UK: BIS Committee report on Kraft's takeover of Cadbury - Government response

The Government's response to the House of Commons BIS Select Committee report Mergers, acquisitions and takeovers: the takeover of Cadbury by Kraft has been published: see here (pdf). This is an interesting and important document setting out, albeit briefly, the (new) Government's position on many governance related matters and highlighting the direction of future policy.

Much clearly rests on the outcome of the Takeover Panel's recent review of takeover regulation (see here, pdf) but the response states that the Government will shortly be consulting on how to improve the quality of narrative reporting, in order to strengthen engagement between quoted companies and their shareholders (this is, presumably, the context in which the Government will say more about its intention to restore the Operating and Financial Review). The manner in which institutional shareholders and their fund managers perform their role as "responsible owners" of UK quoted companies is another area identified for consideration.

UK: Rule 19.1 of the Takeover Code and public criticism for Kraft

The Takeover Panel Executive has publicly criticised Kraft Foods Inc for its failure to meet the standard required under Rule 19.1 of the Takeover Code in respect of statements made in the course of its takeover bid for Cadbury plc: see here (pdf). Public criticism is one of the disciplinary measures available to the Panel; a public criticism was last issued in 2007.

Rule 19.1 provides that "[e]ach document or advertisement published, or statement made, during the course of an offer must be prepared with the highest standards of care and accuracy and the information given must be adequately and fairly presented". During the course of its bid for Cadbury plc, Kraft had stated, on the basis of an honest and genuine belief, that it could keep operational one of Cadbury's factories (Somerdale).

In its statement, the Executive observed that Rule 19.1 was of "great importance" and "fundamental to ensuring the orderly conduct of takeovers" and that where a party to an offer makes a statement of belief of the kind made by Kraft, Rule 19.1 required "not only that the party concerned honestly and genuinely holds that belief (a subjective test) but also that it has a reasonable basis for so holding that belief (an objective test)".

The Executive accepted that Kraft held an honest and genuine belief that it could keep Somerdale operational. However, the Panel found that Kraft did not have a reasonable basis for holding this view because it did not know the details of Cadbury’s phased closure of Somerdale. Moreover, Kraft did not seek further information, or take the opportunity to take mitigating action in respect of its statements, when it learned, from Cadbury representatives, that the phased closure of Somerdale was well advanced.