Long-Term versus Short-Term Distinction in UK Takeover Review Misses the Point

Abstract:     
Following the controversial acquisition of British confectionery maker Cadbury by American food giant Kraft, the Takeover Panel is evaluating whether the rules governing takeovers in the UK should be fundamentally reformed.

This article argues that the proposal to frame shareholders as long-term or short-term in the recent Takeover Panel consultation document is misguided because it misses a fundamental point about how investment decisions are made, including whether or not to accept a takeover offer.

In takeover situations, active fund managers make sell/tender decisions based principally on the extent to which their "target prices" have been achieved rather than because they consider themselves long-term or short-term shareholders. For passive fund managers, investment decision-making is driven by cost-efficiency and technical considerations.

This article urges the Takeover Panel to focus instead on whether current regulations and procedures ensure a fair outcome to both acquiring and target entities.

Note: This article served as the basis for an op-ed that appeared in the Financial Times on August 23, 2010.

Number of Pages in PDF File: 2

Keywords: Mergers and acquisitions, Takeover Code, institutional investors

JEL Classification: G34, G38

Accepted Paper Series