Canada: Background to the UK Takeover Code

The United Kingdom City Code on Takeovers and Mergers (the Code) is a statutory set of rules that shapes the form, structure and timetable of all takeover offers and other merger transactions it regulates. The Code rules are administered by the Panel on Takeovers and Mergers (the Panel), a body of representatives of financial institutions and professional bodies.

The Code applies principally to the following:

  • offers for companies which have their registered offices in the UK, Channel Islands or Isle of Man where their securities are admitted to trading on a regulated market in such countries (such as the Main Market of the London Stock Exchange); and
  • offers for public (for example AIM-listed) companies that have their registered offices in the UK, Channel Islands or Isle of Man and which are considered by the Panel to have their central place of management and control in such countries.

It follows that a takeover of a UK/Channel Islands/Isle of Man registered company listed on AIM would not be regulated by the Code if management is outside these jurisdictions. Establishing this is a key threshold question when considering a UK takeover.

The application of the Code contrasts to the Canadian regime, where takeover rules apply to any target with a certain proportion of shareholders resident in Canada regardless of where the target is incorporated or listed.


On June 1, 2010, to address the negative public response to Kraft Foods Inc.'s takeover of Cadbury plc, the Code Committee (the Committee) of the Panel published a Consultation Paper (the Paper) setting out the arguments for and against each of the issues raised, together with potential implications of change, providing a forum for debate of the suggestions among City practitioners.

On October 21, 2010, the Committee published its conclusions on the issues raised in its Consultation Paper. Where the Committee has concluded that there is a case for making amendments to the Code, it intends to publish further public consultation papers in due course. These will set out the proposed amendments in full.

Committee's Response

The Committee has concluded that:

  • The Code should be amended to reduce the tactical advantage that hostile offerors have been able to obtain over a target to its detriment and that of its shareholders and to redress the balance in favour of the target.
  • Changes to the Code should be proposed to improve the offer process and to take account of the views of persons affected by takeovers in addition to shareholders of the target.

Proposed amendments to the Code

The Committee proposes amending the Code to:

1. Shorten the "virtual bid" period

It is proposed to increase the protection of target companies against protracted "virtual bid" periods by requiring that any announcement of a "possible offer" name the potential offeror, and further that such offeror must, within four weeks of the date on which it is publicly identified, either announce its firm intention to make an offer under the Code or to announce that it will not make an offer. Currently, there is no fixed period between when such announcement is made and when a formal offer must be announced, nor is there a requirement to name the potential offeror.

The Committee believes that such amendments would provide (i) target companies with more certainty as to the length of the offer process, thereby avoiding long periods where a target is under siege from unsolicited approaches (note that a target company is restricted under the Code from taking defensive or "frustrating" action from the point at which the initial announcement is made); and (ii) an incentive for offerors to avoid its offer being leaked to the market, as there would then be less time for the offeror to formulate offer terms and obtain finance.

These provisions would not apply to an auction initiated by the target.

2. Prohibit deal protection measures and inducement fees

Controversially, it is proposed to prohibit (i) undertakings given to an offeror by a target board to take action to implement a Code transaction, or to refrain from taking action which might facilitate a competing Code transaction (save in limited circumstances, including in relation to the provision of confidential information to the target, or to the non-solicitation of an offeror's employees, and any necessary undertakings to implement a takeover by way of a Court-approved scheme of arrangement); and (ii) inducement-fee agreements.

The Committee believes it has become standard practice, in recommended offers, for offerors to benefit from a number of deal protection measures, including inducement fees at the maximum possible level (one per cent of target market value at the offer price),which are often presented to target boards as non-negotiable "standard packages." Such packages are seen to have the effect of deterring competing offers or lead to competing offers being made on less favourable terms, rather than incentivising the offeror to make the offer.

Similarly, these provisions would not apply to an auction initiated by the target.

These proposals are in stark contrast to the Canadian position, where break fees of 2 per cent to 3 per cent of a target's market capitalisation are common, but 4 per cent to 5 per cent have also been agreed, and a full suite of non-solicitation undertakings, matching rights and so on are standard.

3. Provide guidance for directors

It will be clarified that the Code does not limit the factors that the target board may take into account in giving its opinion on the offer and deciding whether to recommend the offer, and particularly that the target board is not bound to consider the offer price as the determining factor. This amendment will be of particular interest to target financial advisors.

4. Require the disclosure of offer-related fees

It is proposed that the estimated aggregate fees should be set out by each party in the offer document, that the estimated fees of the advisors to each of the parties to an offer should be disclosed separately by category of advisor (without revealing commercially sensitive information), that fees in respect of any financing should be disclosed separately and that any material changes to such estimates should be announced promptly.

5. Require the disclosure of the same financial information regarding an offeror and the financing of an offer

It is proposed that detailed financial information on the offeror itself be disclosed in relation to all offers and not only in relation to securities exchange offers, to require, where the offer is material, the inclusion in offer documents of a pro forma balance sheet of the combined group and to require the disclosure in greater detail of the debt facilities of the offeror.

While the focus of the Code is to protect target shareholders, the Committee accepted arguments that persons other than the target shareholders, including target directors, employees, customers, creditors and suppliers of the offeror and the offeree and shareholders in the offeror have an interest in information regarding the financial position of the offeror, even where the offer is for cash.

6. Improve the quality of disclosure in relation to the offeror's intentions regarding the target

An offeror will be required to detail in the offer document its intentions for the target company following completion of the takeover in much more detail than at present. It is expected that this will involve offerors having to include details on which operations of the business will continue, what will happen to employees and fixed assets and what changes will occur as a consequence of the takeover. Offerors and their advisors will be particularly concerned about the proposed requirements that these stated intentions "will be expected to hold true" for a period of one year from the offer becoming unconditional, unless the Panel otherwise consents. Additionally, an offeror will be required to make a negative statement if there are no plans for change.

Rejected proposals

These include the following:

  • raising the acceptance condition above 50 per cent plus one share;
  • disenfranchising shares acquired during the offer period;
  • reducing the threshold from one per cent to 0.5 per cent for disclosure of interests in securities;
  • reintroduction of the Rules Governing Substantial Acquisitions of Shares, which limited the speed at which persons could increase a holding of shares and rights over shares to an aggregate of between 15 per cent and 30 per cent of the voting rights of a company;
  • shortening the 28-day period for the publication of the offer document; and
  • requiring advice which is separate from that provided to the target board by the independent financial advisor to be made available to target shareholders.

Implications for other takeover regimes

It will be interesting to note the effect the consultation has on the takeover regimes of other countries that have their roots in the Code, such as Australia, Hong Kong and South Africa, particularly regarding the debate around "bear hug" arrangements and the introduction or refinement of "put up or shut up" provisions dealing with protracted virtual bids.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions