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Takeover rules should be toughened up but not compromised

The rules governing the takeover of one company by another should be reformed but in a way that maintains the UK’s reputation as a top destination for foreign investment, a leading business group has argued.

The Institute of Directors (IoD), commenting in the wake of the publication of the political parties’ manifestos in the run-up to the general election, described hostile takeovers as steps of last resort.

But where they do happen, they should be approved by a majority of two-thirds in both companies.

Agreeing with government plans to raise the threshold for approval of a hostile takeover to a shareholder majority of two-thirds, the IoD said that the same should apply to the acquiring company as well.

However, the IoD differed with the government over the case for limiting shareholder votes to those on the register before the bid should be examined.

All current shareholders owning voting shares should be allowed to vote, the IoD insisted, but the FRC’s proposed Stewardship Code should strongly discourage the borrowing of shares for the purpose of voting.

The business group also contested Liberal Democrat plans that a public interest test should be applied on a broader range of factors than just competition.

Conceding that there may be some limited circumstances where blocking a takeover is justified on grounds of national interest, the IoD went on to say that such a decision should be based on strict criteria which are defined and applied by an independent body.

Miles Templeman, the IoD’s director general, commented: “We would be very concerned if the government had powers to block or approve takeovers except in exceptional cases of national security, or where there are implications for the competitiveness of markets.

“If those powers were acquired and then misused, the UK’s status as a leading destination for foreign investment and location for corporate HQs and operations would be at risk.”