David Bridges
Blair Jacobson, co-head of European credit at Ares Management, told a Financial Times summit last week that “everything in the UK is on sale” and weak sterling was an advantage for US dollar-denominated funds. At the same time, he cautioned that negotiating the takeover regulator’s requirements could be difficult.
It’s a common observation from the buyout industry. UK transactions are governed by a 433-page “code” that is enforced by the Takeover Panel. The slightest whiff of a possible bid, and the regulator forces the putative buyer to clarify their interest. After the disruptive four-month siege of Cadbury, a rule was introduced requiring bidders to formalize any offer within 28 days, unless the takeover target is happy with an extension.
Above all, acquirers must have guaranteed funds — vouched for by their advisers — before making a formal offer.
A corporate buyer with ready cash, supportive banking relationships and the option of paying for a takeover using its shares won’t be too phased by all this. But the rubric is a challenge for private equity given its reliance on hefty amounts of debt. If a deal leaks, the clock starts ticking and there’s not much time to finish kicking the tires and secure funding. The argument is that the rules make buyout firms steer clear of riskier transactions to avoid the possibility of being seen to try and then fail.
Still, the UK’s checks and balances look justified. Last year’s deals boom shows that the rules don’t hinder takeovers: It culminated in the buyout of grocer Wm Morrison Supermarkets, the UK’s largest in the more than a decade.
Meanwhile, the saga in the US generated by billionaire Elon Musk’s bid for Twitter Inc. is a reminder of why the UK’s focus on speed and certainty in deal-making is a good thing. Twitter shareholders and employees have suffered a rollercoaster ride. Ever since Musk’s deal was struck on April 25, the market has been nervy about the financing. That doesn’t happen in the UK given the regulatory requirement for funding to be 100% in the bag, even if the bid target’s board would happily sign a deal with wishy-washy financing commitments.
Musk’s attempts to back out of his Twitter offer triggered potentially protracted litigation. While it seems equally hard to reverse a deal on both sides of the Atlantic, the decision process would take less time to conclude under the UK’s regulated approach. Put simply, the UK rules maximize the chances of a deal completing at the announced price as quickly as practicable.
London is an open market for deal-making. Listed firms can’t do so-called poison pill defenses with the potential to frustrate bidders (like Twitter did). Where a private equity buyer is dangling a tempting price, the target company is highly unlikely to use the regulatory timetable to kill the transaction.
If there are brakes on UK buyouts, they are less procedural and more political, like the government’s national security veto. Private equity firms can get deals done if they pay up. Given the grief Morrison has caused the lenders lumbered with its debt, some might even wish the regime made buyouts a lot harder than it does.
Time wasters will get short shrift. But lowly valuations and a weak currency are a greater help for bidders than the UK’s rules are a hindrance.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.
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