Time for change at Takeover Panel

By ANTHONY HILTON FOR MAILONLINE
Updated:

 

RAPHOE, the company headed by Sir Gerry Robinson, issued a pretty meaningless statement yesterday in the context of its possible bid for Rentokil Initial.

That company last week issued its half-time figures, but refused to say anything directly or obliquely about the possibility of a takeover offer in spite of the fact newspapers had reported on little else since the previous weekend.

The reason for the reticence in both cases is the Takeover Panel - or so they say. Both sides claim Takeover Panel rules prohibit them from saying anything that has not previously been disclosed because it might prove sensitive in the context of the bid.

It is also fashionable to praise the Panel as a wonderful example of self-regulation and a credit to the City. It was once, but perhaps sentiment blinds people to its obvious faults.

It has become a tool of the investment banking community, the net effect of which is that it no longer protects the interests of the small private shareholders who are most in need of its help. Apart from that, yes, it does a good job.

Back in the Panel's early days in the mid-1970s, it went outside the magic circle of merchant banks and recruited a Price Waterhouse accountant, Martin Harris, as its director general. But Harris did the job as he thought it should be done, and this meant making rulings the professionals did not always like.

They never took that risk again. Ever since Harris, 30 years ago, they have made sure the director general is one of their own. They justify this by saying mergers and acquisitions are too complex for non-bankers to understand, which is as patronising as it is inaccurate, but the result is that the job is passed round the investment banks on the basis of Buggins' turn.

Originally, too, it went to people at the top of their game. Today, it goes to a relatively young banker with the bulk of his career ahead of him - and no desire to make the wrong sort of waves. The result over the years is that the Panel has gone native. Created to protect the interests of shareholders, it now protects the interests of merger and acquisition professionals.

Hence the emphasis on total secrecy. It suits the bankers because it allows them to control the process, to negotiate between themselves, to isolate and stitch up the management and to present the shareholders with a fait accompli, about which there is no point in arguing - and to negotiate their fees at the point of maximum weakness for the client. That's investor protection, 2005 style.

There is a case for controlling what people say. There is logic in the old rule that once a bid is on the table and the 60-day clock is running, management has to be prevented from making outrageous claims which might influence the outcome.

But typically these days people don't make a real offer. They make a vague suggestion, then they go into a haggle about hypotheticals which can drag on for months, during which time who knows what inducements are offered to managements to raise the white flag.

Of course, even in the 1970s and 1980s, directors were occasionally offered cash over the lunch table or in a Swiss bank to temper their opposition to a bid. But such behaviour was known to be corrupt. Today it is called aligning management's interests with the shareholders' or incentivising them, but it cannot be reported upon because the Panel doesn't want anything that might lead to a false market.

In the Rentokil case, where again there is no bid nor even talks about talks, few people know what is going on. But if anyone on the outside does, it is that cadre of investment banking clients who pay huge fees and commissions to their prime brokers on condition they get the best advice, ideas, information and gossip.

Hedge funds all pile in at the first hint of a bid with an uncanny feel for what the eventual price will be, and they couple this with a talent for piling out again before the rest of the world even knows a bid approach has failed - witness Apax and Woolworths a few months ago.

Perhaps the Panel believes hedge funds have no more information than the private shareholder. Such a view may help the Panel ignore the reality of what is going on in the patch it is supposed to police, but no one else would come to such an absurd conclusion.

The more the Panel restricts information flow, the more advantage it delivers to those close to the action and the more disadvantage it visits on the already vulnerable. For too long it has given respectability to behaviour that is not always respectable and ignored the fact it cannot control the actions of bankers when hundreds of millions of pounds of fees are at stake.

It is time it stopped pretending. The Panel needs to rediscover its roots or vote itself out of office.

Most watched Money videos