Changes to UK takeover rules

The new version of the UK Takeover Code could ease the path for private equity firms engaging in take privates in the UK market.

Changes to the UK Takeover Code are levelling the playing field between private equity firms and hedge funds hoping to buy publicly listed UK companies.

The new rules are concerned with the trading of share derivatives such as Contracts of Difference, which allow buyers to in effect acquire an interest in a company. Such contracts have proved increasingly popular with financial buyers such as hedge funds. A statement from SJ Berwin suggests that Contracts for Differences now account for a third of a stock’s daily share trading volumes, increasing to three-quarters when a bid is in progress.

Under previous rules, such interests didn’t have to be disclosed. However, since November 7th the Takeover Code, which governs take privates, has required that market participants disclose dealings in any derivatives. This will also increase the information available to other types of investor looking to acquire the company, including private equity firms.

In a separate rule change, the rules restricting the speed at which shares could be bought under certain circumstances have been dropped. This could assist any private equity firm that is hoping to quickly build up a stake in a company without the recommendation of the board.

This year has seen a number of public-to-private buyouts in the UK. The largest was last January’s £1.61 billion (€2.36 billion; $2.76 billion) acquisition of pharmaceutical company Warner Chilcott by a consortium including Bain Capital, Thomas H Lee Partners, CSFB, JP Morgan and DLJ Merchant Banking. More recently Charterhouse paid £600 million for Personnel Hygiene Services in September, and Electra paid £113 million for bar operator Urbium in October.