Corporate law firms could face increasing scrutiny of their M&A fees as part of proposals by the UK Takeover Code Committee to overhaul merger rules and protect target companies from hostile bids.

The proposals – published yesterday (21 October) in response to a consultation carried out after Kraft's controversial takeover of Cadbury – include a suggestion that corporates should disclose a breakdown of estimated fees payable to advisers.

This would include fees payable to law firms as well as financial advisers, accountants and PR advisers.

The increased transparency on fees is one of a number of changes the committee intends to make to the code following criticism that it has become too easy to mount hostile bids in the UK.

Other significant changes would see the introduction of a cap of just four weeks on the time a bid-vehicle has between announcing an offer and making a firm bid, as well as making it easier for rival bidders to enter a takeover by banning the use of inducement fees. Bid vehicles making an offer will also have to be named at the time of the announcement.

However, several proposals were rejected – including a suggestion to increase the approval required from shareholders to more than 50%.

City corporate lawyers have expressed mixed views about the proposals. Hogan Lovells corporate finance partner Nigel Read (pictured) commented: "My initial feeling is that the new rules might be a bit too tough on the bidders. Four weeks to make a firm offer will be seen as too short and I would not be surprised if this was eventually changed to at least between six or eight weeks."

On fee disclosure, he added: "I think banks, and to some degree law firms as well, will find that it is a competitive disadvantage because clients can look at other deals and ensure they are not being overcharged. I think transparency is always a difficult thing to argue against. It will make it harder for all advisers, but I think this is the way it has to go."

Norton Rose City corporate partner Ian Lopez commented: "Most City practitioners think that takeover rules work well and therefore I think that only tweaking it around the edges is a very measured response. Personally I am glad that they decided against raising the acceptance threshold." 

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