On 14 November 2014, the UK Takeover Panel (the Panel) published Practice Statement No. 28. It explains the circumstances in which the Panel will permit a person who has made a "no intention to bid" statement, or whose offer has lapsed or been withdrawn, to make a confidential approach to the target company1. By clarifying how the restrictions under the City Code (the Code) apply in this situation, the Practice Statement should facilitate discussions between potential bidders and target companies, and is to be welcomed.

These rules have become more significant following the changes which were made to the “put up or shut up” (PUSU) regime in the Code following the Kraft/Cadbury bid.2

Background

Generally, under Rule 2.6(a) of the Code, a potential bidder must, within 28 days of the date of the announcement in which it is first identified, either announce a firm intention to make an offer or announce that it does not intend to make an offer (a no intention to bid statement).

Under Rule 2.8 of the Code, neither a person who has made a no intention to bid statement nor any person who has acted or is acting in concert with that person may, within six months from the date of that statement:

  1. announce an offer or possible offer for the target company;
  2. acquire any interest in shares in the target company if they would then be obliged to make a mandatory offer for the company (under Rule 9 of the Code);
  3. acquire any interest in, or procure an irrevocable commitment in respect of, any shares in the target company if the shares in which such person, together with his concert parties, would be interested and  the shares  in respect of  which  he or  they had  acquired  irrevocable commitments would  in aggregate carry 30%  or more of  the voting rights of  the  target company;
  4. make any statement that raises or confirms the possibility that an offer might be made for the target company; or
  5. take any steps in connection with a possible offer for the target company where knowledge of the possible offer might be extended outside those who need to know in the potential bidder and its immediate advisers.

A no intention to bid statement may only be set aside with the consent of the Panel or in the specific circumstances set out in the Code.

Similarly, under Rule 35.1 of the Code, where an offer has been announced but has not become or been declared wholly unconditional and has lapsed the bidder and any person who acted or is acting in concert with it will normally be subject to substantially similar restrictions to those under Rule 2.8 of the Code for a period of 12 months from the date on which the offer is withdrawn or lapses.

Under Note (a)(i) to Rule 35.1 of the Code, save in certain specified circumstances, the Panel will normally consent to set aside the restrictions in Rule 35.1 if the new offer is recommended by the board of the target company.

Practice Statement No. 28

Where a no intention to bid statement has been made

Unsurprisingly perhaps, the Panel has confirmed that making an approach to the target company would fall within Rule 2.8(e) of the Code (as a “step in connection with a possible offer”). This gives rise to a practical conundrum because the board of the target company cannot agree to set aside the no intention to bid statement in the manner contemplated by the Code unless and until it receives an approach from the potential bidder, but the potential bidder will not know whether the board of the target company will do so when it makes its approach. To address this, the Panel has confirmed that it will normally allow a potential bidder or its adviser to make a single confidential approach to the target company's board during the six-month restricted period to determine whether the board would be interested in entering into talks. The approach may or may not include terms. Before it makes such an approach, the potential bidder must consult the Panel and obtain its consent.

If the approach is rejected by the target board, the potential bidder will not normally be permitted to make a further approach for the remainder of the six-month period. The target company board would, however, be permitted to make contact with the potential bidder.

These restrictions will be set aside if the board of the target company agrees to enter into talks with the potential bidder. However, if either party decides to end those talks, the potential bidder will again be bound by the restrictions under Rule 2.8 of the Code for the balance of the restricted period. This is a pragmatic solution. If entering into talks were to cause the restrictions resulting from the PUSU regime to fall away altogether target boards would be likely to be more reluctant to enter into talks (and forego the protection conferred by the PUSU regime), to the detriment of shareholders.

Under Note 2(a) to Rule 2.8, where a no intention to bid statement is made at any time following the announcement by a third party of a firm intention to make a bid, the statement may not normally be set  aside with the agreement of the board of the target company unless that bid has been withdrawn or has lapsed. In the Practice Statement, the Panel has made clear that it will not consent to the potential bidder making a single confidential approach during the restricted period if the board of the target company is not permitted by the Panel to set aside the restrictions under Rule 2.8 of the Code. Consequently, where a no intention to bid statement is made after the announcement by a third party of a firm intention to make a bid the potential bidder who made the no intention to bid statement will only be permitted to make a single confidential approach to the board of the target company if the third party offer has been withdrawn or has lapsed.

Obligation to issue an announcement

If, following a single confidential approach, the board of the target company agrees to enter into talks with a potential bidder, the provisions of Rule 2.2(c) of the Code will apply in the normal way. Essentially, Rule 2.2(c) requires an announcement (known as a “possible offer announcement”) to be issued when, following an approach by or on behalf of a potential bidder to the board of the target company, the target company is the subject of rumor and speculation or there is an untoward movement in its share price. Such an announcement will normally crystallize a 28-day PUSU deadline under Rule 2.6(a) of the Code.

According to the Panel, if a possible offer announcement is made pursuant to Rule 2.2(c) of the Code before the end of the restricted period, the announcement will not normally be required to specify a PUSU deadline. In the Panel’s view, the imposition of such a deadline would be unnecessary, given that the board of the target company would be able to end the talks at any time during the restricted period and thereby re-impose the restrictions in Rule 2.8 of the Code upon the potential bidder. If talks are continuing at the end of the restricted period, the Panel will, however, require a PUSU deadline to be announced by the target company at that time. The latter will fall on the 28th day following the end of the restricted period.

If talks are terminated following an announcement of a possible offer but before the end of the restricted period, the target company will be required to make an announcement. The potential bidder will then be bound by the restrictions set out in Rule 2.8 of the Code for the remainder of the restricted period. If the potential bidder voluntarily makes a further no intention to bid statement, a new restricted period will commence from the date of that statement.

Where the offer has been withdrawn or lapsed

The Panel has confirmed that it will normally apply the same approach to Rule 35.1 of the Code as it does in relation to Rule 2.8 of the Code, i.e. it will normally consent to a relaxation of the requirements of Rule 35.1(e) to enable a former bidder to make a single confidential approach to the target board during the 12-month period to determine whether the board would be interested in entering into talks regarding a possible offer.