Takeover Code Changes - Distribution of Information during an Offer

Changes to the Takeover Code take effect on 12 September 2016 relating to the manner in which information and opinions are communicated and distributed during the course of an offer

The Code Committee of the Takeover Panel published a consultation paper on 15 February 2016 containing some proposed changes to the City Code on Takeovers and Mergers (the "Code") relating to the manner in which information and opinions are communicated and distributed by, or on behalf of, a bidder or target company during the course of an offer. The Code Committee has now published its response paper, confirming that the amendments in the consultation paper will be adopted and take effect on 12 September 2016, subject to certain modifications to the initial proposals outlined in the consultation paper. The changes are mainly being introduced in order to clarify how the Code is currently interpreted in practice and are unlikely to result in a significant change in how offers are conducted.

The changes are designed to reinforce the existing key requirements under the Code for the shareholders of the target company to be treated equally and for them to be given sufficient time and information to enable them to reach a properly informed decision on a bid. They also reflect the way in which communications are now made through social media, the internet or other electronic means.

Key proposed changes:

• Rule 20.1(b) (Information and opinions) - the existing provisions in Rule 20.1 relating to information about parties to an offer are to be enhanced so that any material new information or significant new opinion relating to an offer, or a party to an offer which is (a) published by, or on behalf of, a bidder or target (other than in a document sent to target shareholders); (b) provided by, or on behalf of, a bidder or target to the media; or (c) provided by, or on behalf of, a bidder or target to any shareholder in, or other person interested in, any securities (including publicly traded debt securities), of a bidder or target, or to any investment manager, investment adviser or investment analyst (“Relevant Person”) must, at the same time, be published in an announcement via a regulatory information service ("RIS"). The Code Committee confirmed in its response statement that such requirement would not apply to any information provided on an ongoing basis and in confidence to persons interested in debt securities such as, for example, members of a banking syndicate under the terms of a facility agreement or to the holders of private placement securities. However, this would not extend to include material new information or a significant new opinion relating to an offer or party to an offer that is provided in this way to the holder of publicly-traded debt securities acting in such capacity (rather than, for example, as a potential member of a banking syndicate).
  
  
• Rule 20.1(c) (Shareholder presentations and media communications) – the Panel is codifying its existing practice of requiring copies of any presentation, document or media communication relating to an offer which is provided to a shareholder or Relevant Person, or which is used in any meeting with such persons, or any article, letter or written communication relating to an offer or party to an offer provided by or on behalf of the bidder or target to be published on a website promptly after it is so provided or used. Where there are multiple versions of a presentation or other document then only the latest version needs to be published, provided it does not omit any relevant information included in a previous version. However, the Code Committee has confirmed in its response paper that it would be open to a party to an offer to publish all versions of a presentation or document, if this would reduce the administrative burden on that party. The proposals will allow information to be supplied to a shareholder or Relevant Person prior to the commencement of an offer period or, with the consent of the Panel, during the offer period but prior to the announcement of a firm or revised offer, provided the information is then published by no later than the date of the announcement in the firm or revised offer or, where the information is provided by a target board which is not recommending the offer, the first substantive announcement made by the board following the offer. The Code Committee recognised that certain media communications may be made in the ordinary course of an offeror's or offeree's business or in product service announcements and that these may not have the same potential relevance and interest to Relevant Persons as presentations or other documents provided during the course of an offer. As such, the Code Committee has modified the wording in new Rule 20.1(c) to exempt these types of communications from the scope of the new provisions. The Code Committee also recognised in its response paper that a requirement to publish an announcement via a RIS each time a presentation, other document or media communication was published on a website in accordance with Rule 20.1(c) may not be proportionate. However, the requirement to publish any material new information relating to an offer or party to an offer via a RIS under Rule 20.1(b) will still apply.
  
  
• Rule 20.2 (Meetings and calls with shareholders and others) - a new rule is being introduced in order to require financial advisers or corporate brokers to the bidder or target company to supervise any meetings or telephone calls that take place (a) prior to the offer period where the meeting or call relates to a possible offer; (b) during the offer period but prior to the announcement of a firm offer; or (c) after the announcement of a firm offer, but normally only where the offer is not recommended by the board of the target or if there is a competitive situation. The relevant financial adviser or corporate broker who supervises the call would be required to provide a written confirmation to the Panel that no material new information or significant new opinion was provided at the meeting or on the call. The Code Committee recognises that in certain circumstances it may be appropriate to relax this requirement and is proposing to replace the current note 3 to Rule 20.1. The new Rule 20.2 would, with prior consultation of the Panel, not require a financial adviser or corporate broker to supervise a meeting or telephone call following the announcement of a firm offer which is recommended by the target board and where there is no competitive situation. In such cases, a senior representative of the bidder or target itself who attended the meeting or telephone call should normally be permitted to confirm in writing to the Panel that no material new information or significant new opinion was provided during the meeting or telephone call. The Code Committee has modified the final wording of Rule 20.2 to exclude meetings of a purely administrative nature and any unscheduled incoming telephone calls made to an offeror's or offeree's investor relations officer, provided that the information imparted is only basic details and the meeting or call is conducted in accordance with a script prepared by a financial adviser or corporate broker and approved by the Panel.
  
  
• Rule 20.3 (Videos) - a new rule is being introduced in order to restrict the use of social media and videos. Videos published by or on behalf of a bidder or target company which include any information or opinions relating to an offer or to the financial performance of a party to an offer, must have the prior consent of the Panel and broadly comprise only a director or senior executive reading from a script or participating in a scripted interview. The video should, at the same time, be published on a website and an announcement made via a RIS that the video has been published and containing a link to the website. The Code Committee will introduce a new note to Rule 20.3 to clarify that webcasts and audio-only communications will also be covered by the new provision.
  
  
• Rule 20.4 (Social media) - a new rule is being incorporated into the Code in order specifically to prevent the publication of any bid information through social media (e.g. Twitter or Facebook), unless it includes the full text of the information and opinions that are published by a party by means of a RIS announcement or website in accordance with the provisions of the Code (or a basic notification of a link to the website on which such an announcement or document has been published). The Code Committee emphasises that any information or opinions published by social media need to comply with the standards of care and presentations in Rule 19.1.
  
  
• Rule 19.4 (Advertisements) – Rule 19.4 is to be amended and moved into a new Rule 20.5 in order to broaden the scope of the current prohibition on advertisements that are connected with an offer or potential offer to include all advertisements that are published during the course of an offer, unless the consent of the Panel is obtained. This is intended to avoid potential confusion arising from the Rule prohibiting advertisements which are "connected with an offer" and then providing exceptions from advertisements that have no bearing on an offer. The final wording of the new Rule 20.5 has been amended, following the consultation, in order to provide an exception from the need to obtain the consent of the Panel in respect of the publication of corporate image advertisements published in the ordinary course of its business which do not relate to the offer in the case of a recommended firm offer and where there is no competitive situation. 

The changes will take effect on 12 September 2016.