Following the public consultation by the Code Committee of the Takeover Panel on its review of certain aspects of the Takeover Code (the consultation) last year, the Code Committee now issued the proposed detailed amendments to the Takeover Code (the Code) for comments to be received by 27 May 2011.[1]


As reported in our January update, The Takeover Code consultation: proposed amendments, the Code Committee concluded in its response statement to the consultation that its primary concerns in relation to the conduct of takeovers are that:-

  • hostile bidders had gained a tactical advantage over targets making it too easy for hostile takeovers to succeed; and
  • the outcome of hostile offers are unduly influenced by 'short term' investors.

The proposed Code amendments aim to address these concerns. They reflect what had been proposed in principle in the consultation, setting out the detailed provisions.

The proposed amendments to the Takeover Code

Protection against protracted 'virtual bids'

As it stands, bidders can pursue target companies for a prolonged period whilst retaining their anonymity. The Code Committee is proposing that, following an approach to the target board, the potential bidder must be identified in the announcement commencing the offer period, regardless of which party makes the announcement. Once a bidder is identified, it will have a 28 day period in which to announce a firm intention to make an offer or to announce its intention not to make an offer and therefore be subject to the restrictions contained in Rule 2.8 of the Code.

The Takeover Panel may be approached jointly by bidder and target for an extension of the initial 28 day period.

Prohibiting deal protection measures and inducement fees

The second proposed amendment is a general prohibition on offer-related arrangements aimed at prohibiting deal protection measures such as break fee arrangements, implementation agreements, exclusivity arrangements and work-fee arrangements. The proposals aim to catch agreements concluded from an early stage up to those entered into on announcement of the offer subject to certain limited exceptions.

The proposed amendments provide for a dispensation from the general prohibition permitting the target to agree to an inducement fee (up to 1% of the value of the target company) in respect of a bidder who is making a competing offer in a non-recommended bid.

Disclosure of fees

The Code Committee is further proposing to require both bidders and targets to disclose an estimate of the aggregate fees and expenses expected to be incurred in relation to an offer broken down by adviser category. In addition, bidders are to separately disclose an estimate of the fees and expenses expected to be incurred in relation to their financing arrangements. Where success fees or fees based on time cost are proposed, minimum and maximum estimates must be provided. If fees later exceed estimates, the Takeover Panel may require an announcement of the cost increase.

Disclosure of financial information

The proposed amendments will require all bidders to disclose the same financial information as a target company, regardless of whether the offer is for cash or securities. This will include a description of the debt facilities or instruments required to directly finance the offer together with proposals as to refinance the existing debt/ working capital facilities of the target. Details of each facility will need to include the amount, repayment terms, interest rates, security, covenants, identities of the principal financing banks and any deadline for refinancing the acquisition facilities (and the consequences of failing to do so).

Future conduct statements

Perhaps as a result of Kraft's recent acquisition of Cadbury, the Code Committee is proposing to require the bidder to disclose its intentions as to the future of the target and its employees. The bidder will be expected to honour such statements for at least 12 months from the date of the offer becoming unconditional. If a bidder proposes to deviate from those statements the Takeover Panel will be empowered to consider whether making such a statement was reasonable in the first place, and, if not, may take disciplinary action.

Employee representatives

A target is currently required to publish the opinions of employee representatives only where they are received in good time prior to the publication of the target's circular. The proposed amendments go further by requiring the target company to publish the employee representative's opinion on a website and announce it via a regulatory information service if it is not received in good time, but provided it is received within 14 days of the offer becoming unconditional.

What next?

Comments on the proposed amendments to the Code are invited until 27 May 2011. The Code Committee will then publish a response statement which will include the final text of the Code amendments. The amendments will typically be implemented within one month after publication of the response statement. The Code Committee will provide guidance as to the implementation date once the comments received in response to the consultation have been considered.