'Cadbury Law' could be fast-tracked to prevent hostile takeover of BP
Jul 31 2010 by Jonathan Walker
Ministers have been urged to speed up plans for a “Cadbury Law” protecting British companies from hostile takeover – after warnings that BP could go the same way as the Birmingham-based chocolate maker.
MP and union leader Jack Dromey said the oil giant, facing heavy criticism over the Gulf of Mexico oil spill, could become the target of a hostile takeover which could damage the UK economy.
He urged the Government to act after Business Secretary Vince Cable announced he was ready to change the law to make hostile takeovers more difficult.
Dr Cable revealed his plans in a response to the Commons Business Committee’s inquiry into Cadbury’s sale to US food giant Kraft.
The Business Secretary also said his department would monitor Kraft’s stewardship of the firm, to ensure it kept a series of promises including avoiding compulsory redundancies and manufacturing plant closures for at least two years.
Mr Dromey gave evidence to the inquiry, earlier this year, in his role as Deputy General Secretary of the Unite union. He is now a member of the Commons committee, after becoming Labour MP for Birmingham Erdington in May’s election.
Unions and Labour MPs have been pushing for changes to the law making takeover bids more difficult, for example by excluding hedge funds which buy shares in threatened companies in the hope of making a quick profit from voting on whether to accept a takeover offer. They say the Cadbury sale proved that it was possible to buy British firms in deals which damaged the national economy.
In his response to the committee, Dr Cable said: “Too many takeovers in the UK fail even by the limited criterion of shareholder value – and often with serious implications for the people who work for the firms on both sides.
“But that does not mean we should return to the old-fashioned public interest test, which encouraged weak managements to lobby for protection. The Government has no current plans to amend the legislation governing the power to intervene in mergers on public interest grounds. We are satisfied that the existing powers provide the appropriate scope to take action to protect legitimate national interests that might be affected as a result of a merger.
“Instead, we plan to review whether there are other aspects of the merger framework which could be tightened up, such as an increase in merger fees and a requirement for pre-notification of some mergers, as is done in most other European jurisdictions, in order to prevent some of the hasty deal-making (and the difficulties associated with breaking up mergers after the event).”
A system of pre-notification would involve both the buyer and the seller filing full details of the transaction, with a cooling-off period of around 30 days before a sale could go ahead. During this time, regulatory agencies would be able to investigate the sale.
Higher merger fees would be designed to cut the profits of consultants or advisors who might be tempted to push for a sale simply because they stood to earn a fee if it went ahead.
Mr Dromey said: “Ministers must not drag their heels on a ‘Cadbury Law’ preventing hostile takeovers not in the national interest because BP could be next. It was wrong that a debt-laden American multinational was able to mount a hostile takeover of a successful British company, aided and abetted by Mayfair’s hedge funds buying up 25 per cent of Cadbury’s shares.
“BP is now vulnerable and it would be bad for Britain if BP fell prey to a hostile bid from a predator taking advantage of a falling share price.”
The spill in the Gulf of Mexico, following an explosion at the Deepwater Horizon rig exploded on April 20, is the worst ecological disaster in US history and has cost BP $32.2 billion
BP’s share price has plunged about 40 per cent since the explosion, wiping tens of billions of dollars off the group’s market value. It faces speculation that firms such as ExxonMobil, the world’s largest oil firm, could mount a takeover bid.
Kraft’s takeover of Cadbury aroused strong opposition among MPs and unions, amid fears the firm would not respect Cadbury’s traditions and reputation for quality.
In their inquiry earlier this year, the Business Committee obtained a series of pledges from Kraft, including a promise to continue to manage Cadbury from within the UK and produce products such as Dairy Milk here.
