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Takeover Code: consultation on post-offer undertakings and intention statements


Market reCap November 2014 edition 


Pfizer Inc's potential offer for AstraZeneca plc earlier this year led to a public debate about the effectiveness of commitments under the City Code on Takeovers and Mergers (Takeover Code), given by a bidder in relation to the target company's business, following the completion of a takeover offer.  This debate followed on from the controversial takeover by Kraft Food Inc of Cadbury plc and Kraft's failure to honour its stated intentions to keep open one of Cadbury's UK factories.  There were concerns that Pfizer would similarly fail to honour any commitments in relation to AztraZeneca, particularly given Pfizer's history of closing US research facilities, including sites in Michigan and Illinois, after completing previous corporate acquisitions.

Following the completion of the Cadbury takeover, a number of changes were made to the Takeover Code to strengthen this area of the Code and to improve the quality of disclosure by bidders and targets in relation to:

  • the intentions of the bidder regarding its plans for the target company and its employees;
  • the likely repercussions on employment and the locations of the target's place of business;
  • the bidder's intentions regarding the redeployment of fixed assets; and
  • its intentions regarding the maintenance of any existing trading facilities for the target's shares.

In the absence of a specified time period, such statements have to be adhered to for a period of 12 months after the end of the offer period.  However, the Takeover Panel will consider a “material change in circumstances” in considering whether a particular party to an offer can be released from having to comply with its statements.

In 2012, the Takeover Panel noted certain issues as to the way in which intention statements were being made in a number of takeovers by bidders, in that a significant number of the disclosures that were being made were generic in nature (e.g. by stating that the bidder intended to undertake a strategic review of the target's business following completion of the takeover).  These statements were doing little to address the concerns initially identified by the Panel in September 2011 following the Cadbury takeover.

To address these concerns and to give additional reassurance to the UK government and public, as part of its proposed takeover offer, Pfizer agreed to make a number of specific "legally binding" commitments in relation to AztraZeneca's business for a period of five years after completion of the takeover offer.  The commitments included:

  • completion of the construction of a research and development hub in Cambridge;
  • locating key scientific management staff in the UK;
  • integrating operations of the combined group so as to ensure at least 20% of the workforce remained in the UK; and
  • retaining substantial commercial manufacturing facilities in Macclesfield.

As a result of the issues identified with the current regime and the unusual commitments offered by Pfizer as part of the proposed takeover of AztraZeneca, the Code Committee of the Takeover Panel has recently launched a consultation on further proposed changes to the Takeover Code which would:

  • make a distinction between post-offer undertakings (i.e. voluntary commitments) and post-offer intention statements;
  • prevent a party to an offer from ceasing to be committed to a particular course of action, by removing the current unspecified "material change in circumstances" carve-out; and
  • establish a regime for the Takeover Panel to monitor compliance with such commitments and statements of intention following the end of an offer period.

Post-offer undertakings

A post-offer undertaking would require:

  • prior Takeover Panel consultation;
  • an express statement in the offer document that it is a post-offer undertaking, which is specific and precise, objectively assessable and not dependent on the subjective judgments of the bidder or its directors;
  • a specified time for which the undertaking is to last; and
  • a prominent statement of any qualifications or conditions to which it is subject.

Qualifications and conditions relating to the following would not be permitted:

  • material change of circumstances;
  • directors' fiduciary duties; or
  • unspecified force majeure events.

Following the closure of the offer, written reports (approved by the board of directors of the relevant party) would need to be provided to the Takeover Panel stating whether the particular action has been completed within the time specified and, if not, what progress has been made to date.  The Panel may require these to be published.

In addition, the Takeover Panel would be entitled to appoint (at the relevant party's cost) an independent supervisor to monitor compliance and report to the Panel.

Post-offer intention statements

Post-offer intention statements would require:

  • the party's intention to be accurately stated as at the time the statement is made;
  • the statement to be made on reasonable grounds; and
  • the Takeover Panel to be consulted if, within the time specified in its statement, the party wishes to proceed differently to its statement.

Post-offer intention statements would not be subject to monitoring but would still be subject to sanctions for breach of the Code.  These currently include disciplinary action and compliance orders (requiring a party to take or not to take a particular course of action) with recourse to the UK courts to enforce the action or order as necessary.

Nick Heap is a Senior Associate in Fieldfisher's Corporate Group in London.

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