The Code Committee of the Takeover Panel has published its much anticipated statement following the wide ranging review of how bids are regulated. The Panel’s proposals aim to reduce what it sees as a tactical advantage for offerors and to redress the balance in bid situations in favour of the offeree. Proposed changes to the Takeover Code (the Code) include the following:
- inducement fees and deal protection measures (other than in certain limited cases) should be prohibited;
- estimated aggregate fees should be disclosed by each party to the offer. Estimated advisers’ fees should be separately disclosed by category of adviser. This would include financial advisers, corporate brokers and lawyers;
- statements in offer documents regarding an offeror’s intentions towards the offeree business (in particular regarding employees and locations of business and fixed assets) should hold true for at least a year from the offer becoming or being declared wholly unconditional;
- following an approach, the potential offeror should be named in the announcement commencing an offer period, regardless of which party publishes it;
- the general position should be that within four weeks of the public naming of a potential offeror, it must announce either a firm intention to make an offer, or that it will not make an offer, or jointly with the offeree, apply to extend the timetable. However, the Panel rejected the idea of private “put up or shut up” deadlines where neither the fact of the approach nor the deadline would be publicly announced;
- the Code should be amended to clarify that it does not limit the factors that the offeree board can take into account in giving its opinion and deciding as to whether to recommend a bid. Price need not be the determining factor;
- detailed financial information on an offeror should be included in all offers, not only in paper offers; and
- while fees with an incentive or success based component should not be prohibited (except to the extent currently provided), maximum and minimum amounts payable as a result of any success, should be disclosed. Disclosure should be in a way that does not reveal commercially sensitive information about the offeror.
The Code Committee does not propose changes to the Code in certain key areas that had been discussed:
- the acceptance condition threshold should not be raised above the current “50% plus one” level;
- shares acquired during the offer period should not be disenfranchised. Also, unless there are changes in company law for a qualifying period prior to shares carrying voting rights, the Panel’s Code Committee does not propose amending the Code in this way;
- the Code should not be amended to provide protection for offeror company shareholders similar to that afforded to offeree company shareholders. However, the Code Committee proposes further disclosure in offer documentation of the financial position of the offeror and the financing of the offer as well as the offeror’s intentions regarding the offeree company and its employees;
- the disclosure threshold for opening position disclosures should not be reduced from 1% to 0.5% for the time being. The Code Committee will continue to monitor the current disclosure regime which has only recently been significantly changed;
- safeguards similar to the Rules Governing the Substantial Acquisition of Shares (the SARs) should not be reintroduced;
- the maximum time period for the publication of offer documents should remain at 28 days; and
- there should be no further transparency requirements regarding offer acceptance or scheme voting decisions by offeree company shareholders.
The Panel has stated that it intends to return to the subject of transparency where dealing, voting and offer acceptance decisions have been split.
The Panel is seeking to tackle the issue of protracted “virtual bid” periods with its package of additional offeree protections. It shied away from some of the more radical proposals around raising the acceptance threshold and disenfranchisement of shares acquired in the offer period as these would have been difficult to enact without changes in company law. However if the law does change, which is a matter for the politicians, then we may find these areas revisited.
The Code Committee will consult in more detail setting out proposed amendments to the Code in full, but as yet it has not given an indication of timing.