AN AFFAIR OF THE CITY: A CASE STUDY IN THE REGULATION OF TAKE‐OVERS AND MERGERS

Publication Date01 September 1973
DOIhttp://doi.org/10.1111/j.1468-2230.1973.tb01379.x
AuthorB. J. Davies
THE
MODERN
LAW
REVIEW
Volume
36
September
1973
No.
5
AN
AFFAIR
OF
THE CITY:
A
CASE
STUDY
AND MERGERS
IN THE REGULATION
OF
TAKE-OVERS
IT
has been a continued boast of the Stock Exchange that it
has required greater disclosure
of
information from company man-
agement than th& which the law demands. Yet, despite that
boast and apart from the one requirement
of
disclosure, the fact
remains that from its inception up
to
1959
the Stock Exchange
did not positively regulate its members’ conduct in their deal-
ings in securities. This is equally true in the context of one of its
more public fields
of
market activity, the corporate take-over
or
merger.’
It
is in this regard that the City and the whole financial
community has
for
years withstood a barrage of considerable
proportions from those who would deny the City’s right
to
continue
to regulate unhindered its members’ conduct in the area of corporate
take-overs and mergers.2
It
is argued that the present voluntary machinery established by
the City
to
regulate its members’ activities in this field, incorporating
the now permanent
City Panel
and
City Code on Take-overs and
Mergers,3
is
inadequate and consequently a body more akin
to
the
United States Securities and Emchange Commission
should be estab-
1
In
1969
after
a
spate of corporate acquisitions, all
of
which highlighted
certain deficiencies
in
the conduct and regulation
of
takeovers, the Bank
of
England, the City’s acknowledged leader, decided to intervene.
It
called
together
a
working party of its satellites
to
consider ways and means by which
order in this field
of
the securities markt could be restored.
The
result was
the production of
a
document entitled Notes on Amalgamations of British
Businesses,” which contained
a
general guide to the principles and practices
which should be followed by those concerned in take-over
or
merger trans-
actions. These and other notes which have appeared from time to time are more
familiarly referred to
as
the
‘I
Queensberry Rules,” the latest revision of which
was published
in
February
1972.
See
The City Code on Take-Overs and
Mergers
(1974).
2
For the latest monograph espousing this view,
see
Stamp and
Marley,
Accounting Principles and the City Code, the Case
for
Reform
(1970).
3
For
a
general introduction to the establishment and procedures
of
the City
Panel
and City Code,
see
Cooper and Cridland,
Law and Procedure
of
the
Stock Ezchange
(1971),
pp.
90-98,
and Weinberg,
Take-ooers and Mergers
(3rd ed.,
1971).
457
Vot.
86
(a)
1
458
THE
MODERN
LAW
REVIEW
VOL.
36
lished in its place.4 While this particular aspect of City corporate
regulatory reform is not to be fully explained here,
an
example of
an affair which visibly shook the City focused the public gaze upon
two facets
of
the problem. The event which raised again this matter
of
the adequacy of the City machinery to supervise its members’
conduct in the take-over and merger sphere was the Pergamon
Press Ltd. /Leasco Data Processing Corporation affair. From it
two
principal issues arose: First, whether the City Panel
as
a
result of Board of Trade intervention at the Panel’s request achieved
new status, and secondly, and this arose from the first, whether the
City Panel and the City Code in this instance, as the City’s instru-
ments
of
supervision, negatived City fears relating
to
the establish-
ment of a statutory body (a mini S.E.C.) to replace them
?
It
is
against this background, therefore, that the Pergamon/
Leasco affair can be seen
to
effect. Since the establishment of the
City Panel
and the
City Code
on
Take-overs and Mergers,
the affair
can be seen
to
be an incident
on
which the adequacy
or
otherwise
of the City machinery to supervise not only
its
own members conduct
but the conduct of others in the take-over and merger context, can
be measured.
It
should be noted that at the time of the Pergamon Press affair,
take-overs and mergers were governed by the then newly revised
version of the
City Code on Take-overs and Mergers.6
However,
since that time a revised
Code on Talce-overs and Mergers
has
materiali~ed.~ The revised
1972
Code does not substantially deviate
from
the principles enunciated in the
1969
Code. However, where
a particular provision has been changed the new provision will be
noted in the footnotes. Similarly, the writer
will
attempt to indicate
how
a
particular tactic
or
the effects given
to
it
might have differed
if governed by the
1972
Code.
THE
PERGAMON
PRESS
AFFAIR:
THE
FACTS
On June
18,
1969,
Robert Maxwell and Saul Steinberg, the principal
figures, announced to the press that Pergamon Press,
a
major
publisher of scientific, technical and educational books and journals,
was the subject of
a
take-over bid amounting
to
some
$25
million
by the American conglomerate, Leasco Data Processing Corporation.
4
Stamp and Marley,
op.
cit.,
supra,
n.
2; Gower,
Modern
Company
Law
(3rd
ed., 1969); Fogerty,
A
Companies
Act
19707
(1967 Political and Economic
Planning Pamphlet).
Cf.
Hadden,
The Control
of
Company
Fraud
(1968
P.E.P.
Pamphlet). The significance
of
the debate stems from the fact that
members
of
the City institutions are regulated by and subject to their
own
professional rules.
In
essence, the City, even in the field of take-overs and
mergers,
has
answered and fitill answers
to
itself for its own behaviour. It
is subject to
no
outside interference whatever. The question is whether
self-discipline has meant inadequate discipline?
For
a
recent treatment of the changes
introduced by the 1978 Code, see Prentice,
Take-Ouer Bids-The
City
Code
on
Take.Ouer
and
Mergers
in
(1972)
18
McGill
L.J.
385.
6
Hereinafter cited as the 1969 Code.
6
Hereinafter cited as the 1972 Code.

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