Calls to protect British brands after Autonomy bid prompt concerns of impact on M&A work

Last month's £7.1bn bid for UK software company Autonomy by Hewlett-Packard has led to renewed calls for the Government to bring in new laws protecting UK businesses from the threat of overseas takeovers.

The political flare-up following the largest overseas takeover of a UK company since last year's controversial acquisition of Cadbury by US food group Kraft has prompted collective eye-rolling among corporate partners across the City.

Proposals to reform the Takeover Code announced in October last year included essentially forcing bidders to either clarify their intentions towards a target or walk away within four weeks of their interest going public, as well as banning the use of break fees – measures advisers think will already tip the balance far enough in the direction of target companies hoping to defend themselves against unwelcome foreign advances.

Any further moves in this direction would be a bad idea, according to many lawyers. Particularly if they add further weight to a separate review launched by business secretary Vince Cable looking at how to prevent short-termism among stock market investors – a review which is in part a response to unhappiness at the number of UK corporates being taken over by overseas competitors and the 
long-term impact this could have on the UK economy.

Previously mooted proposals by those keen to stop more iconic British brands from falling into foreign clutches have included potentially increasing the threshold for control of a company above the current 50% level and banning hedge fund shareholders from voting on deals.

"Such measures may be perceived to be in the national interest, but they are unlikely to be in the best interest of domestic consumers in the long run since they are likely to result in higher prices and lower levels of innovation," comments Ashurst corporate partner David Carter.

Partners agree that a move to restrict foreign takeovers would have been wrong in Cadbury's case and that it would be even more inappropriate when it comes to HP's bid for Autonomy – a deal which generated roles for six law firms including Gibson Dunn & Crutcher and Slaughter and May.

After all, Autonomy, which pioneered software helping companies to search data, welcomed the takeover bid and the external investment and global platform a tie-up with HP offers. With HP's offer representing a premium of more than 60% on Autonomy's pre-bid market price, the deal certainly looks good for investors and the company's chief executive, who has publicly stated that the deal represents a vote of confidence in British business, and that UK jobs will not be lost as a result.

It seems then that policymakers – with their talk of keeping British businesses safe – are missing the point. Partners, no doubt keen to protect a flow of international M&A mandates against a backdrop of increasingly turbulent markets, warn that changing the law and restricting takeovers would risk damaging industry, the economy and pension fund returns. Instead, they argue the focus should be on the fact that the UK has become a hub for technology startups, which has both created jobs and attracted investment from within the UK and beyond.

"What we need is a steady flow of money and expertise to fund some of our new companies," says Baker & McKenzie's London corporate chief Tim Gee. "There will never be a Cadbury law. It is talked about to keep certain parts of the political spectrum happy, but everyone knows that any such step would be retrograde."