Takeover Panel proposes changes to the Takeover Code

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Summary: Yesterday, the Code Committee of the Takeover Panel issued a consultation paper proposing various changes to the Takeover Code. There is no general theme to the changes but they provide greater certainty for the parties to an offer as to the applicable timetable and new restrictions on the acquisitions of interest in shares. Other changes are designed to codify existing market practice and for clarification purposes.

The 20 second summary

Yesterday, the Code Committee of the Takeover Panel (the “Committee”) issued a consultation paper proposing various changes to the Takeover Code (the “Code”). There is no general theme to the changes but they provide greater certainty for the parties to an offer as to the applicable timetable and new restrictions on the acquisitions of interest in shares. Other changes are designed to codify existing market practice and for clarification purposes.

Comments should reach the Committee by 12 September 2014.

Key changes

Clarification by potential competing offerors of their position

Currently under Rule 2.6, when an offeror has announced a firm intention to make an offer, a potential competing offeror must clarify its position by a date set by the Panel, on a case by case basis. This is normally on or around 10 days prior to the final day on which the first offeror’s offer is capable of becoming or being declared unconditional as to acceptances i.e. Day 50. To create greater certainty from the outset, the Committee is proposing that the latest time by which a competing offeror must clarify its position is 5.00pm on the 53rd day following the publication of the first offeror’s initial offer document.

Acquisitions of interest in shares and dispensations

Under the Code, a statement of “no intention to bid” by a potential offeror may normally be set aside with the agreement of the target board unless the statement was made following a firm offer announcement by a third party and the third party offer has not been withdrawn or lapsed. The Committee proposes to amend the rules so that after a third party firm offer announcement, the restrictions will only cease to apply to the potential offeror if the third party offer lapses or is withdrawn and the potential offeror and its concert parties have not acquired any interest in target shares in the meantime.

The Committee also proposes restrictions on a potential offeror who is no longer actively considering an offer. For three months from a Panel dispensation from making an announcement, the potential offeror, and any person acting in concert with it, may not actively consider making an offer, making an approach or acquiring any interests in the target company’s shares. The potential offeror and its concert parties will also be restricted from doing any of the things set out in Rules 2.8(a) to (e) within six months from the date of the dispensation.

Modified form of auction procedure

The Committee proposes a new five business day auction procedure where a competitive situation continues to exist after Day 46 of a competing offer.

Disclosure of irrevocable commitments, letters of intent and interests in relevant securities

Changes in this area include:

  • requiring disclosure of irrevocable commitments and letters of intent before the start of an offer period by noon on the business day following the date of the announcement that first identifies it as a (potential) offeror;
  • reinstating the previous requirement on an offeror to disclose interests and short positions in the relevant securities of the target company, together with any irrevocable commitments and letters of intent which it has procured, in its firm offer announcement; and
  • removing the requirement for details of irrevocable commitments and letters of intent to be disclosed in an Opening Position Disclosure if they have been disclosed in a firm offer announcement or under Rule 2.11 (irrevocable commitments and letters of intent).

Independent advisers

The Committee proposes to clarify that the  role of the rule 3 adviser is to advise the target company board as to whether the financial terms of the offer, including alternative offers, are “fair and reasonable”. It is for the target company board to give its opinion on the offer taking into account all relevant factors (which need not be limited to price).

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