Hedge fund managers in the UK will find it harder to build up secret stakes in companies following amendments to takeover rules.
In November, the UK Takeover Panel altered Rule 8 of its Takeover Code to ensure that hedge funds in the UK will be forced to declare if they hold more than 1% of a company through derivatives during takeovers. Hedge fund managers have been able to use derivatives such as contracts for difference to gain exposure to companies’ shares.
“Two years ago, Shami Ahmed of Joe Bloggs Jeans was the first to use derivatives to build up a significant stake in Moss Bros through Cantor Fitzgerald. Then, last year, Philip Green used CFDs in his bid for Marks & Spencer. Hedge funds holding CFDs played an important role in that bid by trying to pressure the M&S board to allow Green to carry out due diligence,” says Rita Dattani, a senior lawyer in the corporate finance department at law firm Norton Rose.
Most recently, unbeknown to the market, London hedge fund Polygon managed to build up a 13.9% stake through CFDs in retail group Peacock, which was in the course of a management buy-out.
