The Takeover Panel ("Panel") has published a public consultation paper (PCP 2016/1) setting out proposed changes to the Takeover Code ("Code") which focus on the way in which information is communicated and distributed to target shareholders and other relevant persons bearing in mind that the Code's general principles provide that:
- shareholders must be given enough time and information to let them make informed decisions; and
- all shareholders of the same class must be treated equally.
The consultation closes on 15 April 2016. The key changes being proposed are summarised below.
Equality of information provided to shareholders
A new rule is proposed to the effect that any announcement required to be made under the Code must be published via a regulatory information service ("RIS") - if the relevant RIS is not open for business, it must be distributed to two national newspapers and two newswire services. A new rule will provide that, despite this announcement obligation, the Panel may still require a copy of the announcement (or a document which includes its contents) to be sent to target shareholders, employees (or their representative) and pension trustees.
The Code currently provides that information about parties to an offer must be made equally available to all target shareholders as nearly as possible at the same time and in the same manner. It is proposed to widen this to include opinions as well as information relating to the offer as well as a party to the offer. Where material new information or significant new opinions are published or provided to any
shareholder or the media, it is proposed that an RIS announcement by the bidder or target (as appropriate) would satisfy this requirement.
In addition to the above requirement, it is proposed that certain types of document should be published on a website accompanied by an RIS announcement that they have been so published. The requirement would apply whether or not they contain material new information or significant new opinion. The materials in question are:
- any presentation or other document relating to an offer or a party to an offer provided to, or used in any meeting with, any shareholder or other relevant person; and
- any article, letter or other written communication relating to an offer or a party to an offer which is provided to the media.
Exceptions are proposed for presentations to employees and previously published materials which are re-used without including material new information or opinion.
Certain minor changes are also proposed to clarify the application of certain rules to:
- the provision of information prior to commencement of an offer period or before the announcement of a firm or revised offer,
- the provision of information between the parties to an offer and to employee representatives and pension scheme trustees,
- interviews and discussions with the media, and
- investment analyst publications.
Meetings and telephone calls with shareholders and others
Currently, Note 3 on Rule 20.1 sets out certain safeguards which must be observed in relation to meetings between:
- representatives of a bidder or the target or their respective advisers, and
- shareholders of, or persons interested in the securities of, either a bidder or the target, or with analysts, brokers or others engaged in investment management or advice.
The Panel is proposing to replace this Note with a new Rule to clarify that:
- the requirements apply to telephone calls and meetings held by electronic means such as video conferences and not just physical meetings - whilst unscheduled telephone calls would be caught (prompting the Panel to suggest that a supervisor should immediately join the call or it should be terminated and re-scheduled for a time when a supervisor can be present), telephone campaigns will remain subject to separate rules,
- a financial adviser or corporate broker should be required to supervise a meeting or telephone call to which the new Rule applies and confirm to the Panel in writing that no material new information or significant new opinion was provided if the meeting or call takes place:
- before the offer period (but only if the meeting or telephone call relates to a possible offer or would not be taking place but for the possible offer),
- during the offer period but before the announcement of a firm offer, or
- after the announcement of a firm offer, but normally only if the offer is not recommended or there is a competitive situation,
- subject to prior consultation with the Panel, there should normally be no requirement for a financial adviser or corporate broker to supervise a meeting or telephone call after the announcement of a firm offer which is recommended and where there is no competitive situation - instead, a senior representative of bidder or target who was in attendance should be permitted to make the necessary confirmation to the Panel,
- the requirement for a financial adviser or corporate broker to supervise a meeting or telephone call should not apply to meetings or telephone calls attended only by one or more advisers to bidder or target (other than a financial adviser or corporate broker) – for example, a public relations adviser – and one or more “sell-side” investment analysts – instead, a senior adviser who was in attendance should be permitted to make the necessary confirmation to the Panel,
- in any case where a representative of, or adviser to, a bidder or the target (other than a financial adviser or corporate broker) is to provide a written confirmation to the Panel, the relevant financial adviser should provide an appropriate briefing about the new Rule's requirements and the information and opinions that may or may not be provided during the relevant meeting or telephone call, and
- the requirement for a written confirmation to be provided to the Panel should not apply if the only persons in attendance were financial advisers or corporate brokers.
The consultation paper includes a useful summary table setting out these proposed requirements at Appendix D.
The Code does not currently contain any specific provisions in relation to the use of videos. A new rule is therefore proposed. This will provide that a video:
- may only be published with the Panel's prior consent,
- should comprise only a director or senior executive reading from a script or participating in a scripted interview, and
- should be published on a website accompanied by an RIS announcement including a link to the relevant webpage.
The Panel believes that information published via social media should be limited to information and opinions which are published by bidder or target via an RIS or its website. In addition, it considers that social media should only be used to publish:
- the full text of an RIS announcement,
- the full text of a document which has been published on a website, or
- a notification of a link to a webpage on which such an announcement or document has been published.
The Panel proposes to introduce a new Rule to this effect.
The Code currently provides that the publication of advertisements connected with an offer is prohibited unless they fall within a stated exception. The Panel believes this rule should continue to apply, but proposes to make a number of changes to it. Key changes proposed are:
- the removal of a number of the permitted exceptions on the basis that they are no longer relevant, and
- the removal of the requirement for advertisements to include a directors’ responsibility statement.
Minor and consequential amendments
The Panel proposes to make certain minor and consequential amendments to the Code as a result of, or which are related to, the changes outlined above. These include that:
- when a copy of the announcement which starts an offer period is circulated, any accompanying circular should include a telephone number for shareholders to call if they have administrative queries – in addition, the Panel notes that it would expect the target to ensure that persons answering the telephone understand what information they may give out, and
- the requirement for a copy of public disclosures of dealings and positions to be sent to the Panel be withdrawn so that in future it will only have to be sent to an RIS.
Impact and next steps
Whilst the Panel does not believe the proposed changes will result in significant costs being imposed because many of them are a clarification of, or extrapolation from, the existing provisions of the Code, a codification of existing practice, or an application of underlying principles, it does acknowledge that the parties to an offer may incur additional costs by having to make more information available than is currently the case. However, the Panel considers that these costs will be offset by the benefit to target shareholders, market participants and other stakeholders of receiving that information.
Nonetheless, the proposed changes will result in many Code provisions being moved and re-numbered, the extent of which is underlined by the inclusion of a table of origins and destinations by way of Appendix B to the consultation, meaning that compliance procedures and training programmes of market participants and advisers will need updating.
The consultation closes on 15 April 2016. If you have questions about anything raised in the consultation or would like to discuss it, please contact any of the listed contacts to this article or your usual Hogan Lovells contact.
To see a copy of the consultation in full, click here.