As discussed in the January 2007 edition of this Bulletin, the 2006 Act contains provisions to extend the new regime, originally introduced in May 2006 for takeovers of fully listed companies, to all companies affected by the Takeover Code (the Code). These provisions of the 2006 Act were brought into force on 6 April 2007. As a result:
- knowingly publishing a takeover document which does not comply with the content requirements of the Code is a criminal offence; and
- the Panel enjoys new statutory powers to make and enforce rulings
in relation to all takeovers governed by the Code as from 6 April 2007.
So far, business has continued very much as usual, but it is early days and the jury is still out on whether the new regime will lead to any significant new developments, particularly legal challenges to the Panel's decisions which some commentators believe to be a strong possibility.
Schemes of Arrangement: why the interest?
Schemes of Arrangement have been increasingly used in recent recommended offer situations. Although Schemes are attractive for a number of reasons, they also have some disadvantages as compared with traditional offers. The attractions lie in the saving of stamp duty at 0.5% which is achieved by cancellation schemes and the fact that, if the Scheme is voted through by the requisite majority (over 50% in number of the shareholders voting, holding over 75% of the shares voted), it binds all shareholders when it has been approved by the Court (usually a formality) and becomes effective. This is attractive for lenders in leveraged bid situations as it saves them from the often difficult decision as to whether to lend when there is no certainty that the bidder will be able to acquire 100% of the target. Schemes may also provide a means to offer shares or loan notes as consideration without issuing a full prospectus. This applies where the bidder is not fully listed, or for listed companies where any of the limited exceptions in the Prospectus Rules apply.
The disadvantages of a Scheme lie in the fact that the documentation is more complex (involving witness statements etc for the Court application as well as the Scheme documentation itself) and that there is less guarantee of the outcome. It is unusual, but there are occasional salutary instances where shareholders reject Schemes, even when they are fully recommended by the board of the target. So careful consideration of the target company's shareholder register is always needed before deciding whether a Scheme is appropriate, bearing in mind that certain shareholders may be excluded from voting on the basis of their being interested in the outcome. Switching to a traditional offer after a Scheme has been defeated is unlikely to be an attractive option.