In October last year, the Takeover Panel published its proposals for the reform of the Takeover Code to strengthen the position of target companies which find themselves subject to hostile bids. (For more information, click here to see our article which appeared in the February 2011 edition of the Journal of International Banking and Finance Law). On 21 March 2011, the Panel published its consultation paper on the detailed rule changes to give effect to those proposals.

There is little in the consultation which is new. There are, however, a couple of departures from what was proposed and, importantly, the detailed Rule changes flesh out how certain concepts will work in practice. Additionally, in a couple of places, the consultation paper sets out alternative approaches (the identification of potential bidders and the treatment of a potential bidder who ceases actively to consider making an offer), and invites comments on these, although the Panel is clear about which route it prefers.

We take a brief look below at the most salient points raised by the consultation paper. The closing date for responses is 27 May 2011.

Inducement fees - "white knight" carve-out

Since the publication of the Panel's original proposals last October, it has been known that inducement fees are to be abolished. This gave rise to some concerns that private equity houses might be deterred from making bids if there was no way of their recovering their costs in the event of their bid failing and that target companies faced with a hostile bid might find it harder to attract a recommended offer from a "white knight".

Whilst there is no change on inducement fees generally, the current consultation proposes an exemption where a bidder has announced a firm intention to make an offer which is not recommended by the target's board. In that case an inducement fee arrangement can be entered into with one competing offeror only and the inducement fee will be subject to the same 1% cap as at present.

No requirement for enlarged group pro forma balance sheet

Whilst there will still be a requirement to disclose details of the ratings attributed to the bidder by ratings agencies (and any changes that arise as a result of the offer) in offer documents, the Panel believes that the costs of including a pro forma balance sheet of the combined group would outweigh the benefits. The Panel has, therefore, decided not to take this proposal forward.

Application of the new "put up or shut up" (PUSU) regime to multiple bidders

Whilst the proposed tightening of the PUSU regime was not welcomed by all, the concept at least seemed straightforward. The detailed Rule changes clarify exactly how the principle will work in practice and, importantly, how it will apply where there are multiple bidders.

In brief, the new regime will require bidders to be publicly identified in the announcement which commences an offer period. The bidder will then have four weeks either to announce a firm intention to make an offer or to walk away. An extension to the four week deadline will only be available at the request of the target.

The detailed rule changes make it clear that, where there are multiple bidders, the four week deadlines will run from the date that each bidder is publicly named, such that there may be different deadlines applying to different bidders. Additionally, a large amount of flexibility will be given to targets who wish to apply for an extension to the deadline. Targets may apply for extensions to only some of the deadlines, and may seek either a deadline extension common to all bidders or different extensions for different bidders.

Obligations on target where offer structured as a scheme of arrangement

The abolition of deal protection measures advocated in the October 2010 proposals also sees the end of implementation agreements which usually contain them. Implementation agreements are particularly useful where offers are structured by way of a scheme of arrangement under the Companies Act 2006. Because a scheme is a court process instigated and run by the target, implementation agreements are used, amongst other things, to regulate the conduct of the scheme and to ensure that the target complies with the process by certain deadlines.

When it was announced that implementation agreements would be abolished, the Panel said that provisions would be added to the Code to ensure that targets complied with their obligations when an offer is structured as a scheme. Whilst the obligations imposed are far briefer than would usually have been found in an implementation agreement, they are likely to be sufficient. Importantly, however, a key difference will be that sanction for non-compliance by the target will be restricted to the right for the offeror to ask the Panel to agree to a switch from a scheme to a contractual offer. Under an implementation agreement, other remedies for breach of contract might be available, including potentially specific performance.

Statements concerning offeree and its employees

The offeror is required under the current Rules to describe in the offer document its intentions and plans for the offeree, the offeror itself (if it is a company) and for the employees of the respective companies. The offer document will now have to contain a negative statement where the offeror does not have any such intentions or plans and the Code Committee has pronounced that any party to an offer must adhere to any public statement it makes during the offer period (whether or not it is in the offer document) relating to any course of action which it intends to take (or not take) after the end of the offer period. Where no time period for the implementation, or non-implementation, of the course of action is specified, the statement should be adhered to for a period of at least 12 months from the date on which the offer becomes or is declared wholly unconditional.

Documents on display

The Panel has taken advantage of the changes being proposed to amend the documents on display process. As documents on display now have to be posted on a website, the requirement to make hard copies available as well is to be dropped. Documents on display will, in future, only have to be posted on a website.

In addition, the time by which certain documents will have to be put on display will be brought forward. The following documents will need to go on display from the time of the announcement of a firm intention to make an offer (or, if later, the date of the document), rather than the time of publication of the offer document or board circular (as appropriate) which will continue to apply to all other display documents:

  • irrevocable commitments or letters of intent
  • documents relating to the financing of the offer
  • any indemnity or other dealing arrangement as referred to in Note 11 on the definition of "acting in concert"
  • any offer-related arrangement or other agreement, arrangement or commitment permitted under, or excluded from, Rule 21.2 (as proposed to be amended).


As expected at this stage in the process, there is little that is surprising in the consultation, although, as set out above, it raises some interesting points. Nonetheless, the scale of the reform is not insignificant and, practically speaking, will result in a Code that is very different in format and, to some extent, spirit, than many of us have grown accustomed to. Now is the final chance to have input into that final form - the consultation closes on 27 May.