Kraft/Cadbury deal prompts calls for reform of takeover laws

The hostile takeover of the British chocolate maker, Cadbury plc (Cadbury) by US company, Kraft Foods Inc (Kraft) has been widely publicised, especially the initial resistance by Cadbury’s shareholders to the deal. In the end, a sufficient percentage of Cadbury’s shareholders (90%) accepted Kraft’s increased final offer and “squeezed out” the remaining minority shareholders, allowing the takeover to proceed.

Peter Mandelson (the Business Secretary) has since proposed various reforms to takeover laws including:

• raising the voting threshold required to approve a hostile bid
• denying short-term shareholders such as hedge funds the right to vote during a bid period
• giving bidders less time to formally commit to their offer (“put up or shut up”) so as to reduce the length of time a takeover bid takes to complete
• requiring bidders to set out publicly how they intend to finance their bids over the long term and how they intend to make cost savings

The proposals have, however, received a mixed response. Some commentators are in favour of protecting companies from hostile bids but others would prefer takeover laws to remain the same so as to allow a company’s shareholders (rather than its board of directors) to determine the outcome of a takeover bid.