There have been a number of recent developments relating to public company takeovers.
Miscellaneous changes to the Takeover Code
A number of miscellaneous amendments to the Takeover Code took effect on 1 January 2015. The key changes include:
Potential competing bidders
The previous flexible deadline for potential competing bidders to clarify their position has been replaced with a fixed Day 53 deadline. In the context of an offer being effected by means of a scheme of arrangement, the latest date by which a potential competing bidder must clarify its position should normally be 5pm on the 7th day prior to the date of the shareholder and court meetings to approve the scheme.
Dispensations from having to make a possible offer announcement under Rule 2.2
In certain circumstances, a potential bidder may be granted a dispensation by the Panel from the requirement under Rule 2.2 to make an announcement that it is considering making a possible offer where the bidder can show to the Panel's satisfaction that it has ceased to consider making a bid. Where a dispensation is granted, the Panel may still require an announcement to be made where rumour or speculation continues or is repeated or the Panel considers it necessary in order to prevent the creation of a false market.
The consultation proposed reformulating the restrictions to require the identification of the former potential bidder (which is a reversal of the current provision which stipulates that identification will not normally be required). As all of the respondents who expressed a view on the issue disagreed with the proposal, the Panel is not proceeding with this change.
Resolution of competitive situations
A modified default auction procedure will apply to competitive situations which continue to exist after Day 46, in the absence of an agreed auction procedure. The auction procedure involves a maximum of five bidding rounds, taking place over five business days after Day 46 has passed, in substitution for the previous unrestricted number.
Potential controllers granted a Rule 9 waiver
The Code has been amended so that a Rule 9 "whitewash" circular must explain that the potential new controller would not be restricted from making an offer for the company following approval of the proposals at the shareholders’ meeting, unless it had entered into a standstill agreement or made a statement that it did not intend to make an offer.
Irrevocable commitments, letters of intent and interests in shares
A variety of amendments have been made to the provisions in the Code relating to the disclosure by identified bidders of irrevocable commitments, letters of intent and interests in shares procured before and during the offer period, but before the offer document is published (including changes to the timing of announcements). Irrevocable commitments or letters of intent procured by a bidder before the commencement of an offer period will now need to be disclosed by noon on the business day following the date of an announcement that first identifies that bidder.
“No increase” and “no extension” statements
A “no increase” or “no extension” statement must not be subject to a reservation which depends solely on subjective judgments and a bidder must consult the Panel prior to making such a statement which includes a reservation.
Post offer undertakings and intention statements
A new two-tier regime has been introduced into the Code relating to undertakings or statements made by a bidder or target. The changes apply to any statement made by a party to an offer on or after 12 January 2015.
In summary, the changes have resulted in:
- A distinction being made between voluntary commitments (post-offer undertakings) and statements of intention (post-offer intention statements) that are made by a party to an offer relating to any particular course of action it may or may not seek to take after the end of the offer period.
- A stricter regime applying to "post-offer undertakings", which largely prevent the relevant party from introducing conditions to the undertaking, as well as a rigorous monitoring regime by the Takeover Panel.
- The removal of the current ability of a party to an offer ceasing to be committed to a particular course of action by means of the unspecified “material change in circumstances” carve-out.
Practice Statement on entering into talks during a restricted period
A practice statement has been published by the Panel Executive setting out its practice of allowing an approach to the target board during a restricted period, being:
- the period of six months following a "no intention to bid" statement having been made; or
- the period of 12 months following a previously announced offer having been withdrawn or lapsed.
Where a party has made a "no intention to bid" statement, ordinarily that party will be prevented from taking any steps in connection with a possible offer under Rule 2.8. However the Panel Executive will usually consent to a relaxation of these requirements, so as to enable a single confidential approach to be made to the target board. Where the target board rejects the approach, then the other party will not usually be allowed to make any further approach for the remainder of the six month period. On the other hand, where the target board is prepared to enter into such talks, then the restrictions under Rule 2.8 will be set aside for so long as those talks continue.
Where an offer has previously been announced or made and is then withdrawn or expires, then similar restrictions under Rule 35 to those contained in Rule 2.8 will apply, so as to prevent the bidder from taking any steps in connection with that offer for a period of 12 months. The Panel has confirmed that it will take a similar approach to relaxing the restrictions as it will in relation to a "no intention to bid" statement and that the 12 month restricted period will commence once talks with the target board cease.
The Panel may relax the requirement to make an announcement of a possible offer under Rule 2.2 if it is satisfied that the potential bidder has ceased actively to consider making an offer. The Panel has clarified its position in relation to granting such a relaxation. In the first three months of the dispensation from a requirement to make an announcement, the potential bidder will be prevented from actively considering making an offer or approaching or acquiring any interests in shares in the target. In the following three months, the potential bidder will be subject to slightly less onerous restrictions which will permit it to take certain limited steps under Rules 2.8(a) to (e).
Stamp duty and cancellation schemes of arrangement
Takeover schemes of arrangement have often been structured by way of a cancellation of the target company's shares and subsequent re-issue in favour of the bidder. This avoids the stamp duty that would generally apply under a transfer scheme of arrangement, where the shares in the target are transferred to the bidder.
The Chancellor’s 2014 Autumn Statement contained proposals to remove this stamp duty advantage and regulations took effect on 4 March 2015, amending the Companies Act 2006 to prohibit a company from effecting a takeover by means of a cancellation scheme of arrangement.
It should be noted that companies whose shares are admitted to trading on AIM currently benefit from an exemption from stamp duty on the transfer of their shares. Provided the company remains quoted until after the effective date of the scheme of arrangement, then this exemption should continue to be available in respect of a transfer scheme.
Nick Heap is a Senior Associate in Fieldfisher's Corporate Group in London.