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Preparation

Due diligence requirements
What due diligence is necessary for buyers?

Typically, a bidder uses publicly available information to undertake due diligence before it approaches the target. If the target is prepared to support the offer, the bidder may also present a list of matters on which it requires further information.

With a hostile bid, due diligence is usually limited to information in the public domain. However, the bidder may be able to obtain information from the target that has been provided to a competing bidder if the UK City Code on Takeovers and Mergers applies. This is because the target has a duty to provide equal information to rival bidders in a competitive situation.

Information
What information is available to buyers?

Publicly available information includes:

  • audited accounts (for public companies only);
  • articles of association;
  • details of directors and shareholders (for public companies only);
  • prospectuses; and
  • other information may also be available through UK sources, such as public announcements issued by the target. 

What information can and cannot be disclosed when dealing with a public company?

See above.

Stakebuilding
How is stakebuilding regulated?

Stakebuilding is regulated by the statutory provisions which apply to Jersey companies in the Companies (Jersey) Law 1991. The UK City Code on Takeovers and Mergers is also relevant. Insider dealing and market abuse are each offences which may be committed by a bidder if it seeks to build a stake in the target while it possesses price sensitive information.

Stakebuilding is unhelpful in relation to achieving the 90% threshold needed in Jersey on a takeover offer. This is because the 90% threshold which pertains to a takeover offer relates to shares other than those which at the date of the offer are already owned by the bidder. In certain circumstances, stakebuilding may assist a bidder on a scheme of arrangement in reaching the 75% resolution required to effect a scheme, although the English court decision in Re Hellenic & General Trust Ltd ([1976] 1 WLR 123) will be of persuasive effect in having a bidder's shares treated as a separate class for the purpose of meeting a scheme threshold.

If applicable, the UK code contains a number of restrictions on dealings in bidder and target securities, including preventing any person (other than the bidder) that has price-sensitive information about the offer from either:

  • acquiring securities in the target before the offer is announced (Rule 4.1(a)); or
  • making a recommendation to any other person to deal in the securities (Rule 4.1(b)).

Other restrictions may apply under Rules 5 and 16 of the UK code, including as follows:

A bidder (including its concert parties) cannot acquire an interest in target shares carrying voting rights which would take a bidder's shareholding to 30% or more of the voting rights (subject to certain exceptions) (Rule 5).
Subject to limited exceptions, no shares may be bought on any special terms since these terms must be made available to all target shareholders (Rule 16).

The following disclosure obligations also apply:

  • 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 the bidder (Rule 8). An opening position disclosure must contain details of long interests and short positions in the relevant securities of the parties to the offer.
  • The target's constitutional documents often contain disclosure requirements, together with penalties for failure to comply, including:
    • loss of voting rights; and
    • loss of rights to dividends. 

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