The Takeover Appeal Board has considered the wording in Rule 2.6(d) of the Takeover Code, which deals with the time by which a publicly identified potential offeror, which is in competition with an announced firm offeror, must clarify its intentions in relation to the offeree company.

By way of background, on 14 October, Capita plc announced a firm intention to make an offer for Xchanging plc. In a separate announcement on 14 October, Xchanging announced that it was holding discussions with Apollo Global Management, LLC with regard to a potential offer for Xchanging.

By virtue of Rules 2.6(b) and 2.6(d), the time by which Apollo was required either to announce a firm intention to make an offer for Xchanging in accordance with Rule 2.7 or to announce that it did not intend to make an offer was not later than 5.00pm on the 53rd day following the publication of Capita’s offer document.

On 17 October, Capita’s offer document was published and sent to Xchanging’s shareholders. The time by which Apollo was therefore required pursuant to Rule 2.6(d) to announce its intentions was 5.00pm on 9 December. However, Apollo did not in fact make an offer.

On 12 November, Xchanging announced that it had received an approach from Computer Sciences Corporation (“CSC”) regarding a possible offer. On 16 November, Xchanging announced that it had received an approach from Ebix, Inc. (“Ebix”) regarding a possible offer.

In accordance with Rule 2.6(d), each of CSC and Ebix was required by not later than 5.00pm on 9 December (the 53rd day following the publication of Capita’s offer document) either to announce a firm intention to make an offer for Xchanging in accordance with Rule 2.7 or to announce that it did not intend to make an offer.

On 9 December, CSC announced a firm intention to make an offer for Xchanging.

The Executive ruled that, pursuant to Rule 2.6(d), Ebix must, by 5.00pm on the 53rd day following the publication of CSC’s offer document, either announce a firm intention to make an offer for Xchanging in accordance with Rule 2.7 or announce that it did not intend to make an offer.

Xchanging, Capita and Ebix accepted this ruling. However, CSC requested that the ruling should be reviewed by the Hearings Committee.

On 18 December, the Hearings Committee rejected the request of CSC and upheld the ruling of the Executive.

On appeal, CSC argued that Rule 2.6(d) applies when an offeror, in this case Capita, announces a firm intention to make an offer and there is another publicly identified offeror, in this case CSC and Ebix. The deadline set for the publicly identified potential offerors is 5.00pm on the 53rd day following publication of the first offeror’s initial offer document. The “first offeror” in this context, so CSC argued,  was Capita, having been the first offeror to announce a firm intention to make an offer and publish an offer document, and this remained the case after CSC announced its firm intention to make an offer.

The Appeal Board agreed with the Executive that Rule 2.6(d) was drafted in anticipation of there being only one potential competing offeror. Paragraph 2.1 of PCP 2014/1 defined the firm offeror as “Offeror 1″ and the potential competing offeror as “Offeror 2″. The Board accepted the Executive’s submission that where there are two or more offerors, the phrases “first offer” and “the first offeror’s initial offer document” in Rule 2.6(d) should be interpreted as referring back to the words “an offeror” in the first line of the rule, which should be construed as applying to the offeror whose offer document has established the offer timetable, and not the offeror which first as a matter of history published an offer document.

It therefore followed that Ebix as a potential competing offeror should be required to clarify its intentions by reference to the current offer timetable established by the publication of CSC’s offer document and not by reference to the previous offer timetable established by the publication of Capita’s offer document.