Seasoned deal hands upbeat as the Panel rejects populism with takeover reforms

It appears that M&A advisers will have to get used to the fertile hunting ground of the UK becoming that little bit less bidder-friendly, judging by recently-published recommendations by the Takeover Panel to reform its code.

Certainly that is the clear theme running through the proposals that the Panel released last month (22 October) in a review largely triggered by controversy over Kraft Foods' unsolicited takeover of Cadbury. The Panel recommended tightening the so-called 'put up or shut up' rules – effectively forcing bidders to clarify their intentions towards a target or walk away within four weeks of their interest going public.

Other changes floated include largely banning the use of break fee arrangements, more disclosure of bid finance and a move to publish more information on the advisory fees of lawyers and bankers.

As a whole it is clear that the proposals would tip an M&A regime that many would argue is excessively biased in favour of bidders – and short-term investors that profit from corporate takeovers – modestly back in the direction of targets hoping to fend off unwelcome advances.

That still pushes close enough to City lawyers' self interest and the heart of the UK's free market credentials to raise the hackles of some, with Sullivan & Cromwell's Tim Emmerson dubbing the plans as "undemocratic, misguided and stupid".

Yet the consensus is that the proposals provide a reasonable balance in preventing target companies from coming under siege from aggressive 'virtual bidders'. Neither will they significantly alter the fact that the UK is one of the hardest markets in the world for targets to frustrate bidders ready to pay a solid premium.

As Linklaters' Charlie Jacobs (pictured) comments: "Perhaps the red-top paranoia that portrayed Kraft as a rapacious foreign multinational was slightly over the top, but the new proposals will require bidders to play under tighter rules."

In addition, the Panel has unambiguously resisted political pressure to target hedge funds and merger arbitrage houses, firmly rejecting more radical proposals such as raising the acceptance threshold over 50% or 'disenfranchising' shares acquired during the offer period.

Still, there is uneasiness in some areas. The prohibition on break fees and requirements to disclose more information about deal finance is generally viewed as benefiting trade buyers at the expense of private equity bidders.

It is also possible that the amendments would have a modest negative impact on deal activity. Of particular concern to M&A advisers would be whether restricting break fees would mean more aborted deals – which usually lead to an awkward discussion regarding fees between lawyer and client – and the impact of more disclosure of corporate law firms' fees in general.

And of wider concern will be whether business secretary Vince Cable, who dubbed the Panel's recommendations a "modest" and a "small move", will continue to press for more radical measures to cut back the power of short-term investors in determining the ownership of UK companies.

The current expectation – certainly the hope of City lawyers – is that Cable will not have nearly enough political capital within the coalition Government to start tearing up company law with so little apparent support from the Conservative Party. Short of a shock move in this direction, City lawyers look set to keep enjoying the warm glow of servicing what is arguably the world's most liberal M&A market.