UK: UK Takeover Code — Consultation Update

Background

On March 21, 2011, the Committee of the Panel on Takeovers and Mergers published draft proposals for amendments to the United Kingdom City Code on Takeovers and Mergers (Code) to implement its review of the regulation of UK public takeover bids. In our article published in Volume 5, Issue 4 of the Business Law Quarterly, we outlined the review consultation process and preliminary conclusions reached by the Committee during 2010, driven by the public outcry in the UK over the Kraft Foods Inc. takeover of Cadbury plc.

Proposals

The proposals substantially implement the proposed changes to the Code outlined in the Committee's preliminary conclusion paper of October 2010, and are as follows:

1. Shorten the "virtual bid period" to increase protection for target companies.

Requirement for a potential offeror to be identified

Where an announcement by the offeree company commences an offer period, the announcement must identify any potential offeror with whom the offeree company is in talks or from whom an approach has been received (and not unequivocally rejected).

Requirement for a potential offeror to "put up or shut up" or obtain a deadline extension

The Committee's preliminary proposals in relation to the 28-day "put up or shut up" deadline, by which the potential offeror must announce that it has a firm intention to make an offer or that it will not make an offer, remain substantially unchanged. Any announcement that first identifies a potential offeror, which gives rise to the 28-day deadline, must specify the date that deadline will expire.

The 28-day deadline will not be applied if another offeror announces a firm intention to make an offer. Any such offeror (whether publicly identified or not) will be required to state whether it will make an offer by a date in the later stages of the offer period to be announced by the Panel.

Extending the 28-day deadline

Under the proposals, the Panel will usually consent (towards the end of the offer period) to an extension of the 28-day deadline, at the request of the board of the target and after taking into account all relevant factors. All deadline extensions and any such relevant matters must be announced.

2. Prohibit deal protection measures and inducement fees other than in certain limited cases.

Dispensations from the general prohibition

The proposed general prohibition on deal protection measures (including implementation agreements, exclusivity agreements, and any agreement by the target not to identify a potential offeror) and inducement fees is substantially as proposed in the October 2010 paper; however, the Committee has included the following dispensations from the prohibition (in addition to the public auction exception previously proposed):

  • A competing offeror. Where an offeror has announced a firm intention to make an offer not recommended by the board of the target at the time of that announcement, and remains hostile, the Panel will normally consent to the target entering into an inducement-fee arrangement with a single competing offeror at the time of the announcement of its firm intention to make a competing offer, provided that: (i) the value of the inducement fee is de minimis (normally no more than one per cent of the value of the target calculated by reference to the price of the competing offer at the time of its announcement); and (ii) the fee is payable only if another offer (i.e., not the original hostile offer) becomes or is declared wholly unconditional.
  • Financial distress. Where the offeree is in such serious financial distress that its board is actively seeking an offer to be made for it.

Certain matters are excluded from the general prohibition, including agreements as to confidentiality or non-solicitation, directors' irrevocable undertakings (in their capacity as shareholders, subject always to their duties as directors and under the Code) and any undertakings by the offeror (such as reverse break fees or standstill arrangements).

Subject to the above points, the proposals include certain clarifications in relation to the continued use of implementation agreements in takeovers conducted by way of scheme of arrangement.

3. Increase transparency and improve disclosure.

Disclosure of offer-related fees and expenses

As expected, the proposals envisage that disclosure, on an aggregate and by-category basis, should be required of advisory fees and expenses incurred by the offeror and offeree, now expanded to include "other professional" advisors such as management consultants, actuaries and specialist valuers. Specific disclosure rules are proposed in relation to an offeror's financing fees and expenses, for example that disclosure should be made on the basis that the offer will complete and that the offer finance will be drawn-down in full. The proposals also deal with appropriate disclosure of commitment fees and variable and uncapped fees. Where fees and expenses materially exceed estimates, a private notification to the Panel must be made; the Panel will require an announcement only where it considers this appropriate.

Disclosure of the same financial information regarding an offeror and the financing of an offer, irrespective of the nature of the offer (e.g., cash only)

The proposed general principle of equal financial disclosures for all types of offers has been retained in the proposals, save that the offer document for a cash offer will not need to contain a "no significant change" statement in relation to the offeror's position since its last published audited accounts.

However, the Committee now believes that the costs of including a pro forma balance sheet of the combined group in offer documents would outweigh the benefits and that such a requirement would therefore be disproportionate. It has therefore been dropped from the proposals. Furthermore, the proposals do include the obligation to include in offer documents details of ratings publicly accorded to the offeror and the offeree by any rating agency substantially as set out in the October 2010 proposals.

Offer financing

While the Committee considers that an offeror should be required to disclose broad details of the various tranches of debt and equity financing for its current offer, it does not propose that any potential increase in facilities that have been agreed upon (i.e., to finance an increased bid) must be disclosed in the offer document. In addition, the Committee understands the structures by which equity is provided to private equity offeror vehicles may be commercially sensitive and states that it does not consider that such equity structures should be required to be disclosed in detail.

4. Provide greater recognition of the interests of target employees.

Improve the quality of disclosure in relation to the offeror's intentions regarding the target and its employees

In addition to stating its intentions regarding the target's business, assets and employees, the proposals also require an offeror to state its intentions with regard to the maintenance of any existing trading facilities for the target's shares.

Under the proposals the offeror will be held, not only to its statements of intention in the offer document for a period of at least 12 months (or such other period as may be specified in the offer document), but also to all other statements made during the offer period relating to any course of action it intends to take or not to take, whether in a document, an announcement or otherwise. The Committee believes that this requirement should, where appropriate, also apply to statements made by the target board.

Improve the ability of employee representatives to make their views known

In accordance with Committee statements, the proposals amend the Code to improve communications between the target board and target employees with a view to enabling the representatives of the employees to be more effective in providing their opinion on the effects of the offer on employment.

Conclusions

Once the Committee has considered the responses to the proposals, it will publish a response statement that will set out the final text of the Code amendments. The proposals are likely to be implemented without significant change some time in autumn 2011.

The proposals are unlikely to introduce wholesale changes in the way UK public takeovers are conducted or to the appetite for deals in the market, although there will inevitably be some adjustments. The key provisions are those to be introduced to counter "virtual bids" (including naming potential offerors, a fixed 28-day period to announce a bid, and the restrictions on break fees and other deal protection measures), which will mean that transactions will need to be negotiated confidentially and in a relatively shortened timetable to avoid the need to seek a Panel extension. It has been suggested that the outlawing of inducement fees may have the effect of discouraging some bidders, although the Committee's rationale in doing so was that deal-protection measures have tended to deter competing offers rather than incentivize a potential offeror to make a bid.

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
Wedlake Bell
Paul Hastings LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Wedlake Bell
Paul Hastings LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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