- This is an update to an article in our November 2014 newsletter, in which we described the UK Takeover Panel's (Panel) proposed amendments to the rules relating to public statements of intention made in the course of a takeover offer.
- Following a public consultation period, the UK Takeover Code (Code) has now been amended to distinguish between two forms of statements:
- 'post-offer undertakings', which are binding on a party to a bid, and
- 'post-offer intention statements', which are not.
- The changes to the Code took effect on 12 January 2015.
The new regime
The Panel has recently introduced a new bifurcated regime relating to statements made by a party to a takeover relating to any course of action they might take after the end of the offer period. The Panel distinguishes between post-offer undertakings and statements of intention, the key difference being the extent to which the party making the statement will be bound by it.
This issue, and the debate preceding it, was canvassed in our November 2014 newsletter.1
The regime distinguishes between two forms of statements about action that a party intends to take after the end of an offer period:
- 'post-offer undertakings', which are binding on the party, and
- 'post-offer intention statements', which are not.
The rule changes took effect on 12 January 2015. A recap on the key aspects of these changes is set out below.
Post-offer undertakings, or POUs, are binding commitments made voluntarily by a party to an offer relating to action they will take following the end of the offer period. The party providing the post-offer undertaking will be required to comply with the terms of that undertaking for the period of time specified in the undertaking.
Whilst a party may qualify a POU, any qualifications or conditions must be specific and precise (much like conditions to a takeover offer) and the Panel will not permit general qualifications relating to a material adverse change, unspecified force majeure or directors’ fiduciary duties. Parties will, however, be allowed to include a qualification or condition which provides that a POU will no longer apply where the Panel determines that the party is unable to comply with the POU as a result of an event beyond the party's control.
POUs will be treated, and strictly enforced, by the Panel as binding commitments. In support of the Panel's enforcement powers, the party must:
- provide written reports to the Panel to confirm compliance with the undertaking, and
- if the Panel so requires, appoint an independent supervisor to monitor compliance.
Investment banks expressed concern during the consultation that any failure by their clients to abide by a POU would be considered a breach of the Code by that investment bank – the Panel has confirmed however that advisers do not have an ongoing obligation to ensure compliance with a POU after the end of the offer period.
Post-offer intention statements
Post-offer intention statements are statements relating to action a party intends to take following the end of the offer period. The party will not be treated as being committed to comply with the intention expressed in the statement but the Code does impose standards on a party when making a statement of intention.
A post-offer intention statement must, when made, be both:
- an accurate statement of that party’s intention at the time that it is made (a subjective test), and
- made on reasonable grounds (an objective test).
Whilst a post-offer intention statement will give rise to an expectation that the party will take that course of action, it will not be forced to.
Interestingly, it has been suggested by the Panel that once a takeover offer document has been sent to target shareholders, the Panel will request a list of intention statements included in the offer document. The Panel will then contact the bidder 12 months after the end of the offer period to query whether the bidder has ‘complied’ with those intention statements. Whilst an intention statement is not a binding commitment, if a party does not comply with an intention statement, the Panel will consider whether the relevant statement was made on reasonable grounds and was an accurate statement of that party's intentions at the time it was made. If the Panel decides that this is not the case, the relevant party will have breached the Code.
In addition, the party that has made a post-offer intention statement (whether the bidder or target) must consult with the Panel if, in the 12 months after the end of the offer period, the bidder or target (as the case may be) wishes to take action different from that set out in the intention statement. In addition, an announcement is likely to be required explaining the reason for the change in position.
What impact will the regime have in practice?
Parties who volunteer POUs will be bound by them, will have to report to the Panel and their conduct may be monitored. If a party wishes to avoid being bound in the future as a result of a change of circumstances it will need to specify those circumstances at the time it gives the POU. As there is no obligation under the Code to give a POU, why would anyone make such a commitment?
We suggest that there will be scenarios where POUs might well be considered to be desirable by a bidder. POUs may lend additional credibility by addressing particular concerns arising from a transaction in order to convince shareholders and stakeholders to support it, as Pfizer sought to do in connection with its possible offer for AstraZeneca in early 2014. However, parties will have to think carefully about the wording of the undertakings and in particular any carve-outs or qualifications they wish to attach to the undertaking.
It will also be interesting to see whether POUs will prove to be something actively sought by target boards as part of the commercial terms of a deal, conscious of their duties to have regard to wider stakeholder interests when considering whether to recommend an offer.
It is also important to note that the regime applies equally to statements by targets as well as bidders. Target boards often make statements about their intentions for the target business after the expiry of the offer period, for example a target board may say that it will increase dividends or make a return of capital. The nature of many of these statements mean they will have to be a post-offer intention statement rather than a POU.
This article was written by Ryan Conroy, Associate, London.