Table 1 summarises the main differences between securities regulation in the UK and the US. In the US, the main statute used by securities regulators is the Williams Act 1968. The act provides the rules that govern acquisitions and tender offers. It requires the bidding company to provide all the details concerning its tender offer to the Securities and Exchange Commission (SEC) and the firm to be acquired.
The UK, on the other hand, uses a set of rules referred to as the City Code on Takeovers and Mergers to regulate takeovers. Although the rules have a statutory basis, they are applied as general principles. The code provides general guidelines that bidders are expected to use.
Regulatory Regime
Takeovers in the US are regulated by state courts and securities regulators. The SEC oversees takeovers by ensuring that bidders follow all procedures. State courts regulate the reaction of managers to takeover bids. Specifically, they address the legal issues raised by the parties involved in takeover bids. The UK, on the other hand, has adopted a self-regulation regime. Takeovers are regulated by the Takeover Panel, which enforces the principles set in the City Code.
Conflict Resolution
Takeover disputes in the US are resolved by courts. The bidding company is required to file a suit in the Delaware Court of Chancery if it believes that the executives of the target firm are resisting its bid. The bidder expects the court to force managers to abandon their resistance to allow shareholders to consider the takeover. This means that disputes are handled by judges and lawyers. In the UK, disputes are handled by representatives who are members of the Takeover Panel. The representatives are usually from the Bank of England, London Stock Exchange (LSE), and merchant banks.
Defensive Tactics
In the US, managers are allowed to employ defensive tactics to prevent a hostile takeover. Managers can use a poison pill, leveraged buyout, and lockout agreements to block a takeover bid. By contrast, defensive tactics are illegal in the UK. Thus, managers are not expected to take any measure to block a takeover bid without the permission of shareholders.
Pros and Cons
The main advantage of the UK’s takeover regulation is that conflict resolution takes a short time. The Takeover Panel settles disputes in real-time rather than weeks or months. Conflict resolution is also cheap since conflicting parties do not have to hire lawyers. The disputing parties do not pay the Takeover Panel since it is funded by the LSE. The regulation also ensures fairness by applying the equal treatment and mandatory bid principle, which prevent bidders from making forceful bids. The disadvantage of the regulation is that it limits managers’ ability to use defensive tactics to prevent a takeover that might have adverse effects on their company.
The main advantage of the United State’s takeover regulation is that managers can resist a takeover without seeking shareholders’ permission to protect the company. However, conflict resolution takes long since it has to be handled by courts. Dispute resolution is also expensive since lawyers have to be hired. Moreover, managers can block a takeover to satisfy their interests rather than the shareholders’ needs.
Table 1: Main differences.