A party to a takeover offer that makes a public statement about a course of action it intends to take or not take after the deal is concluded must now make clear whether the statement is a firm, binding commitment or merely a statement of present intention, under changes to the Takeover Code that came into force on 12 January 2015. Such statements are most commonly made by bidders, but are sometimes made by target companies that are fending off an actual or possible bid. The previous Code rules were considered by the Panel to need refining and strengthening in light of Pfizer’s aborted possible offer for AstraZeneca last year, in which Pfizer made certain public commitments to continue various aspects of Astrazeneca’s lifesciences activities in the UK. There was much debate about how binding those commitments actually were.
Under the new Code rules, a bidder or target that intends to make a statement during an offer period about a future course of action will have to decide whether it wishes to make either:
A firm, binding commitment (to be known as a “post-offer undertaking”) governed principally by a new Rule 19.7. Among other things, such an undertaking must specify any period of time for which it applies or any deadline by which the course of action will be completed, and prominently state any qualification or conditions to which it is subject. Under Rule 19.7(c), such qualifications or conditions, and all other terms of the undertaking, must be “specific and precise”, “readily understandable and capable of objective assessment” and “not depend on subjective judgements of the party to the offer or its directors” (much like conditions to an offer). A party proposing to make a post-offer undertaking must consult the Panel in advance. Commitments or undertakings given to an identified party, such as a regulator, will not be treated as a post-offer undertaking that can be enforced by the Panel; or
A statement of intention (to be known as a “post-offer intention statement”), governed principally by a new Rule 19.8. Such a statement will have to be an accurate statement of the party’s intentions at the time that the statement is made and based on reasonable grounds. A party making a post-offer intention statement will not be bound to implement the intended course of action but, if it changes its mind, it will have to make an announcement explaining why. And of course the party concerned may well face questions from the Panel about whether, at the time it made the statement, it did in fact intend to implement the proposed course of action and/or that the intention to do so was based on reasonable grounds.
A party giving a post-offer undertaking will have to comply with it for the period of time specified in the undertaking and must complete any course of action committed to by the deadline specified in the undertaking. A party that wishes to be excused compliance with a post-offer undertaking will have to persuade the Panel that a qualification or condition set out in the undertaking applies and, if the Panel does agree, the party will have to make an announcement explaining how and why the relevant qualification or condition applies.
In order to strengthen the Panel’s ability to monitor compliance with and, therefore, enforce post-offer undertakings, the Panel now has powers to:
require a party to an offer which makes a post-offer undertaking to provide the Panel with periodic written reports, approved by the party’s board of directors, “in such form as the Panel may require”, detailing progress made to date in complying with the undertaking and the expected timetable for completion. The Panel may require any such report to be published “in whole or in part”; and
require the appointment of an independent supervisor to monitor compliance with the post-offer undertaking, at the cost of the party concerned. This monitoring power is broadly similar to the power of the Competition and Markets Authority under the Enterprise Act 2002 to require the appointment of “monitoring trustees” to monitor compliance by merger parties with interim and/or final undertakings agreed with the CMA. Where the Panel thinks that a supervisor will be required, it will usually raise this when the party concerned consults the Panel about giving the post-offer undertaking, and look to agree at that time the identity of the supervisor and the terms of its appointment.
These changes are substantially identical to the Panel’s original proposals, which were published in September last year. For more details, and commentary on the practical implications of the changes, see our LawNow article published on 19 September 2014 here.
Permissibility of qualifications and conditions
One important area in which the Panel has clarified its proposals is in relation to the qualifications and conditions that can be included in a post-offer undertaking. In its consultation paper, the Panel said that it did not consider that a party to an offer should be permitted to include qualifications or conditions to a post-offer undertaking that relate to a material change of circumstances, directors’ fiduciary duties or unspecified events of force majeure. A significant number of respondents to the consultation were of the view that a party to an offer that gives a post-offer undertaking should be permitted to include qualifications or conditions to the undertaking that refer to unspecified events of force majeure, in order to avoid lengthy lists of events that even then would not be exhaustive.
In its response statement, the Panel confirmed that new Rule 19.7(c) is not intended to operate so as to encourage parties to set out long lists of qualifications and conditions referring to specific, but remote, possible events. It is of the view that a qualification or condition, if appropriately drafted, could include such events without referring to each and every possible event individually, while still complying with Rule 19.7(c). A party will normally be permitted to include a qualification or condition to its post-offer undertaking which provides that the undertaking will no longer apply where the Panel determines that the party is unable to comply with the undertaking as a result of an event, act or circumstance beyond the party’s control. The Panel confirmed that a qualification or condition in these terms would normally be seen as satisfying the requirements of Rule 19.7(c), given that the effect of the event (namely, the post-offer undertaking becoming incapable of performance) would be specific and precise, readily understandable and capable of objective assessment.
The Panel also confirmed that a party seeking to rely on a qualification or condition of this type will need to satisfy the Panel that the relevant event, act or circumstance was in fact outside the control of the party, and that it had made compliance with the undertaking impossible, rather than simply more difficult. The types of events that would be covered by the qualification or condition would include, for example, fires, floods, earthquakes and other “acts of God”. The Panel considers that if the party could have taken steps to avoid the event, act or circumstance, or to minimise its impact on the party’s ability to comply with the post-offer undertaking, but had not done so, it will remain responsible for non-compliance with its undertaking.
The Panel considers that it may also be possible for a qualification or condition to satisfy the requirements of Rule 19.7(c) if it refers to the financial effect of generally-described events on the relevant party or its assets. The Panel will require the financial effect of the relevant event to be set out in a manner which is specific and precise, readily understandable and capable of objective assessment, and not dependent on the subjective judgements of the party to the offer or its directors. A high degree of detail may need to be specified as to how the relevant financial measure will be calculated.