On 24 July 2013, the Takeover Panel published its response (RS 2012/1) to its public consultation paper issued last year in respect of profit forecasts, quantified financial benefits statements and material changes in information (PCP 2012/1). Instrument 2013/4 setting out the final version of the revised rules was published on the same day. The revised rules come into effect on 30 September (the same date as the changes amending the scope of the Code – see our June newsletter article for more information on those changes).

The key changes are that Rule 27 (documents subsequently published) and Rule 28 (profit forecasts) have been substantively re-written together with the introduction of new definitions to support the revised rules. A number of consequential amendments have also been made to other rules and notes. In this article, we consider the main provisions of new Rules 27 and 28.

Rule 27 – material changes and subsequent documents

Obligation to disclose new information

Currently, a party to an offer need only disclose details of any material changes in information previously published by it if it publishes a subsequent document. New Rule 27 alters this position to impose a positive obligation on a party to an offer to announce (unless the Panel consents otherwise):

  • changes in information disclosed in any previous document or announcement which are material in the context of that document or announcement
  • any material new information which would have had to be disclosed had it been known at the time – this limb did not form part of the original proposals.

In addition to an announcement, the Panel may also require that a document setting out the relevant information is sent to shareholders (and persons with information rights) and made readily available to the offeree's employee representatives/employees and the trustees of any offeree pension scheme.

Obligation to include new information in subsequent documents

Whilst the current requirement to update previously published information if a subsequent document is published has been retained, it is now split into a requirement to include:

  • any changes to previously disclosed information which are material in the context of the previous document
  • any material changes to a list of specified matters - whilst the old Rule 27 also contained such a list, it is now split into matters for the offeror (Rule 27.2(b)) and the offeree (Rule 27.2 (c)) and each list is more extensive.

As under the old rule, where there have been no relevant changes, there is a requirement to state that this is so.

Where a previous document or announcement included a profit forecast, a quantified financial benefits statement or an asset valuation, any subsequent document must also, unless superseded by information included in the new document, include a statement by the directors confirming:

  • that the profit forecast, quantified financial benefits statement or asset valuation remains valid
  • where reports were obtained on a profit forecast or quantified financial benefits statement, that the reporting accountants and financial adviser(s) have confirmed that their reports continue to apply
  • where an opinion was obtained on an asset valuation, that the independent valuer has confirmed that it continues to apply.

Rule 28 – profit forecasts and quantified financial benefits statements

Rule 28 contains completely re-written provisions in respect of profit forecasts and quantified financial benefits statements (QFBSs). QFBSs replace the concept of merger benefits statements and, importantly, these now also relate to statements by the offeree in respect of certain anticipated benefits should the offer be withdrawn or lapse, rather than simply statements about any financial benefits expected to accrue to the enlarged group if the offer is successful.

To support the new provisions, new definitions have been introduced in respect of Profit Forecasts, Profit Estimates, Ordinary Course Profit Forecasts and QFBSs. The definition of a Profit Forecast is widely drawn and is further amplified by Note 1 on Rule 28.1 which makes it clear that any statement which is described as a target, budget or similar will normally be construed as a forecast, unless it is clear that the statement is no more than aspirational.

The definition of a Securities Exchange Offeror has also been added, which has resulted in a number of consequential changes to other Rules because, currently, only the term Cash Offeror is defined. In fact, the addition of a securities exchange offeror definition makes not only Rule 28 clearer, but many of the other rules (such as Rule 8) as well. The provisions of Rule 28 only apply to the offeree and a securities exchange offeror (ie, they do not apply to a cash only offeror).

Profit forecasts

Consistent with one of the main objectives of the PCP, Rule 28 has been revised to apply more proportionate requirements to profit estimates than at present.


Most importantly, a proportionate approach is taken dependent on when the forecast is made. Where a profit forecast is made before an approach is made or received, or where a forecast relates to a future financial period, less stringent obligations will, generally, apply. Conversely, where a forecast is made during an offer period, or after an approach has been made or received, this will trigger more onerous requirements. Broadly, the difference in requirements is between:

  • having to include reports from the reporting accountants and financial adviser(s) in respect of the forecast or
  • having to include various confirmations from the directors.

It should be noted that, whilst a forecast relating to a future financial period may only trigger the confirmations requirement in respect of that forecast, the provisions of Rule 28.2 may mean that reports have to be prepared for the current and any intervening financial years/periods. This is intended to prevent a party avoiding the provisions of Rule 28 by issuing a forecast for a future period from which information about the current or intervening periods can be inferred.

Ordinary course profit forecasts

The provisions also recognise that forecasts may be published as part of established practice and in the ordinary course of communications with shareholders and the market. Where such an "ordinary course" profit forecast occurs, the confirmations approach will generally be available (although if published during an offer period, this will require the consent of both the Panel and the other parties to the offer, which would include a competing offeror).

Profit estimates

The rules provide flexibility in respect of profit estimates (which are defined as profit forecasts which relate to a financial period which has expired and for which audited results have not yet been published), by exempting those which are included in certain financial statements prepared in accordance with various regulatory rules, such as those of the UK Listing Authority or IAS 34.

Power to grant a dispensation Finally, the Panel retains the right to grant a dispensation from the requirements of Rule 28 where its application would be disproportionate or otherwise inappropriate – specific examples given are:

  • when a party has published a profit "ceiling" only and
  • where consideration shares will not represent a material proportion of the enlarged share capital or the value of the offer.

In addition, factors that the Panel might take into account when considering whether or not to grant a dispensation are helpfully provided.

Investment analysts and other third party forecasts

The new rules deal specifically with when an offeree or securities exchange offeror may:

  • publish investment analysts' forecasts on their own website or
  • refer to consensus forecasts relating to another party to the offer.

Analysts' forecasts

Provided that certain requirements are complied with, a party to an offer can publish investment analysts' forecasts on its website. Subject to certain exceptions, the forecasts on the website must, in this case, be based on all forecasts provided by investment analysts who have provided such forecasts. If the requirements are not complied with, all analysts' forecasts must be removed from that party's website on commencement of the offer period.

Forecasts in respect of another party

The new rules permit a party to the offer to refer either to:

  • a consensus forecast published on another party's website in accordance with the Code or
  • if no such forecast has been published on a website, to compile such a forecast in compliance with the Code.

If a party does refer to a consensus forecast in respect of another party and that other party repeats it, the repeating party will have no obligation to report on it or issue directors' confirmations in respect of it. However, if a party to an offer publishes a consensus forecast concerning another party with that other party's approval or agreement, then that other party must comply with the reporting or directors' confirmations obligation (as appropriate).


Given the nature of a QFBS, the provisions of Rule 28 apply mainly to statements published during an offer period (including any announcement which commences it) and the reporting obligation (rather than the directors' confirmations obligation) will apply.

However, If an offeree proposes to publish a statement relating to new costs savings after an approach has been received but before an offer period has commenced, it should consult with the Panel. The Panel may determine that such a statement is a QFBS to which Rule 28 will apply, although it may agree to defer compliance until publication of the offeree board circular.

Where an offeree is merely repeating costs saving measures which it had published prior to the offer period, this will not be subject to Rule 28, unless the measures are revised, whereupon they will be treated as a fresh QFBS and subject to the reporting obligation under Rule 28.

It is worth noting that the current provision which exempts merger benefits statements from the present regime where the offer is recommended is not carried over into new Rule 28. Therefore, any QFBS made by an offeree or a securities exchange offeror will (subject to the above) have to be reported on.

Compilation and disclosure requirements

The new rules provide clearer and more detailed provisions in respect of the preparation and disclosure requirements in respect of profit forecasts and QFBSs.

Rule 28.3 deals with the compilation of profit forecasts and QFBSs. Each must be properly compiled and prepared with due care and consideration. The rule makes it clear that a forecast or QFBS (and the assumptions on which they are based) are the responsibility of the relevant party and its directors. In particular, a forecast or QFBS must be:

  • understandable - it must not include such extensive disclosure that it cannot be readily understood
  • reliable - it must be supported by thorough analysis of the business and represent factual strategies, plans and risk analysis
  • for forecasts only, comparable - it should be capable of justification by comparison with outcomes in the form of historical financial information.
Rule 28.4 provides detail as to the assumptions or bases of belief that must be provided in respect of a forecast or QFBS. In particular, the rule provides that there must be a clear distinction between assumptions or bases of belief about factors which the directors (or other members of the company’s management) can influence and those which they cannot.
Where an offer document or announcement published during an offer period (or any announcement which commences an offer period) contains a QFBS, Rule 28.6 provides detailed disclosure requirements about the information that must be included.
In line with the key objectives of the PCP, the revised Rules adopt a more proportionate set of provisions than at present, and provide a more logical framework for the regulation of profit forecasts and QFBSs. The Panel has taken note of a number of comments and suggestions made by respondents to its original consultation and has modified its original proposals, whilst still meeting its objectives.