Wall Street baffled by Britain's takeover rules
Britain's updated Takeover Code was supposed to make acquisitions of British companies more transparent. Instead, it's having the opposite effect.
The stricter rules, in place since 2011, sowed confusion among traders and analysts during Pfizer's US$117 billion play for AstraZeneca this month. Conflicting explanations from the companies caused shares to swing as investors tried to figure out just what could actually happen under the guidelines.
Some traders were puzzled again this week after Pfizer said it would not make a formal bid for AstraZeneca, ruling itself out of doing so for six months. While that so-called Rule 2.8 statement and the standstill period are both required under the takeover code, just how firm the moratorium is quickly became a subject of debate. In fact, there are two scenarios under which Pfizer can bid for AstraZeneca again before November.
"People were super confused," said Mark Schoenebaum, an analyst with ISI Group in New York. And there were consequences for traders looking to allocate their bets on when Pfizer could try to revive the deal, he said. "It's highly relevant to a risk-arbitrageur if they could raise their bid."
After three months have elapsed, the British firm may invite Pfizer to re-enter discussions, or Pfizer can make its own approach with a single knockout offer it feels sure AstraZeneca would be able to recommend to its shareholders. If that's rejected, Pfizer must wait until the full six months have expired before making a renewed approach.
A representative for the Takeover Panel, which administers the code, declined to comment.
Even before this week's statement, a debate over the rules moved AstraZeneca shares as the companies issued duelling statements with their conflicting interpretations of what could happen after Pfizer issued what it called its "final" offer.
On May 19, "in response to enquiries from market participants," Pfizer said it was permitted - in certain circumstances - to raise that bid above £55 (HK$715) a share. AstraZeneca disagreed, putting out its own statement with a different interpretation "following some questions from shareholders".
Traders who bid AstraZeneca's New York-listed shares up 1.8 per cent after Pfizer's statement, then saw the stock price swing in the opposite direction after AstraZeneca's statement.
The updated rules owe their creation to the 2010 hostile takeover of Cadbury by the United States company known at the time as Kraft Foods Group. Then, a takeover battle lasting months sent Cadbury shares on a roller-coaster trajectory and prompted politicians including Vince Cable, Britain's Business Secretary, to call for a more regimented system.
The Takeover Panel has said its rules are in place to keep target companies from coming under extended siege by hostile acquirers, and to impose order on what can be an unruly acquisitions market. With dealmaking subdued since the global financial crisis, until this year many foreign investors have not had much opportunity to get acquainted with the code's provisions.