From Monday 23 November 2015, changes to the Takeover Code (Code) took effect following consultation on the following:

  • Payments of dividends by targets;
  • Restriction and suspensions of voting rights; and
  • Additional presumptions to the definition of acting in concert.

Takeover Code: dividend payments by targets

The Code Committee of the Takeover Panel has amended the Code in relation to the treatment of dividends paid by a target company to its shareholders, adopting the substance of the amendments which were proposed in the consultation.

Right to reduce the offer consideration in respect of a dividend

The Code Committee has adopted a new Note 4(a) on Rule 2.5 (Terms and pre-conditions in possible offer announcements), a new Rule 2.7(c)(xii) (Announcement of a firm intention to make an offer) and a new Rule 24.17 (Offeror documents).

Announcements of a firm intention, announcements of possible offers and all offer documents now have to state that the offeror has the right to reduce the consideration payable by the amount of any dividend (or other distribution) which is paid or becomes payable by the offeree company to the offeree company shareholders, unless, and to the extent that, the offeror expressly states that offeree company shareholders will be entitled to receive all or part of a specified dividend (or other distribution) in addition to the offer consideration.

Note that:

  • These new changes to the Code apply not only to dividends but to all distributions made by the offeree. The Panel should be consulted if the offer consideration is to be reduced by the value of a non-cash distribution.
  • The new provisions are intended to cover both dividends which are paid by the offeree company to offeree company shareholders before the offer completes and those which are paid to offeree company shareholders (as opposed to being paid to the offeror) after completion.
  • A further change is the deletion of the requirement in Rule 24.3(d)(iv) for an offer document to state whether the securities for which the offer is made will be transferred “cum” or “ex” any dividend.

Effect of a dividend where the offeror has made a ‘no increase statement’

A ‘no increase statement’ is defined in Rule 32.2(a) as a statement that the offer will not be increased or improved or any similar expression. Rule 32.2(b) provides that, if an offeror makes a “no increase statement”, the offeror will not be allowed subsequently to amend the terms of its offer in any way, even if the amendment would not result in an increase in the value of the offer, except where the offeror specifically reserved the right to do so in certain circumstances.

Where an offeror has made a no increase statement (or has included such a statement in a possible offer announcement) and the offeree subsequently pays a dividend (or other distribution) or it becomes payable, the offeror will normally be required to reduce the offer consideration by the amount of the dividend (or other distribution) so that the overall value receivable by the offeree company shareholders remains the same, unless and to the extent that, specific reservation was included in the no increase statement or possible offer announcement entitling offeree shareholders to receive all or part of a specific dividend in addition to the offer consideration (New Note 6 on Rule 32.2 and 4(b) on Rule 2.5).

Impact of dividends on minimum offer price established by share purchases

Rules 6, 9.5 and 11.1 set out provisions relating to the minimum amount and form of offer consideration where the offeror has acquired interests in offeree company shares during certain periods. Broadly, the consideration offered must be no less than the highest price paid by the offeror during the relevant period or during the offer period.

Note 5 on Rule 6 (Dividends), also applied by Notes to Rule 9.5 and Rule 11.1, sets out when an offeror, in establishing the minimum level of the offer, may deduct from the highest price paid by it during the relevant period, the amount of a dividend which has been announced by the offeree company.

Takeover Code changes on amendments to definition of voting rights

Voting rights

The Code Committee has amended the definition of voting rights in the Code to make clear that, except for treasury shares, shares which are subject to restrictions on the exercise of voting rights at a general meeting, either by agreement or an undertaking or arising by law or regulation (such as where a person has failed to respond to a section 793 notice under the Companies Act 2006 and the court has made an order under section 794), or shares which are subject to a suspension of voting rights in accordance with the company’s articles of association or for some other reason, will normally be regarded for the purposes of the Code as having voting rights which are currently exercisable at a general meeting.

Treasury Shares

The definition of Treasury Shares has been amended by the addition of a second paragraph, which provides that where other shares in a company are held by, or on behalf of, the company itself, or by a subsidiary, and the voting rights in respect of those shares are not exercisable by virtue of applicable legislation, those shares will also be treated as if they were treasury shares for the purposes of the Code. There are one or two limited situations where this could arise.

Application to Rule 9

Minor amendments have also been made to the Notes on Rule 9.7, which relate to the calculation of the number of shares to which voting restrictions will be applied and the number of interests to be disposed of, where the Panel has agreed to the disposal of interests in shares by a person as an alternative to making a mandatory offer under Rule 9.

Takeover Code: additional presumptions to the definition of acting in concert

New presumptions

The Code Committee has introduced three new presumptions to the definition of ‘acting in concert’ in the Code. Presumptions in relation to the following categories of persons are now included and such persons will be presumed to be acting in concert with other persons in the same category unless the contrary is established:

  • (5) a person, the person’s close relatives and the related trusts of any of them all with each other;
  • (6) the close relatives of a founder of a company to which the Code applies, their close relatives and the related trusts of any of them all with each other; and
  • (9) shareholders in a private company who sell their shares in that company in consideration for the issue of new shares in a company to which the Code applies or who, following the re-registration of that company as a public company in connection with an initial public offering or otherwise, become shareholders in a company to which the Code applies.

Close relatives

A new definition of close relatives has been included. The definition provides that a person’s close relatives will normally include (1) the person’s spouse, civil partner or cohabitant; (2) the person’s children, parents, brothers, sisters, grandchildren and grandparents, and those of any person described in (1); and (3) the spouse, civil partner or cohabitant of any person described in (2).

Founder

‘Founder’ in presumption (6) is not defined, although the Response Statement refers, in this context, to companies ‘founded by a member of a person’s family’.

Rebuttal of Presumption (9) (shareholders in a private company)

In relation to presumption (9), the Response Statement indicates that the Executive will be prepared to agree that the presumption has been rebutted where it can be demonstrated to the Executive’s satisfaction that the shareholders in the private company do not have a common interest and that they are acting independently of each other and will continue to do so in the future. The Code Committee understands that the Executive may be prepared to agree that the presumption has been rebutted where, for example, the shareholders in the private company are independent institutional shareholders, as opposed to, say, individuals who founded or who otherwise became members of the private company.

Related Trusts

The longstanding practice of the Executive is to presume that each of the trustee(s), the settlor and the beneficiaries of a person’s related trust is acting in concert with that person.

In some cases, a protector (an individual or group of individuals or a company who or which has certain powers under the trust deed or, in certain jurisdictions, under statute) may be appointed by the settlor or trustees, in order to exercise certain powers in relation to the administration of the trust. The powers of a protector may include, for example, the power to appoint or remove trustees or the power to approve or withhold consent to certain actions by the trustees. In view of this, the Code Committee considers that a trust in respect of which a person is a protector would be a related trust of his and that a person should be presumed to be acting in concert not only with the trustee(s), the settlor and the beneficiaries of a related trust but also with any protector of the trust.

In relation to Rule 8 (Disclosure of Dealings and Positions) for the purposes of disclosing the identity of a person required to make an opening position disclosure or a dealing disclosure, the owner or controller of the interest or short position in the relevant securities must be specified. If the owner or controller is a trust, details of the trustees, settlors and beneficiaries must be disclosed. The Committee states that it considers that if, for the purposes of Rule 8, the owner or controller of any interest or short position in securities is a trust, details of the trustees, the settlors, the protector and the beneficiaries must be disclosed.

The Code Committee concluded that, for the purposes of Rule 8, the protector of a trust should be regarded as an owner or controller of any interest or short position in securities held by the trust. Note 5(f) on Rule 8 (owner or controller details) has, therefore, been amended to refer to the protector of a trust as well as the trustee(s), the settlor and the beneficiaries.

The amendments are effective from 23 November 2015.