In July 2011, the Takeover Panel published a response statement[1] following its consultation of certain aspects of the regulation of takeover bids and a new 10th edition of the Takeover Code which took effect on 19 September 2011.[2] At the same time, the Takeover Panel Executive amended a number of its Practice Statements, primarily as a consequence of the amendments to the Takeover Code.[3]

The key changes

We reported on the consultation of the Code Committee of the Takeover Panel and the proposed amendments to the Takeover Code in our April update. The Code changes proposed in the consultation have now been adopted without substantial amendment:-

  • Protection against protracted 'virtual bids'
    • Identification of potential bidders. To address the tactical advantage of anonymity often enjoyed by potential bidders over the target company, the Takeover Code now requires that any announcement by the target company which commences an offer period identify any potential bidders with which the target is in talks or from which an approach has been received and not unequivocally rejected.
    • 28 day 'put up or shut up' deadline. Once a potential bidder has been identified, it now only has 28 days to make an announcement of a firm intention to make an offer or announce that it does not intend to make an offer.
  • Prohibition of deal protection measures and inducement fees. The Takeover Panel adopted the general prohibition of offer-related arrangements aimed at prohibiting deal protection measures such as break fee arrangements, implementation agreements, exclusivity arrangements and work-fee arrangements. Exceptions to this general prohibition relate to, among others, confidentiality agreements and certain inducement fee arrangements with a "white knight" (that is, a competing bidder where another bidder has announced a firm intention to make an offer which is not recommended by the target board). Inducement fee or other offer-related arrangements entered into before 19 September 2011 are not subject to the prohibition.
  • Disclosure of offer financing and financial information. All bidders, regardless of whether the offer is for cash or securities, are now required to disclose how the offer is to be financed. This will include a description of the debt facilities or instruments required to directly finance the offer together with proposals as to refinance the existing debt or working capital facilities of the target.
  • Disclosure of intentions regarding the target and its employees. Bidders are now required to disclose their intentions as to the future of the target and its employees. The bidder will be expected to honour such statements for at least 12 months from the end of the offer period. If a bidder deviates from such a statement during this period, the Takeover Panel will consider whether a material change in circumstances has occurred and, if not, may take disciplinary action.

Comment

In light of the new requirement for all potentials bidders to be identified, perhaps at a time when some bidders are not in a position to decide whether to announce a firm intention to make an offer within the short period of 28 days will make potential bidders more cautious when approaching a target. The new Code rules certainly put target companies in a better position to fend off hostile bidders as it will be up to the target board to decide whether or not to apply for an extension of the 28 day deadline for a particular bidder. How this plays out in practice will be interesting to see.

Due to the significance of the Code changes, the Code Committee of the Takeover Panel is planning to review the operation of the Code amendments in September 2012.