Takeover Code changes operating satisfactorily concludes Takeover Panel report
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The Takeover Panel has published the results of a review it has conducted into the Takeover Code changes that were introduced in September 2011.
The Takeover Panel believes that, overall, the changes have operated satisfactorily, although certain areas are to be kept under review.
Principal observations made were as follows:
1. Takeover activity has remained constant
The Takeover Panel observed that there had been no significant reduction in the takeover activity during the period of review (19 September 2011 to 18 September 2012).
2. Virtual bids
Key points arising included:
- the changes to the Takeover Code introduced a new requirement for a potential offeror to be identified in the announcement commencing an offer period, and subsequently to announce either a firm intention to make an offer, or that it does not intend to make an offer, within 28 days of the date on which the offeror is first identified (a "put up or shut up" or "PUSU" deadline). This requirement was designed to prevent protracted "virtual bids". Overall, the Takeover Panel believes that these measures have worked well and have successfully provided the offeree company with the ability to control the duration of the period of uncertainty and disruption following the announcement of an offer;
- the Takeover Panel identified that there has been a significant reduction in the proportion of offer periods commencing with the announcement of a "possible offer" following rumour or speculation and/or untoward movement in the offeree company's share price, and a significant increase in the proportion of offer periods which commenced with the announcement of a firm offer;
- respondents to the consultation on the Takeover Code changes expressed concerns about potential offerors being deterred from approaching offeree companies. The Takeover Panel acknowledged that it is difficult to assess this, although it does note that there was no significant reduction in the level of bid activity during the year of review. Some respondents were also concerned that the requirement for offerors to be identified in any announcement commencing an offer period might result in the potential for well-prepared offerors to leak details of their possible offer in order to force the offeree company to make an announcement, and thereby reveal the identity of any other (possibly less well-prepared) competitor offerors, which may potentially result in them withdrawing their offer. The Takeover Panel believes that this concern does not appear to have materialised; and
- the Takeover Panel has stated that it will normally consent to the extension of the "put up or shut up" deadline only at the request of the board of the offeree company. However, no such requests made during the review period were rejected by the Panel Executive.
3. Formal sale process
The Takeover Code changes also introduced the ability for the Panel to grant a dispensation from the requirements for potential offerors to be identified and to be subject to a "put up or shut up" deadline prior to an offeror having announced a firm offer, where the offeree company announces that it is seeking one or more potential offerors by means of a formal sale process.
In the review period, the Panel granted such dispensations where relevant, and considers that the ability of an offeree company to obtain such a dispensation provides a valuable addition to the options available to offeree companies. However, the Code Committee believes it is too early for it to make a full assessment of the operation of the formal sale process, and the Panel Executive will therefore keep this aspect under review.
4. Prohibition on deal protection measures and inducement fees
The prohibition on deal protection measures such as inducement fee arrangements, implementation agreements and other "offer-related arrangements" between the offeree and offeror companies during an offer period (or when an offer is reasonably contemplated) was found by the Takeover Panel to have generally achieved its objectives of:
(a) reducing the tactical advantages which offerors were able to obtain over offeree companies; and
(b) redressing the balance in favour of the offeree company.
The Takeover Panel did, however, note that compliance with this prohibition has been mixed. Some deal protection measures were observed by the Takeover Panel during the period of review, such as co-operation agreements and director's irrevocable commitments, which went beyond the limited exceptions permitted under the Takeover Code.
The Takeover Panel will monitor the position going forward, and will take appropriate disciplinary action where it becomes aware of any further breaches.
5. Disclosure of financial and other offer-related information and offeror's future intentions for offeree
The following should be noted in this regard:
- information must now be included in offer documents and offeree board circulars of fees and expenses incurred in relation to the offer in response to shareholders' desires for greater transparency. The Takeover Panel believes these amendments have met their objectives;
- the Takeover Code changes introduced a requirement to include detailed financial information on an offer and the financing of the offer for all types of offer. Overall, the Panel considers these arrangements have worked well, and that it is important that shareholders are provided with information as to how an offer is to be financed; and
- in addition, enhanced disclosure requirements were introduced relating to an offeror's future plans for the offeree company. Whilst the requirement to include such disclosures has generally been complied with, the Takeover Panel was disappointed to find that a significant number of the disclosures were general and not specific in nature (e.g. by stating that the offeror intends to undertake a strategic review of the offeree company's business following completion of the takeover). The Takeover Panel believes that where such a general statement is made in the future, and a significant number of employees are subsequently made redundant, investigations will be made as to whether (at the time the offer document was published) the offeror had in fact formulated an intention to take a course of action. If it was found to have done so, this would constitute a serious breach of the Code.
6. Employee representatives
The amendments to the Code included the adoption of rule changes intended to improve communication between the board of the offeree company and its employee representatives and employees, and to enable such representatives to be more effective in providing their opinion on the effects of an offer on employment.
A significant increase has arisen in the number of opinions of employee representatives being circulated, and the Takeover Panel believes this demonstrates an improvement in communication with employee representatives and their ability to express their opinions, and does not believe it has resulted in a disproportionate burden being placed on the offeree company.