Treatment of dividends to be amended in the Takeover Code
The Code Committee of the Takeover Panel is proposing some amendments to the Takeover Code concerning the treatment of dividends paid by a target company to its shareholders during an offer period (Consultation Paper 2015/1).
The key proposed amendments are as follows:
- A bidder who has made a “no increase” statement in relation to its offer must reduce the value of its offer by the amount of any dividend subsequently paid by the target company, unless a specific reservation is included in the “no increase” statement. This reflects the existing practice of the Panel and seeks to ensure that the value of a bid which is the subject of a “no increase” statement is fixed, to enable the market to make its investment decision on the basis that the offer is final.
- New Notes on Rule 2.5 (with regard to possible offer announcements) and Rule 24.3 (with regard to offer documents) providing that: (a) a bidder may reserve the right to reduce the offer consideration by the amount of all or part of a dividend subsequently paid by the target company; and (b) where a bidder does not reserve that right in every statement (if any) it makes in relation to the terms of a possible offer, in its firm offer announcement and in the offer document, it will not normally be permitted to reduce the offer consideration by all or part of a dividend which is subsequently paid by the target company.
- Some minor clarifications to the method of establishing the impact of dividends on the minimum offer price established by share purchases.
The proposals are intended to ensure greater alignment of the Code with the current practice of the Panel, rather than introduce new substantive requirements. It is hoped that clarification and codification of the treatment of dividends during an offer will also provide greater certainty to bidders.