Earlier this year, the Code Committee of the U.K. Panel on Takeovers and Mergers released a Consultation Paper setting out suggestions for possible amendments to the Takeover Code and requesting public feedback. The Consultation Paper resulted in an unprecedented number of responses and on October 21, the Code Committee issued a report outlining its conclusions on the principal issues considered. Notably, the Code Committee focused on comments made to the effect that it has become to easy for “hostile” offerors to succeed and on the potential for the outcome of an offer to be unduly influenced by the actions of “short-term” investors, concluding that hostile offerors can obtain a tactical advantage over the target to the detriment of the target and its shareholders. In light of this conclusion, the Code Committee intends to move forward with proposals that are aimed at reducing this tactical advantage and improving the offer process to better consider the position of persons, in addition to target shareholders, who are affected by the takeover.
Specifically, the Code Committee recommended:
- Increasing the protection for offeree companies against protracted "virtual bid" periods whereby a potential offeror announces that it is considering making an offer but doesn't commit to doing so. The proposals would require that potential offerors be named in the announcement following an approach, which would initiate an offer period. Except with consent of the Takeover Panel, the potential offeror would then have four weeks to clarify its intentions;
- Strengthening the position of the offeree company by prohibiting deal protection measures and inducement fees other than in certain limited cases. According to the Code Committee, contractual protections (such as undertakings given by the target to the offeror to take or refrain from taking certain actions) have detrimental effects for offeree company shareholders. The proposals would also clarify that offeree company boards are not limited in the factors that they may take into account in providing their opinion and recommendation on the offer;
- Increasing transparency and improving the quality of disclosure by requiring the disclosure of offer-related fees and requiring further financial disclosure with respect to offerors and the financing offers; and
- Providing greater recognition of the interests of the offeree company employees by improving the quality of disclosure with respect to the offeror's intentions and improving the ability of employee representatives to make their views known. In this regard, the Committee recommended requiring that statements regarding the offeror’s intentions about the target and its employees, locations of business and fixed assets be expected to hold true for at least one year following the offer becoming or being declared wholly unconditional.
According to the report, the Code Committee will now publish further consultation papers setting out the proposed amendments in full.