Completing the transaction

Hostile transactions

What are the special considerations for unsolicited transactions for public companies?

If a potential bidder’s interest in a target leaks or is disclosed to the market, it will have to be named and it will have 28 days in which to announce a firm intention to make an offer (which means, among other things, that it must be in a position to pay in full any cash consideration under the offer) or announce it will not make an offer. This 28-day ‘put up or shut up’ deadline will only be extended by the Takeover Panel at the request of the target. A hostile potential bidder could, therefore, find itself locked out from making a bid before it has had a chance to put its bid together. For this reason, a possible bidder must ensure that it maintains confidentiality in relation to its bid for as long as possible and must also consider the timing of its approach to the target carefully. A bidder is not under any obligation to tell the target of its interest until it is ready to announce an offer, but it will usually do so in an attempt to get a recommendation of the offer from the target board.

Once it announces a firm intention to make an offer, a bidder cannot publish its offer document until 14 days have elapsed, unless the target board consents to earlier publication. This is to ensure that a target has sufficient time to prepare its defence.

A target is not permitted to take action to frustrate an offer – it is a general principle of the City Code on Takeovers and Mergers (the Takeover Code) that target shareholders must not be denied the opportunity to decide on the merits of a bid – and, as a result, poison pill or shareholder rights defences are not permitted in the United Kingdom. Frustrating action could include: the issue of shares or convertibles; the issue or grant of options; agreeing to sell, dispose of or acquire material assets; or entering into contracts outside the ordinary course of business. The prohibition on frustrating action does not stop the target board from encouraging shareholders not to accept the offer if it believes that the offer should be on more favourable terms.

Although the same rules apply in recommended and hostile bids, the latter are relatively rare in the United Kingdom.

Break-up fees – frustration of additional bidders

Which types of break-up and reverse break-up fees are allowed? What are the limitations on a public company’s ability to protect deals from third-party bidders?

The Takeover Code prohibits offer-related arrangements between a bidder and a target that impose obligations on the target. This means that break fees are prohibited by the Takeover Code, except in certain specified circumstances (such as when a target has been running a formal sale process). In those limited specified circumstances, the break fee must be capped at 1 per cent of the offer value, and perhaps lower in certain circumstances owing to the provisions of the unlawful financial assistance regime under the Companies Act (which prohibits a public company from providing financial assistance to a party for the acquisition of its shares in certain circumstances, including if it results in a material reduction in net assets of the company). For those targets subject to the Listing Rules, there is an additional cap on break fees at 1 per cent of the value of the company calculated by reference to the offer price.

The prohibition on offer-related arrangements means that other tactics that were historically used to afford deal protection to a bidder, such as giving a bidder exclusivity or a target agreeing to notify a bidder of a possible competing bid, are not permitted.

Conversely, reverse break fees (payable by a bidder to a target) are permitted as they impose an obligation on the bidder. We have seen these in a number of bids (between 1 per cent and 5 per cent of the bid value), particularly where the bidder requires regulatory or shareholder consent, but they are by no means standard.

Government influence

Other than through relevant competition regulations, or in specific industries in which business combinations or acquisitions are regulated, may government agencies influence or restrict the completion of such transactions, including for reasons of national security?

The Enterprise Act 2002 enables the UK government to intervene in transactions on the grounds of: national security; media quality, plurality and standard; and financial stability.

Historically, it was very rare to see interventions on the grounds of national security but, with a greater focus on foreign direct investment, this has changed and in 2019 the government intervened in four transactions, including in two takeovers (the bids for Inmarsat and Cobham).

The government is looking to introduce new, much broader powers to intervene in transactions on the grounds of national security, so we are likely to see a greater number of interventions in future.

Conditional offers

What conditions to a tender offer, exchange offer, merger, plan or scheme of arrangement or other form of business combination are allowed? In a cash transaction, may the financing be conditional? Can the commencement of a tender offer or exchange offer for a public company be subject to conditions?

A takeover will be subject to a number of conditions, the key condition being that the bidder receives a specified level of acceptances on a contractual takeover offer (the acceptance condition) or the requisite resolutions being passed by shareholders in a scheme. The offer may also be conditional on clearance under the EU or the UK merger control regimes, and, if relevant, merger control rules in other jurisdictions. There may also be conditions relating to other regulatory requirements; for example, if regulatory approval for a change of control of the target is required.

There will usually also be a series of what are known as negative or protective conditions, such as there having been no material adverse change in the target's financial position since the last full audited accounts. The Takeover Code does not permit an offer to be subject to subjective conditions or those whose fulfilment is in the hands of the bidder.

An offer also cannot be conditional on financing being put in place.

It is possible for a bidder to launch a pre-conditional offer, which requires that the preconditions are satisfied before the launch of the offer and publication of the offer document. The Takeover Panel limits the preconditions that a bidder can attach to an offer. A pre-conditional offer is most commonly used when there is likely to be an extensive merger control or regulatory clearance process that will not fit within the Takeover Code’s prescribed timetable. They are relatively rare.

While the takeover may be expressed to be subject to a number of conditions, in practice it is incredibly rare for the Takeover Panel to permit a bidder to invoke a condition other than the acceptance condition or a key regulatory condition. In the case of conditions relating to a material adverse change, whether the material significance requirement is met will depend on the bidder demonstrating that the relevant circumstances are ‘of very considerable significance striking at the heart of the purpose of the transaction’.


If a buyer needs to obtain financing for a transaction involving a public company, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?

The Takeover Code provides that a bidder should only announce a firm intention to make an offer after careful and responsible consideration and when it has every reason to believe that it can and will continue to be able to implement the offer. This means that the financing for the offer must be fully committed when the announcement of the firm intention to make an offer is made, and the announcement must contain a statement by the bidder's financial adviser confirming that sufficient resources are available to the bidder to satisfy full acceptance of the cash element of the offer consideration (a cash confirmation statement).

An offer cannot be conditional on arranging financing, and because of the need for financing to be on a certain funds basis at the time of announcement, it is rare for bids to be financed by equity fundraising, such as a rights issue, as there will be too much conditionality involved.

The bidder’s financing arrangements must be disclosed in the offer document and the financing documentation put on display on a website.

Minority squeeze-out

May minority stockholders of a public company be squeezed out? If so, what steps must be taken and what is the time frame for the process?

If a bidder acquires or receives acceptances in respect of at least 90 per cent of the target's voting share capital (not already owned by the bidder when it makes the offer), it will be entitled to acquire any remaining shares from those minority target shareholders who have not accepted the offer under the squeeze-out procedure in the Companies Act 2006. For that reason, most contractual offers will have an acceptance condition of 90 per cent (at least at the outset).

To compulsorily acquire the remaining target shares that have not been assented to the offer, the bidder is required to serve a squeeze-out notice on each remaining target shareholder. The terms upon which the bidder may acquire the outstanding target shares will be the same as those contained in the original offer.

Six weeks after the notice is served, assuming no shareholders apply to court to object to the compulsory acquisition of their shares, the bidder will be entitled (and bound) to acquire the minority holders' shares.

The squeeze out procedure is not required on a scheme, as a bidder automatically acquires all the shares on a scheme once the scheme has been duly approved and sanctioned.

Waiting or notification periods

Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations or acquisitions involving public companies?

The Takeover Code prescribes a timetable for a contractual takeover offer. In broad terms, an offer must be unconditional as to acceptances within 60 days of the offer document being published and wholly unconditional within 81 days of the publication of the offer document. The bidder is then likely to give notice of its intention to squeeze out any remaining minority shareholders. However, a bidder may be able to close an offer much more quickly – the only restraint in the Code on it doing so is the rule that a bidder can only publish its offer document 14 days after its announcement of a firm offer, unless the target consents to earlier publication.

The timetable for a scheme is more flexible and can be faster than a contractual offer. The key notice period is the notice of meeting to approve the scheme, which must be 21 days from publication of the scheme circular. The timetable for a scheme will largely be driven by the court process.