On 21 March 2011 the Code Committee of the Takeover Panel (the Code Committee) published a consultation paper (the Paper) on its proposed amendments to the Takeover Code. In this article we will consider the proposed amendments in the Paper which relate to the issue of obligations to employees under the Takeover Code. Improving the ability of employee representatives to make their views known

The Code Committee concluded that it would be useful to include into the Takeover Code a definition of “employee representative”. The new definition embraces both representatives of recognised trade unions and persons elected or appointed to a position where it would be either expected or appropriate for them to receive information of the kind specified in the Takeover Code.

The Code Committee has stated that it aims to improve communications between the offeree company and its employees, and to enable employee representatives to be better able to provide their opinion on the effects of the offer on employment.

In order to achieve its aims, the Code Committee has clarified that there is nothing to prevent the offeror and offeree companies sharing information with their respective employee representatives or employees, or to prevent the offeror company sharing information with the offeree company employee representatives or employees.

Under the present rules, employee representatives have the right to give an opinion on the offer and have this appended to the circular containing the offeree board’s opinion on the offer if the employee representatives’ opinion is received by the offeree board “in good time”. The rights of publication are strengthened under the Code Committee proposals by requiring the offeree to inform the employee representatives of their right to provide such an opinion when the right arises. Additionally, where the opinion is not received “in good time” to allow publication with the offeree board’s opinion, the Code Committee has introduced an amendment which would oblige the offeree company to publish the employee representatives’ opinion on a website and to announce via a RIS that it has done so.

Further, on the basis that it is in the interests of the employee representatives, the offeree company, offeree company shareholders and market participants to have the information in an employee representatives’ opinion verified, the Code Committee has proposed an amendment which requires the offeree company to pay for the costs which might reasonably be incurred by the employee representatives in obtaining advice to ensure that the information contained in their opinion meets the standards required for all information published during the course of an offer. The Code Committee anticipates that, while this will impose a cost on the offeree company, it will be a relatively small addition to the offeree company’s overall costs. It is also proposed to amend the Takeover Code to make it clear that the offeree board does not assume any responsibility in relation to the employee representatives’ opinion.

Improving the quality of disclosure by offeror and offeree companies

At present, an offeror is required to set out in the offer document its plans on certain matters, including in relation to the future business of the offeree company and the offeree company’s employees. With a view to improving the accuracy and adequacy of the information published by the offeror, the Code Committee has proposed that the offeror should, in addition, be required to make negative statements if it has no intention to make any changes in relation to the offeree company’s employees, their conditions of employment or the locations of business and fixed assets, or if it considers that its plans for the offeree will not have any repercussions on employment or the locations of the offeree company’s places of business.

On the basis that offeree companies are only able to provide meaningful information to its shareholders and employees if the information that it receives is accurate, the Code Committee has also proposed amending the Takeover Code to hold offerors to any statements made during the offer period (whether in a document, announcement or otherwise) relating to any course of action that it intends to take or not take for a period of at least 12 months from the date when the offer becomes wholly unconditional. The 12 month period applies unless the offeror specified a different time period when making its statement of intention.