UK to tighten foreign takeover rules

BY Matt Atkins

UK Business Secretary Vince Cable has announced his intentions to tighten rules dealing with the foreign takeover of UK firms. The news comes after controversy which surrounded the failed takeover bid for British-based AstraZeneca, by US drugs giant Pfizer.

Speaking to the BBC, Mr Cable said foreign firms must be given no opportunity to shirk their responsibilities to UK workers and business interests. Foreign firms reneging on any promises made during a deal should be subject to financial penalties, under any new regime governing takeovers.

The enforcement of any new regime would also require legislative change, said Mr Cable, and he revealed broad agreement across the government for such measures.

Tighter laws to strengthen the 'national interest test' could also be in the pipeline, after concerns about the acquisition of major UK firms. As a 'last resort', the government needed to be able to intervene in dealmaking if transactions do not appear in the public interest. Currently, a formal public interest test only allows ministers to intervene when financial stability or media plurality are threatened.

Pfizer’s bid for AstraZeneca, raised concerns of job cuts as well as the loss of vital research and development carried out at the UK company. "What the government did then was to engage in negotiations to seek assurances. Where we now have to strengthen that is to make sure that where commitments are made, there is no wiggle room," Mr Cable told the BBC's Andrew Marr.

Pfizer gave a five-year commitment to complete AstraZeneca's new research centre in Cambridge, retain a factory in northern England and put a fifth of its research staff in Britain, but stipulated these pledges could be dropped if circumstances changed "significantly". To ensure in future that such assurances would be binding, Mr Cable said "we may well get into the area of having financial penalties" as a means of ensuring that companies stood by their takeover promises.

Such guarantees would prevent a repeat of a situation in 2010, which saw US foods group Kraft make a successful bid for British rival Cadbury with a promise to keep one of Cadbury's factories open. Kraft went back on this pledge shortly after the deal was completed.

News: Britain plans to remove 'wiggle room' in foreign takeover rules - minister

France wins EU merger law approval

BY Richard Summerfield  

The French government has won the approval of the EU for a controversial new law which grants the government more power to block takeovers of French companies in strategic industries.

The decision, announced by French economy minister Arnaud Montebourg, was based around the government’s move to extend its control over mergers and acquisitions in industries which have been deemed key to France's national interests. The new law was inspired predominantly by the deal that saw General Electric Co (GE) successfully acquire the energy assets of French group Alstom.

“The European Commission in recent days notified the French government of its approval of the decree as perfectly in line with European treaties,” said Mr Montebourg in a conference speech in France. “It was used in the GE-Alstom case. It will be used again in certain sensitive sectors such as water, health, national defence, gaming, transport, energy and telecommunications" he added.

Although the European Commission, the EU’s executive body, has approved the law, it is not willing to provide the French government with carte blanche to veto deals in the future. Indeed, the Commission has announced that it intends to closely monitor the situation in the months ahead. A spokeswoman for Europe’s financial services chief Michel Barnier wrote "We recall restrictions on free movement of capital can be justified if the objective pursued is one of public policy and public security. Any action taken to restrict free movement needs to be proportionate and serve the public interest. We will closely monitor any use of the law, i.e. systematically monitor any application of the investment screening legislation, and check in particular that it is not used to achieve purely economic objectives."

Following a protracted negotiation period, GE’s takeover of Alstom was finally approved at the end of June. The company was forced to overcome a number of hurdles in order to finally get the deal ratified. Most notably, the $17bn takeover of Alstom’s energy assets was only approved after one of Alstom’s existing shareholders, Bouygues, agreed to sell a stake in the firm to the French government. As per the government’s terms, Bouygues will be required to sell as much as 20 percent of Alstom to the state. GE beat out competition from Siemens AG and Mitsubishi Heavy Industries, which tabled a rival bid for Alstom’s assets.

News: France says won EU backing on takeovers law, EU says will monitor

Assessing MiFID’s facelift

MiFID I was largely successful in matching its original ambitions of moving towards a single European market in financial services, and removing the monopoly of regulated markets. However, the Directive fell down in a number of areas. Given the extended scope of products and activities covered by MiFID II, it is expected to have a significant impact on the European market in the years ahead.

FW moderates a discussion on MiFID II between Michael Thomas at Hogan Lovells, Kara Cauter at KPMG and Marius Floca at RBS.

TalkingPoint: Analysis of MiFID II

Cyber risks still overlooked in dealmaking

Cybersecurity is now one of the most pressing concerns among the spectrum of risks arising in the M&A process. Intellectual property, operational efficiency, and financial controls are all at stake when companies embark upon a transaction without properly managing this risk. Recent large-scale attacks and the notoriety they have gained may be increasing awareness of these issues, but understanding how best to address them requires expertise that may be lacking among dealmakers.

FW moderates a discussion on cyber-security risks in M&A between Adam Pang at Merrill DataSite, David Stanton at Pillsbury Winthrop Shaw Pittman LLP and Timothy J. Nagle at Reed Smith LLP.

TalkingPoint: Managing cyber-security risks in M&A

Global M&A hits new high in H1

BY Matt Atkins

The value of global M&A rose 3 percent in H1 2014, hitting $2.03 trillion according to information collected by M&A research firm Zephyr. Volume slipped, however, dropping from 41,496 deals in H2 2013 to 35,429.

In the first six months of the year, deal value increased across most continents. The largest increase was in the Middle East, where M&A value more than doubled from $3.54bn in H2 2013 to $7.13bn. Western Europe increased 19 percent from $464bn to $553bn over the same period while M&A recorded for North America improved marginally, hitting approximately $770bn. Asia-Pacific advanced from $476.75bn to $478.23bn. Of all regions examined, Central and Eastern Europe was the only one to see a decline. Slipping from $124.10bn in H2 2013, to $68.72bn. H1 value in the region was the lowest seen since 2012.

While deal value rose generally, volume declined across the board, with the exception of the US. “M&A value has increased in most regions in H1 2014, with global value reaching its highest level for a number of years," said Zephyr director, Lisa Wright. "The positive result is in stark contrast to global volume, which has hit its lowest point in the last nine periods under review. This suggests that deal considerations are increasing, with acquirers willing to spend more in order to ensure they get the best targets."

The rebound has spread across most sectors except financials, where tougher regulation has suppressed appetite. However, the healthcare sector has been the busiest to date, with deals tripling in value to $317.34bn, according to Thomson Reuters data.

A growing trend in the healthcare sector has been inversions by US firms – allowing them to domicile in a country with a lower corporate tax rate. US medical device maker Medtronic Inc struck a $42.9bn deal for Ireland-based rival Covidien Plc in June, in one of the largest attempted inversions. Pfizer's attempted takeover of AstraZeneca, and AbbVie's offer for Shire, would have seen both firms cut their tax bills while also allowing them to access the cash held offshore without paying US taxes.

The second-busiest sector for dealmaking has been media and entertainment, with deal volumes almost tripling to $220.7bn. This is the largely the result of two mega mergers – Comcast Corp's $45.2bn bid for Time Warner Cable and AT&T Inc's proposed $48.5bn acquisition of DirecTV.

Report: Zephyr Half Year M&A Report: Global, H1 2014