Put Up or Shut Up: Merger Rule Could Benefit Canada

By Boyd Erman

As Xstrata Plc (XSRAF.PK) drops its phantom bid for Anglo American Plc (AAUKY.PK), and Kraft Inc. (KFT) decides whether to go ahead with the takeover it says it plans for Cadbury Plc (CDSCF.PK), the spotlight is falling on the U.K. Takeover Panel's so-called "put up or shut up rule."

The Takeover Panel, which oversees mergers in the U.K., uses the rule to ensure that companies that say they are going to make a bid for a company actually follow through. The panel can set a time limit, as it did in both the cases of Xstrata and Kraft, and then the would-be bidder has to decide whether to table an official offer. If they don't, they are usually barred from making any other move for at least 6 months, a reasonable disincentive to bluff.

Xstrata decided, with the panel's deadline looming, to drop its bid and now will have to stay on the sidelines for half a year unless Anglo agrees to engage in talks or another buyer makes a move, in which case Xstrata's handcuffs would come off.

Kraft looks like it will go ahead by the November deadline it faces, though it's not a sure thing yet.

The "put up or shut up rule" would be a welcome addition to Canadian takeover law. There aren't many examples of such phantom bids in Canada, but when they do happen, markets react in anticipation of the expected bid. If it doesn't come, there should be consequences.

The OSC is on the record as frowning on phantom bids, but there's no rule such as the "put up or shut up" regulation that addresses the situation explicity.

The idea of having such a rule is gaining currency, with the Dutch considering adding a "put up or shut up" rule to their regulatory arsenal. Canada should consider doing the same.

Comments

[Donald Ingram:]

Yes. I concur. Any 'fair to all' regulation that reduces the chance of an entity gaining 'unfair' advantage over another by way of nefarious means is welcomed. Stop the fraud and corruption which has greed and hubris at its roots.

Oct 15 07:02 PM