Thursday, 19 January 2017

Concern over 'burdensome' merger code

A number of mid-sized housing associations have said they are unlikely to sign up to the National Housing Federation’s merger code because of concerns it is too burdensome and favours “predatory” takeovers.

Some landlords are unhappy about the voluntary code’s requirement for boards to provide evidence that they have considered every merger proposal, saying it places too much work on boards and favours takeovers.

Currently, landlords that do not want to be taken over can reject proposals without having to demonstrate they have considered them seriously.

The concerns emerged as Fiona MacGregor, executive director of regulation at the Homes and Communities Agency (HCA), urged landlords to think seriously about mergers.

“The sector has got some serious questions ask itself about just dismissing mergers out of hand,” she said at a Capita conference on regulation in London last week.

She stressed the HCA will not enforce the code through regulation.

In November, the NHF unveiled its 10-point merger code, which was devised to encourage good practice, promote transparency and dispel perceptions of inefficiency. 

The code said: “A board should have access to sufficient written information to reach an informed in principle decision to explore or reject merger, group structure or partnership.”

However, Richard Peacock, chief executive of 6,000-home Soha housing association, said the code “seems to me to help those who mount predatory bids” by requiring landlords to show they have considered a merger approach. He added that he doubted his association would sign up.

Andrew Herbert, chair of 4,000-home Octavia Housing, said the association was unlikely to implement the code in full. He said that it would be difficult for the board to formally consider every merger approach due to time constraints on board members.

Trevor Morrow, chief executive of 6,700-home Red Kite Community Housing, also said the association was unlikely to sign up in full. None of the associations’ boards have yet made formal decisons on adopting the code.

The code has, however, been welcomed by many larger landlords, including Affinity Sutton and Amicus Horizon. A sounding board of 30 housing associations gave their views on the code as it was being drawn up.

Stephen Bull, head of governance at the NHF, said organisations that are “inundated with proposals” for mergers should take “a logical and sensible approach”.

He added that boards could set out a strategy laying out which merger proposals were “worth following up with” and could delegate to the executive considerations of which offers fit with the strategy.

The NHF code’s 10 principles

1. The role of the board is to act in the best interests of the organisation and its beneficiaries. There should be no presumption that a merged entity is in the best interests of the organisation but the board will give the proposal serious consideration.

2. Boards should review an organisation’s purpose and value statement regularly to consider if the intent is clear and specific enough to allow the board to determine how to continue to fulfil its objects.

3. Where merger or partnership opportunities emerge the whole board should be informed promptly. The parties should agree a process and timeline for the consensual development of first-stage proposals in order that the respective boards may properly evaluate the opportunity and make an informed and timely decision.

4. Decisions around mergers, group structures and partnership proposals must be presented to, and decided upon, by the board. In considering any proposal, a board should have access to sufficient written information to reach an informed in principle decision to explore or reject merger, group structure or partnership. Information provided at the first stage should include written proposals with enough material to allow the board to consider the over-arching suggested intent of a combined business or partnership and the strategic and practical implications for their respective organisations.

5. Boards should ensure they have, or have access to, specific skills and experience necessary to objectively evaluate the merits or otherwise of mergers or partnership proposals.

6. No board member or members of the executive should behave in a way which could frustrate due consideration of the first-stage proposal by the whole board. This includes failure to present or discuss proposals with the board, dismissal of an offer without due consideration, or withholding information that is integral to a decision.

7. A board’s decision on a first-stage proposal should be documented and communicated.

8. Once a first stage proposal has been agreed by the board, a process and timetable for the next step should be agreed in writing by both parties.

9. Following approval of the first-stage proposal and intent to proceed, an outline business case should be prepared which will include disclosure of financial and non-financial undertakings and target efficiencies undertakings to be realised as part of the merger proposal.

10.  Boards which adopt the voluntary code will declare this each year in their financial statements. Boards will seek to keep a record of any activity under the code including any proposals reviewed or submitted, along with the outcome of these.

Source: National Housing Federation

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