Substantial changes to the Takeover Code came into force on 19 September 2011. The changes follow the Takeover Panel’s review of takeover regulation in the wake of Kraft’s takeover of Cadbury last year.

One of the Panel’s aims in making the changes is to rebalance the rules in favour of target companies as it believes that hostile bidders have enjoyed too many tactical advantages over targets in recent years.

The key changes are in the following areas:  

  • Virtual bids: Target companies will have greater protection against protracted “virtual bids”, that is where a potential bidder announces that it is considering making an offer but does not commit itself to doing so. This is achieved by requiring a potential bidder to be publicly identified in any announcement which starts an offer period (which may be as a result of a leak) and then by imposing an automatic deadline of 28 days by which the potential bidder must either announce a firm intention to make an offer or walk away (known as “put up or shut up”). The deadline can only be extended with the consent of the target company and the Panel.
  • Prohibition on deal protection measures: There is a new prohibition on “any offer-related arrangement” between a bidder and a target which imposes restrictions or obligations on the target. This includes break fees and other measures commonly agreed to protect the bidder’s position, such as an agreement not to solicit other offers. There are some very limited exceptions to the prohibition, such as confidentiality undertakings and co-operation in relation to regulatory clearance.
  • Increased disclosure: There are increased disclosure requirements. In particular, greater disclosure is required about how a bid is being financed and about the fees payable to each party’s advisers. There is also a greater emphasis on statements in relation to a bidder’s intentions about the target’s employees and business.