The Takeover Panel (the Panel) has published a new public consultation paper (PCP 2014/1) which proposes amendments to various provisions of the Takeover Code (the Code).
The proposals relate to a number of different provisions of the Code. Whilst there is no overarching theme to the changes, they are intended to clarify the way in which provisions of the Code currently work, codify existing practice or otherwise improve the way in which the Code is drafted and operates. Changes are proposed in the following areas:
- clarification of position by potential competing bidders
- acquisitions of interests in shares by a former potential competing bidder
- dispensations from having to make a possible offer announcement
- resolution of competitive bid situations
- potential controllers granted a Rule 9 waiver
- disclosure of irrevocable commitments, letters of intent and interests in relevant securities
- redemptions and purchases by target companies and bidders of their own securities
- circulars published by persons acting in concert with a bidder or target company
- “no increase” and “no extension” statements
- independent advice provided to the target board, and
- aggregation of interests across a group.
See below for a summary of the principal changes in each area. Comments on the proposals should be received by the Panel by 12 September 2014.
Clarification of position by potential competing bidders
Currently, where a bidder has announced a frim intention to make an offer, the deadline for a potential competing bidder to clarify whether or not it will make an offer is a “flexible” date set by the Panel on a case-by-case basis (presently, “on or around” 10 days before the final day for fulfilment of the acceptance condition of the first bidder's offer). It is proposed that this "flexible" deadline should be extended and fixed as the 53rd day after the publication of the first bidder’s offer document.
Where the first bidder’s offer is to be implemented by means of a scheme of arrangement, it is proposed that the deadline should be the seventh day prior to the date of the shareholder meetings, albeit that, in appropriate cases, the Panel could permit the potential competing bidder to clarify its position by no later than the seventh day prior to the date of the court sanction hearing.
The Panel believes that making the deadline for a potential competing bidder to clarify its position a “firm” date, and extending the deadline to Day 53, will provide greater certainty as to the applicable timetable. The increased time available will marginally increase the likelihood of the potential competing bidder making an offer rather than a no intention to bid statement, to the potential benefit of target shareholders, and will commensurately increase the first bidder’s completion risk. The change will decrease the time available for target shareholders to decide whether or not to accept the first bidder’s offer if the second bidder makes a no intention to bid statement, but the Panel believes that seven days will continue to be an adequate time for them to do so.
Acquisitions of interests in shares by a former potential competing bidder
Where a potential bidder makes a "no intention to bid" statement (NITBS) it is subject to certain restrictions including a prohibition on announcing an offer for 6 months. However, in certain circumstances, the NITBS can be set aside so that the restrictions cease to apply. In competitive bid situations, this may only happen where an offer which was announced before the NITBS was made has been withdrawn or has lapsed.
It is proposed that, in such situations, a potential bidder who makes a NITBS and subsequently acquires (or anyone acting in concert with it acquires) an interest in target shares will be precluded from being able to set aside its NITBS (ie, it will continue to be bound by the restrictions). This is because the Panel considers that an acquisition of shares after the making of a NITBS is at odds with that statement and may lead shareholders in the target to believe that, despite the NITBS, the potential bidder may still be interested in making an offer for the target should the previously announced offer be withdrawn or lapse.
Dispensations from having to make a possible offer announcement
In certain situations, the Code provides that a potential bidder may have to announce that it is considering making an offer (for example, when target is subject to rumour and speculation or there is an untoward movement in its share price). However, if the potential bidder can satisfy the Panel that it has actively ceased to consider making a bid, it may be granted a dispensation from the requirement. Where a dispensation is granted, the potential bidder is prohibited for a six month period from actively considering making an offer and is subject to the same restrictions as if it had made a NITBS.
The PCP proposes to strengthen these limitations by:
- widening the prohibition to also cover acquisitions of any interest in target shares, and
- extending the prohibition and the NITBS restrictions to persons acting in concert.
It also proposes to reformulate the limitations so that the NITBS restrictions apply for six months, whilst the prohibitions will apply for three.
Additionally, it is proposed that changes should be made to the rules relating to the setting aside of the limitations so that:
- the NITBS restrictions may be set aside with the agreement of the target board or after the announcement of a firm offer by a third party, a whitewash transaction or a material change in circumstances, but
- the prohibitions may only be set aside after the announcement of a firm offer by a third party, a whitewash transaction or a material change in circumstances (ie, not with the agreement of the target board).
When a dispensation has been granted, the Panel may nonetheless require an announcement to be made where rumour or speculation continues or is repeated, or the Panel considers it necessary to prevent a false market. In such circumstances, the announcement will currently not normally be required to identify the former potential bidder. It is proposed that this be reversed so that identification will normally be required.
Resolution of competitive bid situations
If a competitive bid situation continues to exist in the later stages of an offer period the Panel will, unless the competing bidders and the target board agree a procedure between themselves, apply its own auction procedure. In practice, the procedure is that outlined in PCP 7. It is proposed that this procedure should now be incorporated into the Code as a new Appendix 8, subject to some slight modifications.
Potential controllers granted a Rule 9 waiver
Where a potential new controller is granted a “whitewash” waiver from the obligation to make a mandatory offer for a company (Rule 9), it is proposed that the shareholder circular should be required to explain that the potential new controller will not be restricted from making an offer for the company following approval of the proposals at the shareholders’ meeting, unless it has entered into a standstill agreement with the company or made a statement that it does not intend to make an offer (in which case full details of the agreement or statement should be disclosed).
Disclosure of irrevocable commitments, letters of intent and interests in relevant securities
It is proposed that changes should be made to the requirements for disclosure of irrevocable commitments, letters of intent and interests in shares, so that:
- any irrevocable commitment or letter of intent procured prior to an offer period must be disclosed by no later than 12 noon on the business day following identification of the potential bidder
- a bidder must, in its firm offer announcement, disclose details of the interests and short positions in target securities held by it, and by persons acting in concert with it, and of any irrevocable commitments and letters of intent which it has procured (these details are currently required to be disclosed in the bidder’s Opening Position Disclosure)
- details of irrevocable commitments and letters of intent will still have to be disclosed by means of an announcement under Rule 2.11, but will no longer be required to be disclosed in an Opening Position Disclosure
- a disclosure of an irrevocable commitment will have to include details of any outstanding conditions to which it is subject
- the application of disclosure requirements to potential bidders in a “formal sale process” will be clarified
- the latest deadline for an announcement by a bidder or target of the number of relevant securities in issue will be brought forward from 9.00am to 7.15am in order to afford shareholders more time to comply with their disclosure obligations
- when a trust makes an opening position or dealings disclosure, the settlor and beneficiaries will be required to be identified in addition to the trustee(s), and
- the disclosure of dealings by certain connected principal traders can be made in an aggregated form.
As a result of the proposed changes, a number of amendments will be made to the Panel's disclosure forms. In addition, the Panel has said that it will take the opportunity to make other minor changes to the forms. The proposed amended version of Form 8 (OPD) and Form 8 (DD) can be found in Appendix D of PCP 2014/1, and a full set of the proposed new forms can be found in the “Disclosure” section of the Panel's website.
Redemptions and purchases by target companies and bidders of their own securities
Amendments are proposed to sit the requirement for target shareholder approval of redemptions and purchase of own shares by the target more logically within Rule 21 (which deals with other actions that require target shareholder approval), and to amend the definition of "dealings" to include redemptions and purchases so that they are caught by general disclosure requirements and no longer need specific provisions.
Circulars published by persons acting in concert with a bidder or target company
Generally, the Code provides that information must be made equally available to all target shareholders. However, there are exceptions for information that is provided by "brokers or advisers" to any party to the offer where circulars are sent to their own investment clients. It is proposed that reference to "brokers or advisers" should be changed to "connected adviser" which is already defined and covers persons acting in that capacity.
“No increase” and “no extension” statements
Where a bidder makes such a statement, it can only set it aside if it has expressly reserved the right do so in specified circumstances. It is proposed that any reservation:
- may only be made after consultation with the Panel
- must not rely solely on subjective judgements of the bidder or its directors, or be dependent on them for its fulfilment, and
- may only relate to material new information announced by target after “Day 39”, if the statement itself is made after “Day 39”.
Independent advice provided to the target board
It is proposed to clarify the distinction that exists between the role of:
- the independent adviser appointed to provide financial advice to the target board, and
- the target board which is required to give its opinion on the offer to target shareholders.
Aggregation of interests across a group
Changes are proposed to make it clear that the relief from the 30% mandatory bid threshold in Rule 9 for principal traders within a multi-service financial organisation, who are normally permitted to hold up to an additional 3% of a company’s shares without triggering an obligation to make a mandatory bid, applies only to shares which are acquired and held by the principal trader in a client-serving capacity.