On 8 October 2015, the Takeover Panel published Practice Statement 29, concerning its guidance around Rule 21.2 of the Takeover Code – Offer Related Arrangements - which replaces previous guidance with immediate effect. Practice Statement 29 focusses on:

  • certain exclusions to the prohibition on offer-related arrangements;
  • agreements between an offeror and the offeree company relating to the conduct, implementation and/or terms of an offer (known as bid conduct agreements); and
  • agreements under which an offeree company may agree to pay an inducement fee to an offeror in certain limited circumstances.

Rule 21.2(a) of the Takeover Code provides that, save with the consent of the Panel, neither the offeree nor any person acting in concert with it may enter into an “offer-related arrangement” with either the offeror or any person acting in concert with it during an offer period or when an offer is reasonably in contemplation.

An “offer-related arrangement” is defined as any agreement, arrangement or commitment in connection with an offer, including any inducement fee arrangement or other arrangement having a similar or comparable financial or economic effect. There are a limited number of exclusions to this rule.

In summary, the Panel’s revised interpretation and guidance on Rule 21 is now that:

CONFIDENTIALITY OF INFORMATION

An offeree company can enter into a commitment to maintain the confidentiality of information but only if it does not include any other provisions prohibited by the Takeover Code. In particular, the agreement must not restrict the offeree board from making an announcement relating to the possible offer or publicly identifying the potential offeror.

COMMITMENTS TO PROVIDE INFORMATION OR ASSISTANCE FOR THE PURPOSE OF OBTAINING ANY OFFICIAL AUTHORISATION OR REGULATORY CLEARANCE

An offeree company is permitted to enter into a commitment with an offeror to provide information or assistance for the purposes of obtaining any official authorisation or regulatory clearance. The Panel interprets “any official authorisation or regulatory clearance” as comprising authorisations and clearances from governmental and regulatory bodies upon which the offer is conditional (for example, the consent of a competition authority).

However, the Panel will not construe this to extend to agreements to assist with obtaining specific tax treatment of a transaction or for a target company to offer to pay a bidder’s costs in obtaining authorisations or clearances.

BID CONDUCT AGREEMENTS

Bid conduct agreements must not contain provisions prohibited by Rule 21.2. The Panel will review such agreements before their entry by parties to a takeover but if it subsequently emerges that the agreement breaches any Rule 21.2 provisions, it will not initiate remedial and/or disciplinary action. As a matter of best practice, the Panel suggests any bid conduct agreement contains the following clause:

“…. if the Takeover Panel determines that any provision of this agreement that requires the offeree company to take or not to take action, whether as a direct obligation or as a condition to any other person’s obligation (however expressed), is not permitted by Rule 21.2 of the Takeover Code, that provision shall have no effect and shall be disregarded”.

REVERSE BREAK FEES

Other than in respect of reverse takeovers, Rule 21.2 allows an offeror to pay a reverse break fee to the offeree. The Panel has been asked to look at bid situations where a question arises as to whether an offeror’s obligation to pay a reverse break fee in circumstances where an offer lapses because the offeror fails to obtain a consent from a competition authority or because the offeror’s shareholders fail to approve the offer may be made conditional upon the offeree company taking or not taking certain action.

The Panel considers that it would be permissible for an offeror’s obligation to pay a reverse break fee in specified circumstances to be made conditional upon the offeree company having taken or not having taken certain action, provided that there is no obligation on the offeree company to take, or not to take, that action. However, the Panel notes that such conditions would not be permissible if they could have the effect of deterring potential competing offerors from making an offer, or leading to an offeror making an offer on less favourable terms than they would otherwise have done.

Examples of conditions which would not be permissible include conditions requiring the offeree company not to engage with competing offerors or requiring the first offeror an opportunity to match or improve upon any higher competing offer before the offeree company board recommends the competing offer to offeree company shareholders.