decided. Now Mandelson suggests upping the threshold to 65 per cent.
But how could a board continue in office knowing that the owners of 64 per cent of its shares had wanted to accept a bid? Why should the owners of 36 per cent have shares with almost twice the votes of those who want to sell?
The Takeover Panel has been forced to start a consultation on how its code could be modified because of these criticisms, but to end the principle of majority decisions would rip up everything on which the code is based.
Both Carr and Mandelson claim to be against protectionism – what else could a business secretary say. But that is all that their proposals are.
Britain has a Competition Commission to protect the consumer interest during mergers. If politicians want an Employment Commission to consider the effect on jobs or a National Interest Commission to stop foreigners buying Britain’s commercial heritage, they should say so, but they cannot leave that job to the Takeover Panel or to directors.
Mandelson is effectively asking directors to do that though. He talks of blocking executives from selling a company without considering the interests of employees, suppliers and the corporate brand. That last clause is a direct appeal to the gallery that thinks a chocolate brand more important than, say, an unheard of engineering group or unloved water company.
Demanding that bid advisers disclose their fees in advance makes more sense (they do it for fund raisings) but forcing fund managers to reveal the incentives they receive to hold shares long term is too woolly. However, these are measures a business secretary can implement: if he wants them, try doing them.
Mandelson has not backed Carr’s call to remove the votes from short-term holders such as hedge funds but the two agree on reducing the threshold for divulging share shakes during a bid from 1 to 0.5 per cent.
That would be within the Takeover Panel’s powers, even if it found no support for such a move last year. Also in its power would be shortening the bid timetable, as Mandelson suggests, but that could make hostile takeovers easier because the bidder has time to plot before pouncing while a surprised target can only start to muster its defences afterward.
Rules based on one high-profile confectionery takeover would be bad rules. Cadbury got taken over because it had been badly run and a bidder was prepared to pay well. Putting barriers in the way of bids not only protects British brands, it protects bad management.
