Dealmakers eye new panel rules

The last 12 months have resembled a fee Nirvana for dealmakers, yet in these
heady times corporate financiers have had to monitor a new set of rules.

The rules could impact on the M&A feast, which has seen a wave of deals
including Telefonica’s acquisition of O2.

The Takeover Panel has recently closed consultation on a proposed rule that
will oblige holders of options or derivatives on company shares to make
mandatory bids for these companies.

The Takeover Panel’s reasoning is that hedge funds, and the like, have been
using derivatives and options to gain stakes in bid targets. In doing so, they
have been able to skirt the 30% threshold that requires the holders of ordinary
shares to make a mandatory offer for a company.

‘If you hold an option or derivative on a stock you have a degree of control
over those shares,’ said Mark Warham, the director general of the Takeover

He added: ‘If you have an option on 30% of a company’s stock then you should
have to make a mandatory offer, as the holder of 30% of a company’s shares

The panel is scheduled to release a response statement on the consultation at
the end of this month. But sceptics have made it known they disagree with the
panel’s reasoning.

In its response to the consultation, the ICAEW’s corporate finance faculty,
which represents 5,600 dealmakers, said: ‘We do not consider that an option
holder and a holder of a derivative necessarily has de facto control over the
underlying shares’.

It added: ‘Derivatives can take a myriad of forms and with many derivatives
there is a real lack of transparency as to what action the counterparty may take
to hedge its position.’

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