Changes to the Takeover Code

29 / 01 / 2018

Following the consultations in July and September of last year (see our Autumn 2017 In Counsel), the Takeover Panel (the Panel) published its response statements on 11 December 2017 along with the changes to the Takeover Code (the Code). For the most part, the changes are as originally proposed but with minor amendments following responses received during the consultation process.

The amendments are effective from 8 January 2018 and from that date the Code, as amended, applies to all companies and transactions to which it relates, including transactions on-going as at that date, unless such application would give the amendments retroactive effect.

Statements of intention

Content requirements

The amendment to Rule 24.2(a)(i) of the Code regarding statements of the offeror’s intention remains as proposed in the consultation paper (see “Takeover Code consultation on statements of intention and related matters” ) with one minor change which acknowledges that certain target companies may not have a research and development function. In the offer document, and in addition to stating their intentions and strategic plans with regard to the business, employees and pension schemes of the target, bidders are therefore now required to make specific statements of their intentions with regard to:

  • “any research and development functions” of the target (if there are no such functions, a statement to that effect should be made);
  • any material change in the balance of the skills and functions of the target’s employees and management; and
  • the location of the target’s headquarters and headquarters functions.

These statements of intention must first be made at the time of the firm offer announcement (allowing more time for stakeholders to consider the offer). Any change of the bidder’s intentions during an offer may constitute a material change to information previously disclosed, thus requiring prompt announcement of the new intentions. .

Publication of offer document

The amendments to Rules 24.1 and 25.1 as proposed in the consultation have been adopted without change. Thus, under the amended Code, a bidder is now prevented from publishing its offer document until at least 14 days after it makes its firm offer announcement unless it obtains the consent of the target board to a shorter period. Consequently in circumstances of a hostile bid, the target board will have 28 days (instead of 14) from the bidder’s firm offer announcement to formulate the opinion and views that it is required to publish in its initial circular in response to the offer.

Post-offer undertakings and post-offer intention statements

The proposed amendments to Rules 19.5 and 19.6 have also been adopted without change. Therefore, bidders and target companies must now publish, among others:

  • reports submitted to the Panel regarding post-offer undertakings in all cases, and not only at the discretion of the Panel; and
  • where a bidder or target has made post-offer intention statements, at the end of the 12 months from the end of the offer period, a written confirmation of whether or not they have carried out their intentions relating to a particular course of action.

Asset sales

The Code amendments proposed in the consultation paper PCP 2017/1 in relation to asset sales were all adopted as proposed, subject to certain modifications.

Preventing a bidder from circumventing the Code by purchasing significant assets of the target

In order to prevent a bidder from circumventing certain provisions of the Code, the Panel adopted the proposal restricting a bidder from buying assets which are significant in relation to the target instead of acquiring the target company itself. However, taking into account the responses to the consultation, the initial proposal stated in Note 5 on Rule 2.8 was amended so that, in assessing whether assets are significant in relation to the target company, relative values of 75% (rather than 50% as proposed in the consultation) are typically regarded as significant.

Asset sales and other transactions subject to Rule 21.1

Rule 21.1 (Restrictions on frustrating action) restricts the target board from taking certain actions which might have the effect of frustrating an offer unless the company obtains the prior approval of its shareholders in general meeting.  The amendments make it clear that a target board will not need to obtain shareholder approval under the Code if the proposed action is conditional on the bid being withdrawn or lapsing (although the target board will instead be required to make an announcement of the proposed action).

However if the target board seeks shareholder approval of a frustrating action in general meeting, it must:

  • obtain an independent fairness opinion on the proposed action’s financial terms;
  • consult the Panel about the proposed shareholder meeting date; and
  • send a circular to its shareholders containing specified information.

Furthermore, a new Note on Rule 21.1 was adopted which stipulates the details to be included in the circular or announcement.

Sales of all or substantially all of the target’s assets in competition with an offer

The Code, as amended, now contains a new restriction which provides the following: If, in competition with a bid, the target board has agreed to sell all or substantially all of the target’s assets and to return to the shareholders all or substantially all of the company’s cash balances (including the proceeds of any asset sale), then a statement by the target company quantifying the cash sum expected to be paid to the shareholders will be treated as a “quantified financial benefits statement” which requires approval by the target’s accountants and financial advisers and must be accompanied by certain disclosures.

Furthermore, where a company has agreed to sell all or substantially all of the company’s assets, the purchaser (or any person acting in concert with the purchaser) of some or all of those assets would only be entitled to buy shares in the target company during the offer period if the price paid per share is not more than the value the target board has stated it expects to return to shareholders pursuant to that asset sale.  If the board has stated that the amount to be paid is within a particular range, then the price must not exceed the bottom of the range.

If a target is in an offer period and then begins discussions to sell all or substantially of its assets, any information it provides to the proposed asset purchaser must also be provided to any other offeror or potential offeror.

Setting aside a Rule 2.8 statement

The Panel adopted the proposed Code amendment requiring a bidder making a Rule 2.8 statement (i.e. that it does not intend to go ahead with the proposed bid) to expressly reserve the right to set aside its statement and re-bid for the target, identifying the circumstances in which it will do this.