On 18 July 2008, the Takeover Panel published two new consultation papers proposing amendments to the Takeover Code. The first (PCP 2008/3) proposes wider use of electronic communications with shareholders in takeovers whilst the other (PCP 2008/2) suggests miscellaneous amendments including to Rule 2 (secrecy and announcements). This Briefing highlights the key changes and some of their practical implications.

Electronic communications PCP 2008/3

Recognising the increased importance of electronic communications, a number of amendments have been proposed which will have practical implications for the publication and availability of documents and information in relation to an offer:

  • Website publication of documents:

Display documents available on website: Amendments to Rule 26 will require bidders and targets to make display documents available on a website, in addition to the present requirement of putting hard copies on display. It is proposed that documents should remain on display until the offer closes, which is often beyond the end of the offer period, which is the current requirement. The practical effect of this is to make such documents, including the material contracts of the parties, much easier to access. This proposal may generate comment during the consultation process and, if implemented, is likely to lead to more requests for redaction of commercially sensitive information and debates as to what constitutes a material contract.

Offer documentation: It is proposed that both the bidder and target would be required to publish all offer documentation and offer related materials published by them (other than disclosures relating to dealings during the offer period) on a website. Although for many parties access to a suitable website may not be a problem, for some parties including consortium bidders, this will require the hosting of a website or access to a third party hosted website for this purpose.

  • Electronic distribution of offer documentation: Parties would be permitted to distribute offer documentation electronically to shareholders, without any requirement for shareholders to have made a prior election to receive documents in electronic form. Although the Takeover Code will not be prescriptive as to the manner in which documents will be published, existing shareholder elections to receive documents in hard copy form will need to be followed and those who receive documents electronically or via a website may request a hard copy of that document and all future offer documentation to be sent to them in connection with the offer. This proposal is underpinned by a requirement for the target’s registrar to provide additional shareholder information to the bidder, including electronic addresses where shareholders have elected to receive electronic communications.
  • Incorporation by reference: The proposed Rule changes would expressly permit incorporation of information into documents by reference to other sources, including most notably the incorporation of historical financial information in relation to the bidder and the target. This welcome change would have the effect of shortening offer documentation considerably. Recognition of “information rights”: Persons with “information rights” (a concept introduced by the Companies Act 2006 from 1 October 2007) would be entitled to receive documents distributed in accordance with the Takeover Code. Members of companies admitted to a regulated market (so this includes companies on the Official List but not AIM), who hold their shares on behalf of another person, can nominate that beneficial holder of the shares to enjoy information rights and also receive company documents and information. Such a beneficial holder would be entitled to receive the documents in connection with an offer, in the same way as the registered shareholder.

Miscellaneous amendments PCP 2008/2

PCP 2008/2 proposes a number of miscellaneous rule amendments intended to clarify certain aspects of the Takeover Code and reflect the existing practice of the Panel Executive. Those of particular interest relate to Rule 2:

  • Rule 2.2: There is to be a codification of the Panel Executive’s existing practice of requiring targets on auction sales and potential sellers where a purchaser of a 30% or more stake in the target is being sought, to consult with the Panel before more than one potential purchaser or bidder is approached. The aim of the consultation is to reduce the risk of information about the transaction being leaked to a large number of people. In addition it is made clear that the requirement to consult the Panel before the group of persons approached about the transaction is widened beyond a very restricted number, applies to both bidders and targets.
  • Rule 2.4: Some changes will clarify the application of Rule 2.4(c) which concerns the impact of including a statement about the price of a possible offer (particularly where the consideration is expressed in terms of a securities exchange offer) in a Rule 2.4 announcement and the implications for any subsequent firm offer. Other amendments further clarify the effect of a “no increase statement” made by a potential bidder. If a “no increase statement” is made, the potential bidder will not be able to make a firm offer at a higher level unless an event occurs which the potential bidder specified in the “no increase statement” would be one that would enable the level of consideration to be set aside. It will also be made clear that if a potential bidder makes a “no increase statement” in respect of a possible offer but does not then make that offer, the potential bidder will not be able to make a higher offer in the 3 month period after the initial offer period ends.

PCP 2008/2 also proposes minor changes to Rules 8 (disclosure of dealings during offer period), 9 (mandatory offers), 35 (restrictions following offers and possible offers) and 38 (dealings by connected exempt principal traders).

The Code Committee is inviting comments on PCP 2008/2 and PCP 2008/3 by 17 October 2008. PCP 2008/2 and 2008/3 can be found on the Takeover Panel’s website at