Edward Craft
- Partner
- Corporate
The Code
The City Code on Takeovers and Mergers (the Code) has, for nearly 60 years, been the rule book for the conduct of takeovers, ensuring fairness, transparency and certainty. Administered by The Panel on Takeovers and Mergers (the Panel), under powers contained in the Companies Act 2006, the Code allows shareholders to make informed decisions on the merits of a proposed transaction.
All companies to which the Code applies must comply with it, including UK registered companies with securities admitted to trading on a UK regulated markets, UK multilateral trading facility or any stock exchange in the Channel Islands or the Isle of Man, subject to transitional provisions. Failure to adhere to the Code can result in regulatory intervention and reputational consequences. Understanding the latest changes is critical for boards, shareholders, investors and advisers.
Rule 9 is still one of the most significant provisions of the Code. Rule 9 mandates that when any person or group acting in concert that acquires 30% or more of a company’s voting rights, or if already holding between 30% and 50%, acquires any additional shares that increase their voting power, it must make a mandatory cash offer for all the remaining shares.
What’s changing in 2026?
Following consultation, the Panel has introduced targeted amendments effective 4 February 2026, addressing: (i) how the Code applies to companies with dual class share structures (DCSS); (ii) the disclosures required under the Code in relation to an initial public offering in the UK (IPO); and (iii) how the Code applies on a share buyback.
(i) Dual class share structures
The FCA has recently amended the listing rules to enable the listing of DCSS companies in the UK. A company with a dual class share structure typically has, alongside voting ordinary shares, an additional class of shares with enhanced voting rights. This additional class of share is usually held by founders or management of the business to maintain control over key decisions.
The new rules clarify how mandatory bid obligations apply when these rights convert on particular trigger events e.g. time sunset for a specified number of years post-IPO or the retirement or resignation of the founder shareholder.
Trigger events: new Rule 37.2
If a trigger event increases a shareholder’s voting rights above 30%, a mandatory offer may, prima facie, be required under Rule 9.1.
The Panel may, and often does, grant dispensation from that requirement where that shareholder is an “innocent bystander”. However, the Panel will not grant a dispensation if the trigger event is the expiry of a time sunset, or the shareholder acquired the shares knowing a trigger event (other than a time sunset) would occur.
In other cases, the Panel may require the shareholder to sell down its interest below the threshold.
Acceptance condition: new Notes 9 and 3 on Rules 10.1 and 9.3
For a contractual offer, the acceptance condition is now subject to two tests, both of which must be satisfied:
- “pre-unconditional” test (acquired or accepted by >50% voting shares); and
- “post-unconditional” test (acquired or accepted by >50% voting shares immediately after the enhanced voting shares convert or are extinguished).
These provisions ensure that both the current majority and the post-conversion majority support the takeover offer.
Early consultation with the Panel is essential for any transaction involving a DCSS, particularly where there are any special deals with favourable conditions (new Note 4 on Rule 16.1).
(ii) Disclosure on IPOs
On an IPO that would result in a company becoming subject to the Code, the company is required to disclose details of any controlling shareholders and their concert parties that will be, or are expected to become, interested in shares carrying 30% or more of the voting rights, and also describe the mandatory offer requirement under the Code. The Panel will publish notes to advisers in this respect, and Section 3(e) Introduction to the Code has separately been amended to reflect this.
In addition, the “Rule 9 dispensation by disclosure” has been codified (new Note 6 on Dispensations from Rule 9). This means that the Panel can grant dispensation from a potential future obligation for a shareholder to make a mandatory offer under Rule 9 where appropriate disclosure is made in the admission document or prospectus, including disclosing the maximum percentage of voting rights that the shareholder would hold following the trigger event. In practice, this is useful in scenarios where an existing shareholder is granted a material number of warrants as part of an IPO, which ordinarily upon exercise may trigger a Rule 9 mandatory offer and therefore clarifying the resultant position at the outset is welcomed.
(iii) Share buybacks
When a company buys back shares, the percentage of voting rights held by the remaining shareholders will increase. If a shareholder’s interest reaches or exceeds 30% as a result of a share buyback, they may inadvertently be required to make a mandatory offer under Rule 9.
If the shareholder is a director (or related person), the Panel will require a vote of independent shareholders to waive that obligation.
The Panel will normally grant dispensation from that requirement where that shareholder is an “innocent bystander” (i.e. not a director or related person). However, the Panel will not grant dispensation if there has been a “disqualifying transaction” e.g. the shareholder acquired shares knowing a buyback was likely, except where only a general authority was known.
Rule 37 of the Code has been amended to reflect this.
Key Takeaways and Recommended Practical Steps for Boards and Advisers
- Early and proactive engagement with the Panel on DCSS structures, IPOs and buybacks is recommended.
- Ensure sufficient disclosures are made in admission documents or prospectuses, as appropriate.
- Review articles of association, shareholder agreements and existing and proposed capital structures for potential trigger events.
- Monitor share buybacks to avoid unintended consequences.
The Panel will publish new notes for advisers on the Panel’s website on or before the implementation date.
This article is co‑authored with Vivek Bhardwaj, Associate Director in the Corporate Finance team at Allenby Capital. Allenby Capital actively advises on a multitude of transactions including IPOs, reverse takeovers and acquisitions. Vivek commenced his career at the London Stock Exchange where he held roles in the Market Supervision team and the Primary Markets & AIM Regulation team.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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