Takeover Panel proposes tougher rules for deal promises

By Arash Massoudi. This article originally appeared on the Financial Times website, FT.com on September 15th, 2014

The changes are intended to give greater clarity to all stakeholders, including shareholders, in a deal and give the panel more enforcement tools based on the nature of promises made, it said.

The move comes after the panel faced an unprecedented situation this May when Pfizer said it would make a series of industrial and investment commitments for at least five years to assuage public concern about its attempted takeover of AstraZeneca.

Ian Read, chairman and chief executive of Pfizer, spelt out the promises in a letter to Prime Minister David Cameron and later defended his company’s commitments in front of the UK parliament amid high-stakes and emotive scrutiny of its bid for AstraZeneca.

Pfizer’s promises included keeping at least 20 per cent of the combined group’s total research and development workforce in the UK and completing the construction of AstraZeneca’s planned research and development hub in Cambridge. However, shareholders and others questioned whether those promises were binding under the Takeover Code.

Under the new rules, the panel would require a party that has made undertakings to provide periodic reports to the panel. It would also give the panel the power to require the appointment of an independent supervisor to monitor compliance of the commitments.

The panel said on Monday that Pfizer’s statements were unusual as such promises have been typically made in the form of statements of intention rather than undertakings and rarely covered periods longer than 12 months.

Leon Ferera, partner at Jones Day, who was formerly seconded to the panel, said: “Now that the panel has proposed these changes, parties to an offer will need to think hard about whether they want to give firm commitments because there will be a number of additional obligations and costs that they will have to bear. There will also potentially be significant scrutiny that they will be subjected to.”

The panel has asked the public to comment on its proposed changes over the next six weeks, aiming to make its final rule changes by the end of the year.

Under current takeover rules, Pfizer cannot make a new public approach for AstraZeneca until November 25 – six months after it withdrew from talks after its final offer was rejected.

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