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Takeover Code - further Code changes on profit forecasts



United Kingdom

Changes to the Takeover Code in relation to the application of the Takeover Code.

Market reCap October 2013 edition 


We have separately discussed in this edition of Market reCap the changes to the Takeover Code in relation to the application of the Takeover Code.

In addition, on 24 July 2013, the Code Committee of the Panel on Takeovers and Mergers published its response paper following its consultation on proposals to amend the Takeover Code rules relating to profit forecasts, quantified financial benefits statements and material changes in information.

The underlying rationale of the changes is to apply more proportionate requirements to profit forecasts, thereby encouraging greater communication with shareholders and the market generally, and to achieve greater consistency with other laws and regulations that apply to the profit forecast regime for public companies and offers of securities, notably the prospectus rules. These changes to the Takeover Code were also implemented on 30 September 2013.

The key changes are:

1)   the previous concept of a "merger benefits statement" has been deleted from Note 9 on Rule 19.1 and replaced by a new concept of a "quantified financial benefits statement", which has been introduced to Rule 28. The Financial Reporting Council intends to publish a new reporting standard on quantified financial benefits statements and their "proper compilation";

2)   in respect of the profit forecasts and quantified financial benefits statements made after the approach in relation to an offer, or during an offer period, the regime remains similar to the current regime i.e. reports from accountants must be obtained and the principal assumptions underlying the profit forecasts must be expressed;

3)   the Code Committee considered it to be disproportionate to require the full reporting regime to be applied in respect of profit forecasts published by either party prior to the approach to the offeree company in respect of an offer. In such circumstances, either:

(i) the profit forecast will need to be repeated during the offer period and the directors will need to confirm that it remains valid and that the basis of accounting is consistent with the company's existing accounting policies; or

(ii) the directors will need to make a statement that it is no longer valid and explain why that is so; or

(iii) include a new profit forecast for the relevant period, in accordance with the normal regime for profit forecasts that are made during an offer period;

4)   the directors’ confirmation regime described above will also apply to all ordinary course of business profit forecasts that are made prior to the start of the offer period and, with the consent of the Takeover Panel and all parties to the offer, during the offer period itself;

5)   where a profit forecast is made, either before or during an offer period, in respect of a period that expires 15 months or more from the date on which the profit forecast is first published, the directors' confirmation regime will apply. However, if, during an offer period, a party to an offer publishes a profit forecast for a future financial year, it will also be required to publish corresponding profit forecasts for the current financial year and any intervening financial year and any such profit forecast will need to comply with the Takeover Code requirements in the normal way i.e. it may need to be reported on;

6)   if the offer is a management buyout (or similar transaction) or an offer by or on behalf of a controlling shareholder, the reporting regime will apply to any profit forecasts other than forecasts for future periods;

7)   dispensations are available from the usual reporting regime if the profit forecast is a profit ceiling or, for securities exchange offerors, the consideration securities will not represent a material proportion of the offeror’s enlarged share capital or, alternatively, a material proportion of the value of the offer;

8)   in respect of profit estimates, as with the current regime, dispensations are available in respect of:

(i) preliminary statements of annual results that comply with the relevant UKLA Rules; and

(ii) half-yearly reports that comply with the relevant UKLA Rules, the AIM Rules or the ISDX Rules; and

9)   the new profit forecast regime applies equally in respect of profit forecasts for a part of a business, although dispensations are available if it would be disproportionate to require a report.

Another aspect of the changes introduced by the response paper is the amendment of the material changes regime. The Code Committee has adopted the proposal for the parties to an offer to announce any material changes to the previously published information. In addition, any material new information that previously would have had to have been published, will also need to be announced.


Amerjit Kalirai is a Partner in the Corporate Group of Field Fisher Waterhouse LLP in London.

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