The Takeover Panel has published response statements RS2017/1 and RS 2017/2 in respect of their consultations proposing changes to the rules relating to (1) potential asset sales by a target company and various other miscellaneous matters and (2) statements of intention and timing of both these and the publication of hostile offer documents, respectively. In summary, the changes to the Takeover Code, which will come into effect on Monday 8 January, are broadly as outlined in the consultation papers (see here and here for links to our client alerts on these) with a couple of changes and clarifications as set out below.
Key changes and clarifications include:
- Additional intention statements: The Panel have recognised that some targets will not have R&D functions so the requirement for an intention statement only applies to "any" R&D function (i.e. no requirement if no R&D function). The Panel also states explicitly that where a bidder wishes to state an intention to undertake a review of the target's business following completion of the offer, that in itself will not satisfy the requirements and in these circumstances the bidder should disclose "what the review is likely to cover and its expectations in relation to the review".
- Timing of publishing offer documents: The prohibition on bidders publishing offer documents less than 14 days after their Rule 2.7 announcement except with the consent of the target's board cannot be waived by the target in a bid conduct agreement or equivalent as this would constitute an offer-related arrangement contrary to Rule 21.2. However, in a recommended Rule 2.7 announcement made jointly by the bidder and the target, a statement can be included that the target board has consented to the publication of the document before the expiry of the14 day period and the bidder can then rely on this statement.
- Reports on post-offer undertakings and intention statements: Bidders will be required to publish via RNS reports on any post-offer undertakings and intention statements they give during the course of the offer (as opposed to giving private reports to the Panel on these) and bidders who don't have an RNS account to enable them to do this will be expected to open one. A bidder's adviser will not be responsible for ensuring that the bidder complies with its obligations to comply with/report on its undertakings and/or intentions but the Panel will look at whether they gave appropriate advice at the time when such undertakings/intention statements were made.
- Sales of significant assets: The threshold to be applied in determining whether a sale of assets is "significant" will be 75% (using the tests set out in Note 2 on Rule 21.1) rather than the 50% proposed in the consultation paper. The Panel has also clarified that the restrictions on sales of significant assets will only apply: (a) in Rule 35.1, where the bidder has made a "no increase" or "no extension" statement; and (b) in Rule 2.8, where the bidder has made a Rule 2.5(a) statement (relating to the terms of a possible offer), in each case without reserving the right to set that statement aside with target board consent.
- Rule 2.8 announcements: Whilst a person making a "no intention to bid" announcement under Rule 2.8 will still need to specify in the statement the circumstances in which it reserves the right to set the statement aside (as opposed to the current position whereby the restrictions automatically cease to apply in the circumstances specified in Note 2 on Rule 2.8), the Panel will include the words, "Except with the consent of the Panel" within the amended rule so as to retain some level of discretion for the Panel to permit an unreserved Rule 2.8 statement to be set aside in appropriate circumstances. Helpfully, the Panel have also included at the back of RS 2017/1 sample wording for a Rule 2.8 statement to be made after the rule change has come into effect.
Comment: The changes coming into effect in January will impose additional burdens on bidders (and in particular hostile bidders) and we anticipate that, at least in the early days, the Panel will be consulted extensively on exactly how they should apply. For the advisory community, the immediate task is to ensure that all relevant individuals are alive to the timing of the changes and ensure that they are taken into account on any live or imminent offer situations.