Origins: The Creation of the Takeover Code

This Chapter explores the origins of the Takeover Code and Panel. It considers the historical drivers that led both to the Code’s predecessor - the Notes on the Amalgamation of British Business - in the late 1950s and to the Code and the Takeover Panel in the late 1960s, and the reasons why the self-regulation of the UK’s market for corporate control succeeded. The Chapter commences by providing regulatory context within which the actual takeover events which led to the Notes and the Code should be interpreted. The Chapter posits three key elements of this regulatory context: first, the prevalent British regulatory style in the mid-20th century which involved a conception of the state that contained a strong bias towards market solutions. A conception in relation to which terms such as laissez faire or deference do not do justice. The state deferred but was actively involved in facilitating market action through its channels of communication with market representatives, the threat and possibility of state action, and through the setting up of inquiries and Commissions. The second, connected, element was the self-understanding of the City of London, as almost a State within the State, like the Vatican with its capital market pope,the Governor of the Bank of England. A self-understanding that reinforced the British regulatory style and the City’s “right of self-regulation”. The third element is the evolution of corporate ownership from the middle of the 20th century involving the transformation from retail to institutional ownership. With this context, the Chapter analyses the key takeover events that created public, political, shareholder and corporate consternation in the mid- and late -1950s and the early and late 1960s. The Chapter interrogates the multifaceted reactions to these events and attempts to trace how these reactions are translated into regulatory action – the Notes, the Code and the Panel - and the substance of the Code rules. Through this analysis the Chapter shows how the merchant banking community took control of takeover regulation and argues that the formation and the substance of the Code, as well as its success, owes much to the realisation of the City’s merchant banking community that there was money to made in an active and open market for corporate control and hostile takeovers. In setting forth this account this Chapter challenges an important current view that the Code is the product of institutional shareholder co-ordination to protect their interests. The final part of the Chapter considers the success of the Code and Panel. It posits three key drivers of success: first, the fact that the merchant banking community is hard wired to both the substance and the practice of the Code; second that the Courts stayed clearly on the side-lines and took a highly deferential approach to judicial review of Panel decisions; and, third, that the substance of the Code itself demarcated the Panel’s regulatory success through two keystone rules: the non-frustration rule and the mandatory bid rule.