On 30 September 2013, a number of significant changes to the UK Takeover Code (“Code”) will come into effect. Although these changes are not sweeping reforms like the September 2011 Code changes, they are significant and relate to profit forecasts, statements about potential synergies and other merger benefits, and material changes in information previously published that occur during an offer period.
In addition, as confirmed earlier in May 2013 by the UK Takeover Panel (“Panel”), all UK, Channel Islands and Isle of Man registered public companies which have securities admitted to trading on a multilateral trading facility in the UK (including the AIM Market of the London Stock Exchange) will now be subject to the Code, irrespective of their place of central management and control. This change also comes into effect on 30 September 2013.
The key changes to the Code may be summarised as follows:
A) Profit Forecasts (Rule 28)
The Code currently requires (broadly) that, if an offeree company or offeror (other than an offeror offering solely cash) publishes a profit forecast during an offer period, then:
- the assumptions upon which the profit forecast is based must be stated; and
- the party concerned must obtain and publish reports on the profit forecast from both a) reporting accountants and b) its financial advisors.
The Code will now be amended so that production of such reports will not be required either:
- where a profits forecast was published before an approach with regard to a possible offer was made; or
- in certain other prescribed circumstances where the Panel has the ability to grant a dispensation from the general requirement under Rule 28, including where a profit forecast is published in the ordinary course of its communications with its shareholders and in accordance with an established practice, or where the profit forecast relates to a period ending more than 15 months from the date on which it is first published.
The Code will also be changed to include new definitions of “profit forecast” and “profit estimate”.
B) Quantified Financial Benefits Statements (Rule 28)
The Code currently imposes specific requirements where a party to an offer makes a quantified statement about the expected financial benefits of a proposed takeover or merger. The specific requirements are that the offeror must publish the bases of the belief (including sources of information) and reports from both a) reporting accountants and b) its financial advisors that the statement has been made with due care and consideration.
The Code will be changed to include a new definition of “quantified financial benefits statement”. This definition will cover not only general “merger benefits” statements but also other statements, such as statements in relation to any cost saving measures and/or any alternative transaction proposed to be implemented by the offeree company if the offer or possible offer is withdrawn or lapses.
C) Material Changes in Information (Rule 27)
The Code currently requires the disclosure of material changes to previously published information, but only in the event that the relevant party to the offer publishes a subsequent document (in which event the material changes must be disclosed in that document).
The Code will be changed so that an offeror and the offeree company must each disclose promptly any material changes to information published in the offer document and offeree board circular respectively. The update must be made by way of an announcement and, if the Panel determines that it is appropriate, also in a separate document setting out the relevant information to be sent to the shareholders of the offeree company and the offeree company’s employee representatives.
D) Takeover Code to apply to all UK, Channel Islands and Isle of Man registered companies on AIM – abolition of residency test for AIM companies
Currently the Code only applies to an AIM listed company registered in either the UK, Channel Islands or the Isle of Man if that company’s central management or control is considered by the Panel to be in the UK. The Code will be changed so that this ‘residency test’ no longer applies for any UK, Channel Islands or Isle of Man companies that are registered on a UK multilateral trading facility (e.g. on AIM or the ISDX Growth Market).
AIM companies who believe they will be affected by this change should consider carefully whether any action needs to be taken as a result of them coming within the Panel’s jurisdiction from 30 September 2013. In particular, in the event that any transaction has already begun prior to this date, the Panel should be consulted to determine how the Code will be applied from 30 September. A company’s shareholder profile should also be considered, including whether there are any holders of convertible securities, warrants or options which, if exercised, could trigger an obligation to make a mandatory Rule 9 offer (as a result of acquiring or increasing a 30% or greater voting interest).
In any event, it is likely that a market announcement will be required to be made by any such AIM company affected to reflect the change in the company’s status.
For further information about the changes to the Code (Rules 27 and 28) please see the Takeover Panel statement here.
For further information about the changes to the Code (companies subject to the Takeover Code) please see the Takeover Panel statement here.