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Takeover Panel Practice Statement No 27 – Directors' irrevocable commitments and letters of intent

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On 17 January 2014, the Takeover Panel Executive published Practice Statement No 27.

Market reCap February 2014 edition 

 

On 17 January 2014, the Takeover Panel Executive published Practice Statement No 27.  The Practice Statement clarifies the way in which the Panel Executive interprets and applies Rule 21.2 of the Takeover Code in relation to irrevocable commitments and letters of intent given by offeree shareholders who are also offeree directors.

Rule 21.2

Rule 21.2(a) states that neither the offeree company nor any person acting in concert with it may enter into any offer-related arrangement with either the offeror (or any person acting in concert with it) during an offer period or when an offer is reasonably in contemplation, without the consent of the Panel.  The directors of the offeree company are presumed to be acting in concert with the offeree (by virtue of paragraph (2) of the definition of "acting in concert") and are therefore caught by this restriction.

Rule 21.2(b) defines an "offer related arrangement" as being any agreement, arrangement or commitment in connection with an offer, including any inducement fee arrangement or other arrangement with a similar or comparable financial or economic effect.  However, Rule 21.2(b)(iv) expressly excludes letters of intent and irrevocable commitments to accept the offer from this definition.

Takeover Panel Practice Statement No 27

The Practice Statement confirms that the restriction contained in Rule 21.2(a) does not apply to irrevocable commitments and letters of intent the provisions of which are designed solely to give effect to a commitment to accept the offer (or vote in favour of a scheme of arrangement where the offer is structured in this way).  Such permitted actions may include, for example:

  • an undertaking not to dispose of the shares or withdraw an acceptance of the offer;
  • an undertaking to elect for a particular form of consideration when alternative forms of consideration are offered; and
  • representations regarding title to the shares to which the commitment relates.

However, provisions in any such agreement which extend beyond the relevant individual's decision to accept an offer (or to vote in favour of a scheme of arrangement) will be in breach of Rule 21.2.  The Panel Executive regards such commitments as having been entered into in the relevant individual's capacity as a director of the offeree company (rather than in his capacity as a shareholder).  Commitments of this sort, which the Panel Executive views to be in breach of Rule 21.2, include the following:

  • not to solicit a competing offer;
  • to recommend an offer to offeree company shareholders;
  • to notify the offeror if the director becomes aware of a potential competing offer;
  • to convene board meetings and/or vote in favour of board resolutions which are necessary to implement the offer;
  • to provide information in relation to the offeree company for due diligence or other purposes;
  • to assist the offeror with the satisfaction of its offer conditions;
  • to assist the offeror with the preparation of its offer documentation; and
  • to conduct the offeree company’s business in a particular manner during the offer period.

If there is any doubt in relation to whether a proposed irrevocable undertaking or letter of intent complies with Rule 21.2, the Panel Executive should be consulted.

 

Edward Westhead is an Associate in the Corporate Group of Field Fisher Waterhouse LLP in London.

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