Summary

Amendments were made to various Rules of the Takeover Code with effect from 25 January 2010. Further amendments will come into effect on 19 April 2010.

Detail

The Takeover Code was amended with effect from 25 January 2010. Many of the changes are minor in nature (such as updated references to legislation). Of the more substantive changes, there is now a requirement that any documents that are required to be placed on display during the course of an offer must also be made available electronically on a public website.

The other major change sees the deletion of the existing Note 4 to Rule 16 and the creation of a new and more expansive Rule 16.2, dealing with management incentivisation.

Rule 16 restricts special deals with favourable conditions which are not being extended to all shareholders. However, Rule 16 permits certain forms of differing treatment in the case of management buy-out or similar transactions. In particular, where there is a desire on the part of the bidder to incentivise management, it will generally be acceptable to put such arrangements in place, even where management are also shareholders in the target. The Code has contemplated this for a number of years and the new requirements are reflected in a new rule 16.2 which places certain parameters on such arrangements. More specifically:-

  1. Where a bidder has entered into, or is in advanced stages of negotiation in relation to any form of incentivisation with members of the target's management who are also target shareholders, full details of any such arrangements must be disclosed and the independent financial adviser to the target must state publicly that it considers such arrangements to be fair and reasonable.
  2. If the details of any incentivisation arrangements have not been agreed at the time of the offer, but it is contemplated such arrangements will be put in place, this must be made known (including such details as may have been agreed), or if it is not intended to put in place any such arrangements, this must be confirmed.
  3. Where the value of any incentivisation arrangements is significant or unusual, then the Panel Executive must be consulted in advance and it may require the prior approval of such arrangements by independent shareholders of the target at a general meeting of the target's shareholders.
  4. Where any members of management are target shareholders and are to be given the opportunity to become shareholders in the bidder on a basis which is not being made available to all other target shareholders, such arrangements must in any event be conditional on the approval of independent shareholders at a general meeting of the target's shareholders.
  5. Where only target management who own shares in the target are to be given the opportunity to take shares in the bidder in exchange for their shares and such arrangements are approved by independent target shareholders in general meeting, the Panel will not normally require a "paper offer" also to be made to other target shareholders, even where management hold over 10% and as such Rule 11.2 would otherwise operate so as to require a share alternative.

There are also safeguards in Rule 16.2 to prevent the requirements being side-stepped by a bidder deferring agreeing incentive arrangements until after the offer has become unconditional.

The Takeover Code is also to be further amended with effect from 19 April 2010 to provide increased transparency by extending the ambit of the Rule 8 (and related provisions). This follows an extensive consultation exercise, which concluded that the imposition of additional obligations would not be viewed as being too onerous to market participants.

A largely re-written Rule 8 will require various persons, during an offer period, to make public disclosures, or in certain cases private disclosures to the Panel, of their long and (in certain circumstances) short positions or dealings in relevant securities of the parties to the offer. Disclosures are not required to be made in respect of positions or dealings in relevant securities of a cash offeror.

Amongst the changes, the new rule 8 requires an opening position disclosure to be made by parties to an offer (and persons acting in concert with them) and by persons who are interested in 1% or more of the target (or, in the case of a share exchange offer, bidder) securities. Opening position disclosures are required to be made by way of an announcement which must be made following the commencement of the offer period (and, where the initial announcement does not confirm the identity of the potential offeror but the bidder's identity is subsequently made known and the offer comprises a non-cash only offer, following the announcement identifying the bidder).

Parties to an offer have until noon on the business day following the announcement of the offer/possible offer (or, where relevant, announcement of the identity of the bidder) to make their opening position disclosure. Persons who are obliged to make such a disclosure solely by virtue of having a 1% or more interest have until the tenth business day following the relevant announcement to make their disclosure. The disclosure must contain details of interests or short positions in, or rights to subscribe for, any relevant securities of any party to the offer (and not, in the case of a 1% shareholder, just the interests in the party in which it has the 1% interest) if the person concerned has such a position. There are special rules applicable to exempt principal traders, and exempt fund managers.

For further information (including details of the new disclosure forms), see: www.thetakeoverpanel.org.uk/wp-content/uploads/2009/02/2009-30.pdf