A Long-Term Vision for UK Firms? Revisiting the Target Directors’ Advisory Role Since the Takeover of Cadbury's PLC

Abstract

The takeover of Cadbury’s by Kraft in 2010 led to the questioning of the UK’s open market for corporate control and initiated a political enquiry into the framework regulating takeover bids. One of the concerns brought forward is that contrary to their role, target directors act more like “auctioneers” selling to the highest bidder rather than "stewards" looking after the company's long-term interests. The target board’s role as an advisor will be analysed with reference to the Code, common law, the Companies Act 2006 and the EU Takeover Directive. It will be argued that the grey areas of law reported on are the result of the conflicting aims to facilitate an open market for corporate control, whilst sustaining companies with a long-term vision. The legal solution proposed is strengthening the target board’s advisory role by providing directors with guidelines on how to construct their recommendation of a bid to shareholders.

Keywords: UK City Code on Takeovers and Mergers (10th edn); General Principle 3 of the Code; Rule 25.1. of the Code; Cadbury’s takeover; Opinion of the Offeree Board of Directors; 2011 Takeover Law Reform; Directors’ Duties; C.A. 2006