What a difference an election makes. When Kraft were bidding for Cadbury the government said they were powerless to stop it. They did not propose any legislation to give themselves the power to stop such deals. We know, as they proved with the Digital Economy Bill and the Finance Bill, that they could push unwanted legislation through all stages in a matter of hours when they wanted to. So why didn’t they put something to Parliament about take-overs when it mattered?
There are several possible explanations. The first is they may have been told that Company law measures to block foreign take-overs might not be legal under EU law. Much of this area of work is a power taken by Brussels and given by this government in their legislation. The second is that their new proposals may not prevent a single take-over, so it was best not to put them to an early and real test. The third is, that this idea has been subject to discussion with UNITE, one of its leading advocates, and the politics have only just reached the point where it needs to be announced.
The leaks – which are not being denied and may even be inspired – suggest the policy has two features. The first is to require a two thirds majority to approve a takeover. Maybe that does get round EU law – we will find out. It does not guarantee a block on any given foreign take-over. If the bidder offers a good enough price most shareholders might want to sell out anyway. The second is to stop “hedge funds” voting if they have just recently bought the shares with a view to exploiting the increase in price over the bidding period. In practise I doubt they will be able to single out “hedge funds”. It is more likely they will have to ban any recent buyer of the shares from voting, which could include new shareholders they like. This would include a voting ban on shareholders deliberately buying into the company to help keep it independent. The “White Knight defence” is a well known City practise where sympathetic shareholders buy up shares to thwart an aggressive bidder. Intervening can often have perverse consequences.
There is also discussion of a “public interest” ground for turning down a merger. The Competition authorities always used to have this reserve power. When I was Competition Minister, acting for the Secretary of State, we could invoke this public interest clause in a number of areas if we wished. The irony is that it was Labour who swept away the old and perfectly good Competition Law in order to impose a complete European system on us. Now it appears they regret their European enthusiasm and are thinking of going back to the future.
Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU