UK Business Secretary To Back Review Of M&A Rules

The U.K. business secretary, Peter Mandelson, is expected to call for a wide-ranging review of U.K. takeover law in a speech Monday night.

In a speech referencing recent unease about the number of U.K. companies who have been taken over, senior lawmaker Mandelson will argue for a package of reforms to the U.K.'s takeover rules, a person familiar with the matter said.

Proposals are expected to include raising the voting threshold for securing a change of ownership of a company to two-thirds; lowering disclosure requirements for disclosure of share ownership during a bid to 0.5% from their current 1%; and shortening "put up or shut up" notice timetables.

Mandelson, in a speech at the Mansion House, London, is also expected to say bidders in takeover situations should be required to set out publicly how they plan to finance bids over the long term. He is also expected to call for greater transparency on fees paid to advisers like bankers and lawyers.

Mandelson is expected to say that he doesn't favor reinstating a "public interest" test to keep British companies out of foreign ownership, a measure some critics have recommended.

But he will advocate a "fresh look at mergers and acquisitions," expressing concern that decisions about the future of major British companies are increasingly being made by short-term shareholders with a different agenda from that of the company's longer-term investors and employees.

"The decisions about what to own and when are made by fund managers whose incentives may require them to deliver returns on short timeframes," Mandelson is expected to say. If necessary, he will say, he is prepared to consider "restating" aspects of U.K. company law to redress the balance in favor of longer-term shareholders.

Mandelson's call comes shortly after the U.K. Takeover Panel, which regulates U.K. mergers and acquisitions activity, said it planned to launch a public consultation on whether to change the rules.

High-profile lawmakers and business people in the U.K., including the head of the Confederation of British Industry, Richard Lambert, to the former chairman of Cadbury PLC (CBY), Roger Carr, have recently floated ideas to reduce the perceived influence of short-term shareholders like hedge funds in deciding the outcome of takeovers.

The recent bid battle for Cadbury provided a flashpoint for growing unease about the number of high-profile U.K. companies falling into foreign hands, and the role of hedge funds in the five month battle was singled out by Lambert, Carr and others.

Carr initially rejected an offer from U.S. food company Kraft Foods Inc. (KFT), but eventually accepted GBP11.9. During the takeover period, around a quarter of Cadbury's share register was acquired by hedge funds. Carr said that many long-term shareholders who were otherwise supportive of Cadbury's decision to reject the initial interest from Kraft were eventually forced into a position where they had to accept the offer.

Most M&A practitioners argue that changing the U.K. takeover rules would be cumbersome and could make the U.K. less competitive.

Company Web site: www.berr.gov.uk

-By Jessica Hodgson, Dow Jones Newswires; [phone]; [e-mail]