UK: Changes To The Takeover Code

Last Updated: 27 September 2011
Article by Adam Carling and Lauri-Lynn Pursall

A new version of the Takeover Code will take effect on Monday, 19 September 2011. Subject only to a few modifications, the Panel has decided to adopt the amendments to the Code which were proposed in its consultation paper of March 2011 - and summarised in our earlier briefing note. These changes follow a period of review and consultation dating back to February 2010, and represent a conscious attempt on the part of the Panel to tilt the balance of power in a UK takeover back towards the target company.

This briefing note summarises the key changes and considers some of the possible implications for public M&A practice in the UK.

Rule 2.4/ possible offer announcements & "put up or shut up (PUSU)" period

From 19 September, all "possible offer" announcements made under Rule 2.4 of the Code which commence an offer period will be required to identify the potential bidder(s). Currently, it is sufficient for a target company to announce that it is in talks with an unnamed third party or parties, or that a potential bidder is considering making an offer for the company. In addition, a "possible offer" announcement, whether released by the prospective bidder or target, will trigger an automatic 28 day "put up or shut up (PUSU)" deadline by which time the named bidder must either commit to a "firm intention to make an offer" announcement, or publicly withdraw from the offer process. Any such withdrawal would prevent a subsequent approach by the prospective bidder for a period of between 3 and 6 months. There is scope for the Panel to agree an extension to this 28 day deadline, but only on request from the target company.

The Panel will generally only give its decision regarding an extension close to the expiry of the original 28 day period ie. it is not something that can be agreed in advance of the original announcement.

Possible implications

1) Use of Rule 2.4 announcements - it seems very likely the combination of these two changes will, as is intended, reduce the use of early stage Rule 2.4 announcements by prospective bidders either as a means of putting public pressure on a reluctant target, or of testing market reaction to a potential deal. The new 28 day deadline, and lack of certainty upfront as to whether any extension will be granted, will mean that prospective bidders unsure of a target board's support will want to be better prepared - in terms of due diligence, financing arrangements and even transaction documentation if, for example, a UK prospectus is required - before voluntarily triggering an offer period, or indeed before making a first approach.

2) Secrecy - the importance of absolute secrecy in the run-up to a first announcement is already a familiar Code principle. From the bidder's point of view, this importance will only increase under the new Code, given the potential of any inadvertent leak to put the bidder in the position of needing to be ready to make its "firm intention" announcement within 28 days. From the target's perspective, it would not want to risk losing a potential bidder because the 28 day period has been triggered too early in the process.

3) Target leaks/ use of the "possible offer" announcement as a defensive measure - by rushing to put out a "possible offer" announcement at the first opportunity, or bringing about circumstances where it is obliged to do so ie. leaks, a target company would be able to impose the stringent 28 day PUSU deadline on an unwanted bidder. Whilst the circumstances in which a target can put out a Rule 2.4 announcement are limited under the Code, this tactic may have some appeal to a reluctant target.

Prohibition of deal protection measures

Break/ inducement fees

Any commitment by a prospective target to pay the bidder a break, or inducement, fee should a transaction abort will be prohibited under the new Code. There are some very limited exceptions: payments to a "white knight" coming in to rescue a target from a hostile bidder, or where a potential target puts itself up for auction, and in both cases subject to the 1% de minimis limit that currently applies to all break fees. But essentially break fees, which as the Panel noted during the consultation phase have become a market standard, will cease to be part of the M&A picture in the UK.

Other deal protection measures

So too other deal protection commitments given by a target to a bidder at the outset of a transaction are prohibited. The Panel has set out at some length in its consultation what it is targeting here:- for example, non-solicit/ exclusivity undertakings which prohibit a target from actively seeking alternative offers whilst a particular bid is "live", and/ or require it to notify the initial bidder on receipt of any third party approaches; or matching or topping rights, which commit the target to allow an initial bidder a period of time to decide whether to match or beat any offers subsequently received.

Also caught by the prohibition are implementation agreements, which are used nearuniversally on takeovers effected by way of scheme of arrangement, and include undertakings given by the target to the bidder as to its implementation of the scheme, thus allowing the bidder some control over what is a target-driven process.

Indeed, the only deal protection measures which will be permitted from 19 September, are those specifically identified in the new Code, which include:-

  • Irrevocable commitments and letters of intent by shareholders (irrevocable commitments by directors in their capacity as directors are prohibited);
  • Confidentiality undertakings provided these do not fetter a target's ability to release announcements during an offer period;
  • Undertakings not to solicit employees, customers or suppliers;
  • Any commitments which bite only on the prospective bidder eg. standstill arrangements, or "reverse" break fees.

Possible implications

1) Potential deterrent to bidders - many have suggested during the consultation phase that the abolition of deal protection measures will have a negative effect on deal activity by discouraging bidders from entering the fray. This has been raised particularly by the private equity industry. Others are more sceptical, pointing out that break fees and related bidder protections are only a relatively recent development in UK M&A. There is of course no way to predict the effect on deal activity in the UK- on this, we shall have to wait and see.

2) Schemes of arrangement - more predictably, it seems very likely that the prohibition of implementation agreements will reduce the appeal of schemes as a way of effecting takeovers over contractual offers in those scenarios where a bid is being, or will potentially be, contested. The Panel has to some extent anticipated this, and the new Code will include a requirement on a target to stick to a published timetable in its carrying out of the scheme.

However, there are some fairly significant get-outs to this requirement - for example, if the target board decides it no longer wishes to recommend the scheme - and overall it seems fairly clear that bidders will not receive the same level of protection from this addition to the Code that they have been used to getting in the extensive undertakings given in an implementation agreement. It is likely that we will see more bidders exercising an election to switch from a scheme to a contractual offer once a competitive bid is tabled.

3) Irrevocables - with virtually all other deal protection measures prohibited, this is likely to further increase the importance attached by a bidder to irrevocable undertakings given by the target's directors (in their capacities as shareholders only) and/ or key shareholders, as the only means for it to secure commitments from the target in relation to the deal pre-announcement.

Additional disclosure obligations

In an effort to increase transparency, the new Code will also include some additional disclosure obligations, for example:

  • Greater detail on bid financing (including commitment fees, term and key covenants). These financing documents will need to be available for display from the announcement of a firm intention to make an offer.
  • Details of all fees and expenses expected to be incurred by both parties broken down by category of adviser; and
  • An obligation on the bidder to include financial information on itself, even for a cash offer (which may impact on timing of a "firm intention" announcement if bidder is subject to a PUSU deadline).

These additional requirements are summarised in our earlier briefing note - but are not of a nature that are likely to effect deal activity in a significant way, and as such are not covered in this note.


As some have already observed, the law of unintended consequences will no doubt apply in relation to these imminent changes to the Takeover Code, such that it will only really be possible to assess their impact after the fact. What is clear is that the changes, although less radical than some of those considered by the Panel as part of its consultation process, are significant, and will have an impact on how public company M&A transactions are conducted in the immediate future.

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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.