Miliband’s short-term policy on takeovers
Labour leader Ed Miliband is attacking financial short-termism in his quest for the high ground of responsible capitalism. But his ideas for changing takeover rules are political short-termism.
He is suggesting that bidders require a two-thirds majority before they can take control of another company and that investors buying after a takeover is announced lose their voting rights.
These proposals were included in Labour’s 2010 general election manifesto and failed to win support then. The Takeover Panel reviewed its rules subsequently but rejected the ideas, as Miliband should now.
First, shareholders in target companies do not usually vote on takeovers. They either accept the bid or they don’t. The bidder thus needs half of all the shares – not half of those that vote. If investors buying during the course of the offer are barred from accepting, then the outcome could be decided by a minority.
And such a move would punish sellers as well as buyers because the price of a share without a ‘vote’ would be less than one sold with. Prudent long-term holders seeking to crystallise the gain from a bid would thus be harmed. Further, after lobbying passive shareholders for years to vote, it seems odd now to tell some investors they cannot.
And the two-thirds majority would be perverse. It could mean that if 65 per cent of investors want a change of ownership, they would be outvoted by a 35 per cent minorioty. If, say, 20 per cent of the shares are excluded because they have been bought during the bid, then just 15 per cent of shareholders could decide the outcome.
Miliband, in his Financial Times article advocating change, admits that some takeovers might have been crucial to turning round failing companies. A bid, or the threat of a bid, is a useful way of making managers perform. Protecting companies against bids allows inefficient managements to continue.
The Labour leader’s City policy requires more thought. Tampering with the rules of democracy is dangerous. This looks like a short-term ploy to steal ground from his political rivals.
