Jersey is a leading finance centre and as such is the jurisdiction of incorporation of many companies listed on the UK and other stock exchanges including the London Stock Exchange and the Alternative Investment Management exchange.
The Takeover position is considered under the Companies (Jersey) Law 1991 (the Law) as defined in Part 18, Article 116 and 117 of the Law.
A takeover offer involves the bidder making an offer to the target's shareholders to acquire their shares. After the takeover is complete, the bidder and the target remain separate companies and the target becomes a subsidiary of the bidder.
Scheme of arrangement
This is a statutory court process, involving a compromise or arrangement between a company and its members. It is generally used in recommended offers where a competing bid is unlikely. It results in the bidder holding all of the targets shares.
Hostile bids are allowed but are not common in Jersey. This is because they carry significant additional completion risk and complexity. For example, less information will be available than on a recommended basis.
Regulation and Regulatory Bodies
The UK City Code on Takeovers and Mergers (Takeover Code) is implemented by the UK Panel on Takeovers and Mergers (Panel). The Takeover code applies in relation to certain Jersey listed companies, pursuant to the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009 and the Panel's rules. Any Jersey listed company that has shares listed on a relevant regulated stock exchange (such as the main board of the LSE) is subject to the Takeover Code.
A Jersey company which has shares listed on other exchanges, such as AIM, may also be subject to the Takeover Code if the panel considers that the Company's management and control is either in the UK, Jersey, Guernsey or the Isle of Man. Other international businesses that list on AIM are not subject to the Takeover Code. However in practice, provisions equivalent to the Takeover Code are sometimes included in constitutional documents of such companies.
The main functions of the panel are to issue and administer the Takeover Code and to supervise and regulate takeovers and other matters to which the takeover code applies.
A takeover may require the prior approval of the Jersey Financial Services Commission (JFSC), depending on whether or not the merging entities carry on as a regulated activity, or in other relevant circumstances.
The Jersey Competition Regulatory Authority (JCRA) is the main authority for competition law matters in Jersey. If the JCRA has jurisdiction, its prior consent to the takeover must be added.
However, in practice Jersey competition law is often not relevant in public M&A transactions. This is because the target (and the bidder) will often not carry on any business in Jersey, despite having its parent company incorporated in Jersey.
The bidder uses publicly available information to undertake due diligence before it approaches the target. If the target is prepared to support the offer, the bidder can present the target with a list of matters on which it requires further information as a condition to the preceding with the offer.
In Jersey publicly available information includes: audited accounts, articles of association and details of directors and shareholders.
It is common for the bidder to obtain a memorandum of understanding or undertaking from key shareholders of the target. There are no Jersey-specific disclosure requirements unless they are incorporated into the targets constitutional documents. If the Takeover Code applies, for confidentiality reasons, there is a limit on the number of shareholders that can be approached before the offer is announced. The Panel must be consulted before the bidder approaches a private individual or small corporate shareholder.
It is common for the parties to have an implementation agreement, which sets out the: terms and conditions applicable to the offer, targets obligations to recommend the offer (typically subject to certain conditions, including receipt of significantly higher offers)
The directors of the target must act in accordance with their duties, which may preclude them from agreeing to recommend an offer, even if subsequently in receipt of a higher offer.
Announcing and Making the Offer
The bidder should first present the offer to the targets board. When the targets board is notified that the bidder intends to make an offer that is not subject to a precondition, the bidder must announce it has a formal takeover offer.
The requirement to make an announcement can also occur when:
- The acquisition gives rise to a mandatory offer.
- The target becomes the subject of rumours, speculation or an unusual movement in share price.
- Negotiations are to extend beyond the parties and their immediate advisors.
The Takeover Code provides for two types of announcement:
2.5 announcement, if the bidder has a firm intention to make an offer, it can make an announcement, this announcement should generally include:
- The terms of the offer;
- The identity of the bidder;
- The conditions of the offer; and
- A cash confirmation.
2.4 announcements. If the bidder cannot represent a firm intention to bid (due to lack of finances or otherwise) it may be able to make a temporary holding announcement. This is a brief announcement to signify that talks are talking place.
The basic offer timetable is set out below and applies to both recommended and hostile bids:
- Announcement day. The bidder must post the offer document to the target's shareholders within 28 days of the announcement day.
- Day 14. This is the latest date the target can post a circular advising its shareholders of its views on a hostile takeover offer (in a recommended offer, this is included in the offer document).
- Day 21. The offer can be accepted from this date (although the offer can be extended by the bidder beyond this date).
- Day 42. (assuming first closing date is Day 21). The shareholders who have accepted the offer can withdraw their acceptances if the offer has not yet become or been declared unconditional as to acceptances.
- Day 46. This is the last date for the bidder to post any revised offer document improving its off or to publish information which may increase the value of its bid where it is offering securities.
- Day 60. This is the last date for acceptance or purchases to be declared unconditional as to acceptances. If the offer has not been declared unconditional as to acceptances by 12.00 midnight, the offer is deemed to have lapsed.
- Day 74 (assuming the offer became unconditional as to acceptance on Day 60). This is the earliest date on which the offer can close.
- Day 81 (assuming offer became unconditional as to acceptances on Day 60). This is the last date by which all other conditions to the offer must be fulfilled or satisfied.
- 14 days after offer becomes wholly unconditional. Consideration for the offer must be posted by this date.
If a competing bid is announced, the timetable of the original bid will be extended to match the timetable started by the posting of the competing bid. The timetable for the competing bid will begin on the day the competing offer document is posted.
If a competing bid continues into the later stages of the offer, the Panel can require the bidders to make a final bid by Day 46, or allow them to finalise their bid within a set period from this date.
A voluntary takeover offer is usually made subject to a number of conditions which are not:
- Only within the bidder's control.
- Dependent solely on the bidder's subjective judgement.
Example of conditions for a voluntary takeover include:
- The bidder's shareholders passing any resolutions necessary to implement the offer.
- Where the consideration involves the issue of new listed securities in the bidder, the UK Listing Authority granting a listing for those securities.
If the Takeover Code applies, the offer must include a condition providing that the offer will lapse unless the bidder acquires (or agrees to acquire) more than 50% of the voting rights of the target (Rule 10, Takeover Code). In practice, the acceptance condition normally requires the bidder to acquire at least 90% of the target shares so it can take advantage of the compulsory acquisition procedure.
The target's shareholders on a recommended bid will receive, at a minimum, the
- Offer document. This contains extensive information on the bid, the bidder and the target and, in a recommended bid, the target board's recommendation to its shareholders to accept the bid.
- Acceptance form.
- Prospectus or equivalent document (if required).
In addition to the above, the target's shareholders receive the following on a hostile bid:
- Defence documents.
- Revised offer document.
There is generally no restriction on the types of consideration that can be offered in a voluntary offer. Consideration can therefore include cash, loan notes, share and so on.
If the Takeover Code applies, for a mandatory offer the consideration must be in cash, or be accompanied by a cash alternative and comply with minimum consideration requirements.
If the Takeover Code applies, the bid price must be a least the highest price that the bidder (or any person acting in concert with the bidder) has paid for any interest in the target's shares during the three months prior to the commencement of the offer period, until the offer closes to acceptances (Rule 6).
Under Jersey law, there are no additional restrictions or requirements on the consideration that a foreign bidder can offer to shareholders.
In a takeover offer, if the bidder has acquired or contracted to acquire 90% in nominal value of the shares to which the offer relates, the bidder can acquire the remaining 10% by giving notice to the relevant shareholders.
If the offer is withdrawn or lapses, the Takeover Code imposes restrictions on the bidder or its concert parties for the next 12 months. Exemptions may be granted in some cases, with the consent of the Panel.
When faced with a hostile bid, the target may be able to defend its position with, for example, the white knight defence. There is generally no legal objection to a target's board seeking a third party to make an alternative offer for the target.
Rule 21.1 of the Takeover Code prevents the target from taking frustrating action when defending itself, for example, by issuing shares or granting options, or creating structural defences, such as poison pills to render the target unattractive.