On 8 October 2015, the Executive of the Takeover Panel published two new Practice Statements. Two earlier Practice Statements have been withdrawn.

Practice Statements are issued by the Panel Executive to provide informal guidance to companies involved in takeovers and practitioners as to how the Executive normally interprets and applies relevant provisions of the Takeover Code in certain circumstances. Practice Statements do not form part of the Code.

Summary

The two new Practice Statements provide guidance on:

  • offer-related arrangements, which are prohibited by Rule 21.2 of the Takeover Code but with exceptions (Practice Statement No. 29); and
  • an offeree providing commercially sensitive information to an offeror or offerors, to assess whether the consent of a competition or regulatory authority is required, in the context of Rule 20.2, which provides that any information given to one offeror must, on request, be given to another offeror or potential offeror (Practice Statement No. 30)

Two earlier Practice Statements (No. 27 – directors’ irrevocables and 23 – offer related arrangements) have been withdrawn, the relevant sections being incorporated into Practice Statement No. 29.

Practice Statement No. 29 – offer-related arrangements

  • Practice Statement No. 29 provides guidance on the Executive’s interpretation of Rule 21.2 (Inducement fees and other offer-related arrangements) in relation to certain of the exclusions to the prohibition on offer-related arrangements in Rule 21.2(b) and which include confidentiality commitments, commitments to provide information or assistance for the purpose of obtaining any official authorisation or regulatory clearance, directors’ irrevocable commitments and a commitment not to solicit employees, customers or suppliers.
  • The Panel provides new guidance on the triggers for the payment of a reverse break fee. The Panel considers that it is acceptable for the payment of a reverse break fee to be conditional on the offeree having taken or not taken certain action, provided that there is no obligation on the offeree to take or not take, that action. However, such conditions are not permissible if they could deter a competing offeror from making an offer or of leading to an offeror making a less favourable offer. It would normally be permissible for an obligation of an offeror to pay a reverse break fee to be conditional upon the offeree board continuing to recommend the offer.
  • The Executive recognises that the parties to an offer may enter into a bid conduct agreement, which will be an offer-related arrangement. The Practice Statement sets out examples of terms of such an agreement which are not permitted, such as an obligation relating to the conduct of the offeree’s business prior to the offer becoming wholly unconditional.

Practice Statement No. 30 – information required for regulatory consents

  •  Practice Statement No. 30 deals with an offeree providing commercially sensitive information to an offeror to enable its advisers to consider the need for and obtain the consent of a competition authority or other regulatory body in the context of Rule 20.2 (Equality of information to competing offerors).
  • Where an offeror instructs a small and identified ‘Clean Team’ of lawyers and/or economists which should not include any director or employee of or other adviser to the offeror. The ‘Clean Team’ must be specifically engaged only on these aspects of the offer.
  • Rule 20.2 will be satisfied if the information being requested by a competing offeror is provided to its ‘Clean Team’ on the same basis. If the requirements of the Practice Statement are complied with, the Executive will not require the information to be provided directly to an offeror or competing offeror and communications by the ‘Clean Team’ to an offeror (or anyone else) must not disclose the sensitive information.
  • The Panel must give its consent to the arrangements and be satisfied that effective procedures and information barriers are in place to ensure that the sensitive information is not disclosed to anyone outside the ‘Clean Team’.

Practice Statement No. 29 – offer-related arrangements

Rule 21.2(a) of the Takeover Code provides that, except 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.

Rule 21.2 (b) defines an offer-related arrangement as being 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. However, certain agreements and commitments, which are listed in paragraphs (i) to (vii) of Rule 21.2(b), are excluded.

Practice Statement No. 29 provides guidance on the Executive’s interpretation and application of Rule 21.2 in relation to:

  1. certain of the exclusions to the prohibition on offer-related arrangements in paragraphs (i) to (vii) of Rule 21.2(b);
  2. agreements between an offeror and the offeree company relating to the conduct, implementation and/or terms of an offer (bid conduct agreements); and
  3. agreements under which an offeree company may agree to pay an inducement fee to an offeror in the limited circumstances set out in Notes 1 and 2 on Rule 21.2.

Commitments to maintain the confidentiality of information

Rule 21.2(b)(i) permits an offeree company to enter into a commitment to maintain the confidentiality of information, provided that it does not include any other provisions prohibited by Rule 21.2(a) or Rule 2.3(d) or otherwise under the Takeover Code. Such information could include, for example, information required to conduct due diligence. However, the terms of any such confidentiality agreement must not restrict the board from making an announcement relating to the possible offer or publicly identifying the potential offeror as required by Rule 2.3(d).

Commitments to provide information or assistance for the purpose of obtaining any official authorisation or regulatory clearance

Rule 21.2(b)(iii) permits an offeree company 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 Executive 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).  Additionally, where the offeror requires shareholder approval, or, if the offer is a securities exchange offer, where the offeror is required to obtain a regulatory approval in relation to a prospectus, circular or other similar document, which the offeror is required to publish, the Executive considers that the offeree would be able to enter into a commitment to provide information relating to the offeree to the extent required to obtain approval.

The Executive does not, however, consider Rule 21.2(b)(iii) as permitting:

  • agreements, arrangements or commitments to assist with other matters, for example, assistance with an offeror’s application to a tax authority in order to obtain a specific tax treatment or with the preparation of a bond prospectus.  Note, however, that an offeree may provide assistance in relation to such matters but it may not enter into an agreement, arrangement or commitment to do so;
  • the offeree company entering into a commitment to pay all or part of the costs of the offeror to obtain an official authorisation or regulatory clearance.

Agreements relating to the invocation of conditions to an offer

The Executive considers that it is permissible under Rule 21.2 for an offeror to commit to the offeree company that the offeror will seek to invoke a condition only in certain circumstances, as such a commitment would impose an obligation only on the offeror (see Rule 21.2(b)(v)).  For example, the offeror may agree that it will only seek to invoke a condition relating to a competition authority consent if disposals of assets worth more than a certain value are required by the relevant authority as a condition to giving its consent.

Directors’ irrevocable commitments and letters of intent

Rule 21.2(b)(iv) provides that irrevocable commitments and letters intent are excluded from the definition of an offer-related arrangement.

The Executive considers that Rule 21.2(b)(iv) permits an offeree company shareholder who is also a director of the offeree company to enter into an irrevocable commitment or letter of intent to accept an offer (or to vote in favour of a scheme of arrangement) with respect to the shares in the offeree company held or controlled by the individual concerned.  However, Rule 21.2(b)(iv) does not permit an offeree company shareholder who is also a director of the offeree company to enter into other kinds of offer-related arrangements with the offeror or any person acting in concert with the offeror.

The Practice Statement incorporates and amends Practice Statement No. 27. The amendments include certain of the examples given of provisions that have appeared in irrevocable commitments, which the Executive considers to be a breach of Rule 21.2. Provisions which have appeared in irrevocable commitments given by offeree company shareholders who are also directors of the offeree and which the Executive regards as being in breach of Rule 21.2 have included commitments:

  1. not to solicit a competing offer;
  2. to recommend an offer to offeree company shareholders;
  3. to notify the offeror if the director becomes aware of a possible competing offer or the terms of a possible competing offer;
  4. to convene board meetings and/or vote in favour of board resolutions which are necessary to implement the offer;
  5. to provide information in relation to the offeree company for due diligence or other purposes (or to provide a warranty in respect of any such information);
  6. to assist the offeror with the satisfaction of its offer conditions;
  7. to assist the offeror with the preparation of its offer documentation; and
  8. to conduct the offeree company’s business in a particular manner prior to an offer become wholly unconditional.

Note that (c), (e) and (h) have been amended.

However, permitted provisions may include, for example:

  1. an undertaking not to dispose of the shares or withdraw an acceptance of the offer;
  2. an undertaking to elect for a particular form of consideration when alternative forms of consideration are offered; and
  3. representations regarding title to the shares to which the commitment relates.

These provisions are permitted because they are designed solely to give effect to a commitment to accept the offer (or to vote in favour of a scheme of arrangement).

Agreements, arrangements or commitments which impose obligations only on an offeror or any person acting in concert with it

Rule 21.2(b)(v) permits the parties to an offer to enter into an agreement, arrangement or commitment which imposes obligations only on an offeror or any person acting in concert with it, other than in the context of a reverse takeover.

Rule 21.2(b)(v) permits an offeror to commit to pay a reverse break fee to the offeree company.  A break fee which is payable by an offeror to the offeree in specified circumstances is a “reverse break fee”, such as where the offer lapses because the offeror fails to obtain a consent from a competition authority. 

Practice Statement No. 29 provides new guidance on the triggers for the payment of a reverse break fee. The Panel considers that it is acceptable for the payment of a reverse break fee to be conditional on the offeree having taken or not taken certain action, provided that there is no obligation on the offeree to take, or not take, that action. However, such conditions are not permissible if they could have the effect of deterring potential competing offerors from making an offer or of leading to an offeror making an offer on less favourable terms. Examples of such conditions include the offeror not engaging in discussions with a competing offeror or restricting the information it can provide to a competing offeror to information which is required to be provided in accordance with Rule 20.2.

However, the Executive considers that it would normally be permissible for an obligation of an offeror to pay a reverse break fee to be made conditional upon the offeree company board continuing to recommend the offeror's offer.

Agreements relating to any existing employee incentive arrangement

Rule 21.2(b)(vi) provides that any agreement relating to any existing employee incentive arrangement is excluded from the prohibition of offer-related arrangements.  The Executive interprets Rule 21.2(b)(vi) as only permitting an agreement relating to how existing awards under the offeree company’s employee incentive arrangements will be treated in connection with the offer.

Bid Conduct Agreements

The Executive recognises that the parties may enter into a bid conduct agreement relating to the conduct, implementation or terms of an offer.  The provisions of a Bid Conduct Agreement will be "offer-related arrangements" prohibited under Rule 21.2(a) unless they are permitted under Rule 21.2(b).  Practice Statement 29 sets out examples of terms of such an agreement that are prohibited by Rule 21.2(a) and are not permitted by any of the Rule 21.2(b) exclusions. These include:

  1. an obligation to assist the offeror in implementing the Offer or to assist in the preparation of the offer documentation;
  2. a restriction on the offeree's ability to make announcements or to communicate with shareholders;
  3. a restriction on the payment of dividends by the offeree;
  4. an obligation relating to the conduct of the offeree company’s business prior to an offer becoming wholly unconditional (or a scheme becoming effective);
  5. a warranty in relation to information which may have been provided by the offeree company to the offeror; and
  6. an obligation to assist with integration planning.

Rule 21.2 does not prohibit an offeree from providing assistance to the offeror relating to the implementation of the offer – only from entering into arrangements or commitments to do so. Also, an agreement or arrangement is permissible if conditional on the offer becoming or being declared wholly unconditional.  It is suggested in the Practice Statement that it is best practice to include the following clause in a bid conduct agreement:

"The parties agree that, 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."

Practice Statement No. 30 – information required for the purpose of obtaining regulatory consents

Under Rule 20.2, any information given to one offeror or potential offeror whether publicly identified or not must also, on request, be given equally and promptly to another offeror or potential offeror even if the competing offeror is less welcome.

Practice Statement No. 30 explains the Panel’s approach as to how the requirements of Rule 20.2 may be complied with in circumstances where commercially sensitive information (Restricted Information) is supplied to lawyers or economists advising one of the offerors. The Executive notes in the Practice Statement that the outside counsel receiving the information should comprise a small team of identified lawyers and/or economists and should not include any directors or employees of the offeror or any other advisers.

Restricted Information can be provided by an offeree to outside counsel for the purposes of enabling them to consider the need for and, where necessary, obtain the consent of a competition authority or other regulatory body but the offeree may not wish to provide (or may be constrained by applicable law or regulation from providing) its Restricted Information directly to an offeror or competing offeror.

Note that:

  • Rule 20.2 will be satisfied if, upon the Restricted Information being requested by a competing offeror, it is provided to the competition or regulatory lawyers or economists advising the competing offeror on the same basis.  If this is done, the Executive will not require the Restricted Information to be provided directly to the competing offeror.
  • The recipients of the Restricted Information should only be a small number of identified lawyers and/or economists who are specifically engaged only on these aspects of the offer, described as "the Clean Team".
  • Effective procedures and information barriers must be in place to ensure that Restricted Information is not obtained by anyone outside the Clean Team, such as protected files (electronic or otherwise).
  • Communications by the Clean Team to an offeror (or anyone else) must not disclose Restricted Information.
  • Where the Clean Team comprises individuals in different jurisdictions, all advice to an offeror should be reviewed in advance by a designated responsible member of the Clean Team at the principal firm advising on the relevant regulatory issues, to ensure compliance.
  • Details of the Clean Team and the individual who has taken responsibility for ensuring compliance should be given to the Executive.
  • The offeror must waive any rights to request the Restricted Information from the Clean Team and waive any legal or professional obligation of disclosure which any member of the Clean Team may owe to the offeror.
  • If the Executive agrees to apply Rule 20.2 in the manner set out in the Practice Statement, the offeree is not required under Rule 20.2 to provide information to the Clean Team advising a competing offeror which was not provided to the Clean Team of the first offeror.  The offeree is also not required to provide information not requested by a competing offeror but which has been provided to the Clean Team of the first offeror.