UK: Challenge Keeps Us Sharp

Last Updated: 20 April 2017
Article by Henry Ker

Unilever calls for stronger protections and Government intervention following Kraft Heinz's attempted takeover

Back in February, a Warren Buffett-backed Kraft Heinz proposed an audacious takeover of fellow consumer goods manufacturer Unilever. The bid, valued at £115 billion or an 18% premium on Unilever's share price at the time, was labelled by Unilever as 'fundamentally undervaluing' the company. It went on: 'Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever's shareholders.'

The following day a joint statement was issued, stating Kraft Heinz had 'amicably agreed to withdraw its proposal for a combination of the two companies.' It continued: 'Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.'

The fallout from the proposal, however, seems to stand in contrast to that 'amicable' announcement. Unilever has called for the Takeover Code – the principles by which the Takeover Panel regulates potential acquisitions – to be strengthened, and urged the Government to go further in safeguarding 'national champions'.

Protecting UK business

Unilever argues that a company defending a potential takeover needs more time than the current 28-day period allowed, suggesting it offers little opportunity for a robust defence to be organised in the face of a potential acquirer, which may have been planning its move for over a year.

The 28-day period was actually introduced as a defence for target companies – the period, known as 'put-up or shut-up', is designed to limit the damage an endless rumour mill about a takeover can cause. Basically, once interest in a bid is expressed, the acquirer has 28 days to make a formal bid or back off, with no subsequent bid allowed by the potential acquirer for six months. The reform came about in 2010 following Kraft's last high-profile UK acquisition, Cadbury, which it pursued for five months.

"A well-run target company of a certain size should undoubtedly have contingency plans in place for a potential takeover "

The argument for more time to plan a defence in the face of a meticulously organised takeover is certainly understandable. There is also the fact that historically, the UK has been particularly open to M&A activity. Research by Dealogic suggests that since 1997, British firms have been involved in a quarter of all cross-border M&A activity – whether as buyers or targets.

However, a well-run target company of a certain size should undoubtedly have contingency plans in place for a potential takeover. It is also unlikely a bid will ever come completely out of the blue; rumours and information enquiries will have alerted the company in advance and, if the proposal is likely to be negatively received, offered some opportunity to prepare a counter-case for shareholders.

Proper strategy

In July 2016, during the launch of her campaign to become Leader of the Conservative Party and Prime Minister, Theresa May brought up the topic of takeovers by foreign companies. Discussing how 'the Government almost allowed AstraZeneca to be sold to Pfizer' in 2014, she labelled Pfizer as 'the US company with a track record of asset stripping and whose self-confessed attraction to the deal was to avoid tax' and suggested the Government should have greater powers to intervene.

Currently, under the 2002 Enterprise Act, the Government can only intervene in a takeover because of three issues: financial stability, media plurality and national security. May instead proposed 'a proper industrial strategy' that would not step in automatically, but should be capable of defending a sector vital to the country's economy – such as pharmaceuticals and AstraZeneca.

Public interest

How that 'proper industrial strategy' would look is another matter. The current mooted proposal would be to add a fourth criterion to the three in the Enterprise Act: 'critical national infrastructure'.

Sir Vince Cable called for a 'public interest test' to be added back in 2010, following Kraft's reneging on a commitment to save jobs after its Cadbury takeover. Kraft's actions by themselves caused a change in the Takeover Code; commitments made during the acquisition process are now legally binding. Unite, Britain and Ireland's biggest trade union, brought up this case after the Unilever approach, as it commented: 'It shows the need for a "Cadbury rule" which takes into account the issues like jobs and consumers in these circumstances, so it's not just down to how deep someone's pockets are, to throw money at shareholders.'

"Subjectivity means the policy will never be as effective as its noble ambitions intend"

However, as with any time where ambiguous terms such as 'critical to national infrastructure' or 'public interest' are used, how they are applied in reality is far from clear. Suddenly an element of subjectivity, no doubt influenced by lobbying from various sides, means the policy will never be as effective as its noble ambitions intend.

'Public interest' could also apply to badly-run organisations as well as prospering businesses. Sometimes with struggling companies, hard decisions and compromises have to be made. There may be an accidental danger of 'protecting' a struggling business from an acquisition, when that takeover could help save the business – all in the name of public interest.

Strategic review

There are, in fact, positive aspects that arose from Kraft Heinz's attempted takeover. Despite all the posturing about 'predatory takeovers', as Unite described it, Buffet painted it as more of a gentle enquiry as to how an offer would be received (indeed, he managed to land himself in hot water as he explained the process via an ill-judged analogy about 'the difference between a diplomat and a lady'). Alongside this, it must be noted it failed – and failed quickly – with little detrimental effect on either company (although Unilever's share price yo-yoed a little).

"Companies may feel they have to be seen to 'do something' and rush headlong into a mistaken enterprise"

Following the attempted takeover, Unilever announced a strategic review 'of options available to accelerate delivery of value for the benefit of our shareholders'. It explained that the attempted takeover highlighted 'the need to capture more quickly the value we see in Unilever'.

Offload brands

Since that announcement, there have been suggestions Unilever will look to offload around £6 billion worth of brands – namely its struggling margarine assets such as Flora and Stork – in order to enhance shareholder returns. This may prompt the more cynical to ask why, if this move makes such business sense, it has not been proposed before.

But Unilever has recognised it cannot be complacent when there are 'predators' out there, and has looked to raise its game. The takeover attempt was the proverbial kick up the backside.

In all industries, pressure and challenge, within reason, keeps companies at the top of their game and promotes competitiveness – business, like every form of competition, should not be overly protected, otherwise companies will never realise their full potential.

However, it is also important to ensure that companies do not have a knee-jerk reaction to a potential takeover. Companies may feel they have to be seen to 'do something' and rush headlong into a mistaken enterprise. As with anything, caution and temperance must be advised.

Henry Ker is Editor of Governance and Compliance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions