Chapter 14 • Corporate restructuring
It seems that the Commission does not have great effect in restricting merger
activity, nor is it intended to. The general philosophy of the legislation and of the
Commission is that it is up to businesses and shareholders to decide on the economic
desirability of particular mergers, with the state stepping in only when it fears that the
public interest is threatened by the outcome of a merger. The Commission perceived
that such a threat might have existed when the video games, retailer Game Group plc
sought to take over its rival Game Station Ltdin 2007. The Commission was concerned
that the takeover would remove competition in video games retailing and that this
might allow the new combined business to exploit its power in the marketplace
to raise prices, to the disadvantage of the public. When the Commission came to invest-
igate this in detail, it concluded that the public interest was not threatened and author-
ised the takeover to go ahead.The City Panel on Takeovers and Mergers
The Panel is a self-regulatory body that includes in its membership representatives
of most of the leading financial institutions of the City of London. These include the
London Stock Exchange and the Committee of London Clearing Banks. The Panel and
the Code that it administers were established in 1968, following a number of merger
battles in the 1960s, which many observers saw as involving tactics that did not reflect
well on big business and the financial institutions. Many of the less savoury encoun-
ters involved businesses that are (or were) household names, thus attracting a high
level of media attention.
The main fears were that actions of the bidders’ and of the targets’ managements,
particularly in cases where the bid was opposed by the target’s management, were
having adverse effects on shareholders, more particularly small shareholders, of the
target. Specifically, it seemed that there were differences in the treatment of different
shareholders regarding the quality and quantity of information each received pertain-
ing to the merger.
The Code, which is constantly under review, comprises a set of rules defining the
steps to be followed by both bidder and target in the course of the merger negoti-
ations. The Code does not address itself to wider questions of the desirability of the
merger; it deals only with the conduct of the merger process. The Panel has no stat-
utory powers to enforce the Code, but it is able to apply moral pressure on offenders.
Ultimately it can request that one of its members – the London Stock Exchange –
excludes the offending business from listing.
Whether the Panel and the Code have achieved their objectives is a question open
to debate, though most observers appear to feel that much of the more extravagant
behaviour evident in the 1960s is not obvious today.Practical steps towards the merger
Most mergers are effected by the bidder buying from the target’s shareholders
sufficient ordinary shares to give control or even total ownership of the equity. This is
usually done in two stages:l by the bidder buying shares, for cash, through the Stock Exchange; and then
l by its making a formal offer to remaining shareholders by direct mailing and there-
fore outside the established capital market.