On December 11 2017 the Takeover Panel published Response Statement 2017/1 to its July 2017 consultation on the sale of a target's assets in competition with a takeover offer and related matters (PCP 2017/1). The amendments to the Takeover Code set out in the response statement took effect on January 8 2018.
To prevent a bidder from circumventing the application of the Takeover Code by purchasing a target's significant assets (instead of launching a takeover offer), the panel proposed a number of amendments to Rules 2.8, 12.2(b)(i) and 35.1 (and related notes) of PCP 2017/1, which have now been adopted in the code (with certain modifications).
The code now provides that:
- a person who has made a Rule 2.8 'no intention to bid' statement cannot purchase, agree to purchase or make any statement which raises or confirms the possibility that it is interested in purchasing a target's significant assets within six months of the date of such statement (except in certain circumstances or with the panel's consent); and
- a bidder or its concert parties cannot purchase, agree to purchase or make any statement which raises or confirms the possibility that it is interested in purchasing a target's significant assets either during a competition reference period (except with the panel's consent) or where an announced offer has been withdrawn or has lapsed within 12 months from the date on which such offer is withdrawn or lapses (except with the panel's consent).
In assessing whether assets are 'significant' for these purposes, the panel will consider:
- the aggregate value of the consideration for the assets compared with the aggregate market value of all of the target's equity shares;
- the value of the assets to be purchased compared with the total assets of the target (excluding, in each case, cash and cash equivalents); and
- the operating profit attributable to the assets to be purchased compared with that of the target.
Relative values of more than 75% will normally be regarded by the panel as significant.
The Takeover Panel has also amended the Takeover Code to provide that, where in competition with an offer, a target announces that it has agreed terms on which it intends to sell all or substantially all of the assets and to return to shareholders all or substantially all of the target's cash balances:
- a statement made by the target's board quantifying the cash sum expected to be paid to shareholders will be treated as a 'quantified financial benefit statement' for the purposes of the code; and
- the purchaser or potential purchaser of such assets cannot acquire the target's shares during the offer period unless the target board makes a statement quantifying the cash sum expected to be paid to shareholders, and then only to the extent that the price paid does not exceed the amount stated.
In addition, if a target company commences discussions relating to the sale of all or substantially all of its assets during an offer period, the code now requires that information given to a potential asset purchaser must, on request, be given to another offeror or bona fide potential offeror.
Rule 21.1(a) of the Takeover Code prevents a target's board from taking any action which may result in:
- any offer being frustrated; or
- a target's shareholders being denied the opportunity to decide on such offer's merits unless shareholder approval is obtained.
The Takeover Panel has now confirmed the amendment of Rule 21.1 to state that the panel will normally disapply Rule 21.1(a) if:
- the proposed action is conditional on the offer being withdrawn or lapsing;
- the bidder consents to such action; or
- shareholders with more than 50% voting rights in the target agree such action and would vote in favour of any resolution approving such action at a general meeting.
If the panel disapplies Rule 21.1(a) where such action is conditional on the offer being withdrawn or lapsing, the target board must publish an announcement containing certain specified information on such action and require that, where shareholder approval is sought for a proposed action under Rule 21.1, the target board must obtain competent independent advice on whether the financial terms of the proposed action are fair and reasonable. The panel must also be consulted regarding the date on which the relevant shareholder meeting is proposed to be held and the target board must send a practicable after the announcement of such action.
The panel has also adopted a new note on Rule 21.1, which states that it will normally permit a target to enter into an inducement fee arrangement with a counterparty to a transaction to which Rule 21.1 applies if the aggregate value of such fee:
- relating to the same asset is no more than 1% of the transaction value (or if there are two or more transactions in respect of the same asset, the transaction with the highest value); and
- in respect of all transactions to which Rule 21.1 applies is no more than 1% of the value of the target calculated by reference to the bid price at the time of the Rule 2.7 announcement.
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For further information on this topic please contact Will Pearce or William Tong at Davis Polk & Wardwell LLP by telephone (+44 20 7418 1300) or email (email@example.com or firstname.lastname@example.org). The Davis Polk & Wardwell website can be accessed at www.davispolk.com.