Proposed changes to the Takeover Code
Market reCap September 2014 edition
- AIM Notice 39 – update on directors participating in a fundraising
- Investor guidelines on share capital management
- Investor guidelines on transactions
- UKLA and AIM require sanctions confirmation
- Primary Market Bulletin No.8
- Board appointments and equality law
- The end of quarterly reporting requirements
- Proposed changes to the Takeover Code
- Engagement letters
- "Blocking" a company's shares: How to respond to a notice under s 793 Companies Act 2006
The Code Committee of the Panel on Takeovers and Mergers (Panel) recently published a public consultation paper (PCP 2014/1: Miscellaneous Amendments to the Takeover Code) seeking views on proposed amendments to the UK City Code on Takeovers and Mergers (Takeover Code).
The consultation ends on 12 September 2014 and covers the following key proposed amendments:
Fixed deadline for clarification of intentions of potential competing bidder
The Panel is proposing to change the deadline by which a potential competing bidder must clarify its position (as to whether it will or will not launch a competing bid) from the current flexible deadline, which is set by the Panel on a case by case basis on or around ten days before the final date that the first bidder’s offer is capable of becoming unconditional as to acceptances, to a fixed date being the 53rd day after the publication of the first bidder’s offer document.
Restrictions following a “no bid” statement in competitive scenarios
Where a competing bidder makes a “no bid” statement and the first bidder's offer subsequently lapses, the competing bidder is currently able to set aside this statement with the consent of the target board where it (or its concert parties) has acquired an interest in any target shares between the time that the "no bid" statement was made and the date on which the first bidder's offer lapses. The Panel proposes that the competing bidder should cease to have the right to set aside its "no bid" statement in these circumstances.
Restrictions following “downing tools”
The Panel is proposing to reformulate the restrictions that apply where a potential bidder has ceased actively to consider an offer (known as "downing tools") and the Panel has granted a dispensation from the requirement to make an announcement (in which the potential bidder is identified) as a result of an untoward movement in the target company's share price and/or speculation about a potential offer. In these circumstances, the potential bidder would still be prevented from making an offer during the six months after the dispensation is granted. However, it would also be restrained from actively considering an offer, making an approach to the board of the target company or acquiring any interests in shares in the target company for a period of three months from the date on which the dispensation is granted.
“No increase” and “no extension” statements
The Panel proposes to tighten up the rules around “no increase” and “no extension” statements. In particular, bidders should only be able to include reservations in these statements (and thereby retain the ability to set aside the statement) after prior consultation with the Panel and only where the reservations do not depend solely on subjective judgements of, and where their fulfilment is not in the hands of, the bidder or its directors.
The Panel is proposing to clarify the provisions of the Takeover Code relating to the requirement for the target board to obtain competent independent advice on the merits of an offer and to make the substance of this advice known to shareholders. In particular, it feels that the current wording risks confusing the distinct roles of the independent adviser and the target board. The amendments are intended to make it clear that the principal role of the independent adviser is to advise the target board on whether the financial terms of the offer (including any alternative offers) are “fair and reasonable" and for this to be formalised in the Takeover Code itself. In addition, changes are being proposed make it clear that giving a recommendation to target company shareholders as to whether they should accept or reject an offer is solely for the target company's board and that this is not the responsibility of the independent financial adviser.
Resolving competitive situations
It is proposed that the default auction procedure, which the Panel would normally impose in order to resolve a competitive bid situation, should be incorporated into the Takeover Code with certain modifications.
“Whitewash” waivers under Rule 9
Under the Takeover Code, a shareholder (together with its concert parties) who acquires an interest in 30% or more of the target's securities (or increases such interest between 30% and 50%) would ordinarily be required to make a mandatory bid for the target. However, a Rule 9 whitewash (under which shareholder approval is given to the proposed acquisition of shares) may be sought which obviates the need for a mandatory bid. The Panel is proposing that the circular to shareholders seeking approval should specifically note that the potential new controller will not be restricted from making an offer for the target company following approval of the Rule 9 whitewash (unless it has entered into a standstill agreement with the company or has made a statement that it does not intend to make an offer, in which case full details of the agreement or statement should be disclosed).
Disclosure of irrevocable commitments, letters of intent and interests in relevant securities
It is proposed that irrevocable commitments and letters of intent procured before the start of an offer period must be disclosed by noon on the business day following the date of the announcement that first identifies the potential bidder. The previous requirement for a bidder to disclose interests and short positions in the relevant securities of the target company, together with any irrevocable commitments and letters of intent which it has procured, in its firm offer announcement, is to be reinstated and the requirement to disclose details of irrevocable commitments and letters of intent in an opening position disclosure is to be removed.
Nick Heap is a Senior Associate in Fieldfisher's Corporate Group in London.