A change in UK company law, which came into force on 4 March 2015, prevents the use of the most popular takeover structure in UK transactions. Following this change, a takeover of a UK company will only be possible by way of a tender offer, or a “transfer” scheme of arrangement, both of which are less stamp tax efficient.
UK stamp duty is payable on a chargeable transfer of shares at a rate of 0.5% of the consideration and, until now, it has been possible to avoid this cost on public takeovers by effecting the transaction not as a transfer of shares, but as a cancellation scheme of arrangement under Part 26 Companies Act 2006. Using this structure, the share capital of the target company is reduced, its existing shares are cancelled, and new shares issued to the buyer - no shares are transferred and so no liability to stamp duty arises.
On 3 December 2014, the UK Chancellor of the Exchequer announced a change in UK company law that would prevent a takeover being structured in this way. On 3 March 2015, amendments to the regulations were published which made this change. The regulations, and an explanatory note, can be found here.
The regulations will simply operate to prevent a reduction of share capital which is a part of a scheme of arrangement under which a person is to acquire all the shares (or all the shares of a particular class) of the target company.
The regulations would not prevent a cancellation scheme in other circumstances - for instance in a reorganization where there is parity of ownership before and after the scheme is implemented.
The regulations would also not prevent a scheme of arrangement in a takeover scenario. A "transfer" scheme of arrangement whereby shares in the target are transferred to the bidder, rather than cancelled, has not provided the same historic UK stamp duty saving advantage, but does have certain other advantages compared to a tender offer, including the lower shareholder approval threshold to acquire control of 100% of the target: 75% by value of the shareholders voting on a scheme compared to 90% of the shares subject to the tender offer.