The Takeover Panel has issued three consultation papers, proposing the following separate amendments to the Takeover Code.  Comments are invited by 28 September 2012.

Removal of residency test for Code companies

PCP 2012/3 is likely to have a significant impact.  In it, the Panel proposes to change the test for the companies to which the Takeover Code applies.  Currently the Code applies to any offer for a company (public or private, but excluding private companies whose shares have not been publicly dealt in or marketed in the last 10 years) which has its registered office in the United Kingdom, the Channel Islands or the Isle of Man if either:

  1. any of its securities are admitted to trading on a regulated market in the United Kingdom (which includes the main market of the London Stock Exchange but not AIM) or on any stock exchange in the Channel Islands or the Isle of Man; or
  2. the Panel considers it to have its place of central management and control in the United Kingdom, the Channel Islands or the Isle of Man.

The Panel proposes to remove the residency test in (b) so that any company whose registered office is in the United Kingdom, the Channel Islands or the Isle of Man will be subject to the Code, irrespective of the location of its place of central management and control.  The exception for private companies whose shares have not been publicly dealt in or marketed for 10 years will remain, with some slight amendments to simplify and clarify it.

Most significantly, this will mean that shareholders in companies on AIM which are incorporated in the United Kingdom, the Channel Islands or the Isle of Man but are managed and controlled in other countries will automatically benefit from the protection of the Code.

The Panel considers this change to be desirable, because shareholders in British companies commonly expect them to be subject to the Code and are unaware of the additional requirements.  Moreover, it is currently difficult to verify whether the Code applies: the Panel currently considers a company to be managed where the majority of its directors are resident, which may not be public information. 

The amendment to the Code will enable shareholders and other interested parties to determine easily whether a company is within the jurisdiction of the Code.  The Panel also expects shareholders in companies that are brought within its jurisdiction to benefit from the Panel's regulation.  The Panel recognises that there is a risk that it may not be able to monitor and enforce the Code in relation to offeree companies which do not have a sufficient nexus with the United Kingdom, the Channel Islands or the Isle of Man, but it has concluded that this should not deter it from seeking to make these changes.

We expect this proposed amendment to be welcomed by the investment community generally.  We believe that the benefits of clarity and increased protection of shareholders outweigh the risk that some companies could be dissuaded from establishing themselves in the United Kingdom. 

The amendment is expected to come into effect one month after the Panel publishes its response to the comments it receives on the consultation.  By that date, companies which are not currently subject to the Code but include similar takeover protections in their articles of association will need to consider whether those articles are inconsistent with the Code and need to be amended.  Significant shareholders in companies that will become subject to the Code who are planning to increase their stakes in such companies to between 30% and 50% may also wish to do so before the Code's restrictions apply.

The Panel is also considering whether it should offer some measure of Code protection to shareholders in companies whose securities are listed in the United Kingdom and which have redomiciled to other jurisdictions.  However, it recognises that it should only introduce such measures if they would be appropriate and effective.

To see a copy of the full consultation paper, click here.

Information in respect of pension schemes

In PCP 2012/2, the Panel seeks views on proposals to extend the Code provisions relating to employee representatives to apply to trustees of the target's pension schemes.  This would require the trustees to be provided with key information about the offer and the offer document to contain any opinion provided by the trustees on the effect of the offer on pension schemes as well as a summary of any agreement entered into with the trustees.  It would not, however, give trustees any right to prevent or delay offers.

To see a copy of the full consultation paper, click here.

Profit forecasts, merger benefits statements and material changes in information

In PCP 2012/1, the Panel considers:

  1. bringing the provisions on profit forecasts more into line with other accounting and prospectus rules;
  2. relaxing the requirements for forecasts published before the target was approached about an offer and increasing the Panel's discretion to grant dispensations from the requirements in certain circumstances;
  3. extending the requirements on justifying quantifications of the expected benefits of an offer to include statements by the target about proposed cost savings or alternative transactions if an offer does not proceed; and
  4. requiring parties to an offer to announce any material changes in information published by them in connection with an offer promptly, rather than only if the party publishes a subsequent offer-related document.

To see a copy of the full consultation paper, click here