The 20 second summary
Pfizer’s £69.4bn proposed offer for AstraZeneca earlier this year caused much debate on the public interest test and the Panel’s powers in relation to statements of intention.
To address the latter, the Code Committee of the Takeover Panel (the “Committee”) is consulting on a new framework of “post-offer undertaking” and “post-offer intention statements”. Comments should reach the Committee by 24 October 2014.
Many will welcome the Panel's attempt to bolster the effectiveness of bidder's undertakings and, in particular, to make them more specific. However, the new regime, if implemented in this form, will make many bidders unwilling to give such binding undertakings in the first place. Instead, they are likely only to make woollier “statements of intention” which allow greater flexibility as circumstances change.
Under the provisions of the Takeover Code (the “Code”), a bidder must state its intentions with regard to, amongst other matters, the future business of the offeree company and the continued employment of its employees. Alternatively, if it has no intention of making any such changes, it must include a statement to that effect. The bidder will be committed to any stated course of action for a period of 12 months (or such other period of time specified) unless there is a “material change of circumstances”. Failure to comply with these statements can result in the Panel asking the courts to enforce the Code, although the Panel has never sought court enforcement. The Committee believes there are a number of issues with the current regime including:
- a lack of distinction between voluntary commitments (ie. when a party states what action it commits to take) and statements of intention (ie. when a party states what action it intends to take);
- no guidance on what constitutes a “material change of circumstances”; and
- no mechanism for ensuring on-going compliance with any voluntary commitment.
To provide clarity for shareholders as to the status of statements and to increase the effectiveness of the Panel’s enforcement tools, the Panel proposes to introduce a distinction between “post-offer undertakings” and “post-offer intention statements” as follows:
These will be statements by a party to an offer – generally the bidder – made during an offer period and relating to any particular course of action that it commits to take or not to take after the end of the offer period. The bidder will be committed to the undertaking for the time specified by it unless any qualification or condition expressly stated in the undertaking applies. Any such qualification or condition must be specific, precise, readily understandable, capable of objective assessment and not dependent on subjective judgments of the bidder or its directors – and cannot include: (i) a “material change of circumstances”; (ii) directors’ fiduciary duties; or (iii) unspecified events of force majeure. A party which has made a post-offer undertaking must make regular reports to the Panel after the offer period and the Panel may require these reports to be published. The bidder must consult the Panel in advance if it intends to give a post-offer undertaking – and would need to seek Panel consent before relying on any qualification or condition stated in it. To monitor and enforce these undertakings, the Panel may require the bidder to appoint a supervisor to submit written progress reports to the Panel.
Post-offer intention statements
These will be statements relating to a particular course of action that a bidder intends to take or not to take. They must be made on reasonable grounds (an objective test) and be an accurate statement of the bidder’s intentions at the time (a subjective test). If, during the 12 month period after the end of the offer period or such other period specified, the bidder decides to take a different course of action, it will need to consult the Panel and promptly make an announcement of its course of action, explaining its reasons.