It is said that a referee has done a good job when the managers of both teams feel equally aggrieved. A similar argument can be made for market regulators.
Take the UK Takeover Panel. Dealmakers tend to complain that the Panel’s rules and deadlines add mostly arbitrary complications to their offers progressing. Investors, meanwhile, dislike the ambiguity that stems from the Panel’s clubby, industry embedded way of operating. The regulator is criticised either for being too tough or too soft, too rigid or too pliable. It all depends on who you ask.
At press time we have been unable to ask the opinion of Gavin Darby, the chief executive of Premier Foods. Mr Darby and the Panel have become intimately acquainted in recent weeks, after the Mr Kipling cakemaker angered its own shareholders by rejecting three takeover offers from US suitor McCormick in favour of a co-operation arrangement with Japan’s Nissin Foods.
The headlines that followed have been uncomfortable. Within 24 hours of McCormick’s interest being made public, Nissin made itself kingmaker on any future deal by buying 17.3 per cent of Premier from Warburg Pincus, the private equity house. (It has since raised the stake to nearly 20 per cent.) What made the news particularly awkward was that Premier, in the course of talks with Nissin that had been running for around a year, had told the Japanese of McCormick’s approach before informing its own shareholders.
In the rumpus that followed, Mr Darby told the Daily Telegraph he was “sure” McCormick had been “involved” in the trade that moved Warburg’s stake to Nissin. A day later, under pressure from the Panel, Premier had to clarify that Mr Darby was “not aware, nor could he have been, of any discussions” between McCormick and Warburg. The rumpus escalated into a brouhaha.
“This is all part of their strategy,” complains one of Premier’s team, with a hint of grudging admiration. “There are advisers who specialise in using the Takeover Code as an offensive weapon. They do it to wear down the target, to weaken their resistance.”
But did Mr Darby’s clumsy phrasing create a false market for Premier shares? In theory, possibly, though the price looks to have been unaffected. Shareholders were given at most an isolated kind of clarity from Premier’s clarification, whereas McCormick’s team was able to claim a victory on a technicality. It looks a lot like point scoring, where the regulator has been recast as a referee and the Takeover Code makes up the rules of a complicated, very expensive game.
Premier is unusual. Policing of UK M&A is mostly private. Companies are guided on what they need to tell the market via prompts and pointed questions in private meetings. It’s a system that has, historically at least, caused very little friction. Yet recently, the regulator’s light-touch approach has looked increasingly at odds with its dogmatism once the Takeover Code has been activated.
Take the case of Imagination Technologies, the designer of the iPhone’s graphics chip, which spent most of a session last month in a false market. The stock spiked 20 per cent higher on a mostly accurate report that it was in talks to sell itself to Apple. It took seven hours and 20 minutes of trading for Apple to confirm that it had approached Imagination about a takeover, but that the talks had ended. Imagination was allowed to say nothing.
Saying nothing has become the norm. M&A advisers talk of getting more leeway to keep shtum, particularly when faced with the kind of rumours that surface in market reports. It is worth their while to avoid a statement, as going public can seriously damage the chances of a deal progressing. The Takeover Code puts named potential bidders on a 28-day deadline to make a firm offer or walk away, and, even if talks are nonexistent, a public denial will under normal circumstances lock that party out for six months.
But silence creates its own problems. First, it gives a free run to anyone trading on inside information (or, more commonly, anyone who thinks they might be). Second, it has a chilling effect on the press. Put simply, reporters are less likely to put market rumours in front of a wider audience when even a true story is more likely to be met with silence than a confirmation.
This is all good for dealmakers, of course. For investors, the benefits are less clear. It all feels a long way from the regulator’s purpose of keeping the market honest.
So is the Panel too tough or too soft? It really does depend on who you ask.