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Due diligence requirements
What due diligence is necessary for buyers?
Due diligence follows the format typical for other transactions, with legal, commercial and financial due diligence. In regard to legal due diligence, particular attention must be paid to local regulatory issues (if the target is licensed by the Guernsey Financial Services Commission). The buyer must establish details of the target's turnover arising in Guernsey and the Channel Islands in order to determine whether the acquisition is notifiable for competition law purposes.
What information is available to buyers?
Most information must be obtained from the seller or the existing management.
Public records in Guernsey are limited, but include:
- details of the directors;
- the number of shares in issue at the end of the previous calendar year;
- copies of constitutional documents;
- copies of certain shareholder resolutions; and
- details of local litigation.
Public records in Guernsey do not include financial accounts or details of shareholders. The Companies (Guernsey) Law 2008 entitles members of the public to request a copy of the share register from the target, subject to certain conditions.
Additional information will be available in relation to listed companies, whether as a result of announcements or documents available on the company's website.
What information can and cannot be disclosed when dealing with a public company?
Guernsey rules do not restrict the disclosure of information to a potential bidder. However, a potential bidder should ensure that it does not receive price sensitive information before it is willing to be made an insider, as this would prevent it from buying shares in the market. Under the UK City Code on Takeovers and Mergers a target must ensure that information disclosed to one bidder is also provided to any competing bidder if requested.
How is stakebuilding regulated?
Insider dealing and market abuse are offences which may be committed by a bidder if it seeks to build a stake in the target while it is possession of price sensitive information.
The UK City Code on Takeovers and Mergers contains a number of provisions in relation to stakebuilding. These provisions restrict:
- a person from acquiring shares, or recommending another person to do so, while in possession of price sensitive information;
- a bidder from acquiring shares if this would cause it to hold 30% or more of the target; and
- the purchase of shares on terms that are not made available under the general offer.
In relation to disclosure, if the UK code applies the bidder must disclose its own and any concert party's opening positions following the start of an offer period or an announcement which first identifies the bidder as such.
Bidders should be aware that building a stake in advance of a bid will make it more difficult to gain the right to acquire shares from minority shareholders that do not accept a takeover offer, as shares already under the control of the bidder will be ignored when assessing whether the bidder has obtained acceptance in relation to 90% of the shares. In a scheme of arrangement, shares held by the bidder or persons having a common interest with the bidder will be excluded from the vote.
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