Following Kraft Foods' takeover of Cadbury Plc in February 2010, the US company has had its knuckles rapped by the Takeover Panel for its conduct during the offer stage of the deal.
The issue in question surrounded Cadbury Plc's facility at Somerdale which, in 2007, Cadbury had announced would be the subject of a phased closure scheme during 2009 and 2010. In several offer documents, Kraft stated its belief that the facility could remain open.
These statements fell foul of the two part test contained within rule 19.1 of the Takeover Code. This rule relates to the bidder and target upholding standards of care during the takeover process, particularly in conjunction with rule 24 of the Takeover Code, which governs the information required in the bidder's offer documents. In this instance, the Takeover Panel found that when declaring that the facility could remain open, Kraft should not only have honestly and genuinely believed this to be true, but should also have had a reasonable basis for making such a declaration. Kraft failed on the second part of the test.
Kraft's leading financial advisers, Lazard & Co, can count themselves lucky to escape the public criticism levelled at Kraft. Whilst the Takeover Panel deemed them to be partly responsible for failing to provide the information on which Kraft needed to rely when making the relevant statements, it did not consider it necessary to publicly criticise Lazard in the same manner as Kraft.
This decision by the Takeover Panel is a helpful reminder that financial advisers, as well as bidders, must at all times carefully follow the rules of the Takeover Code and should be alert to the repercussions of failing to do so.
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