UK: UK Takeovers: Public To Private Update

Last Updated: 9 March 2012
Article by Richard Butterwick and Robbie McLaren

In a relatively slow public M&A market immediately following the introduction of the major changes to the UK Takeover Code (the Code) in September 2011, the impact of the changes has been difficult to assess, but a number of recent deals have focused attention on certain of the Code's new provisions. This article considers the Code's requirements for a target company initiated Formal Sale Process and the new requirement for "flex" term disclosure.

The key changes to the Code, introduced in September 2011, were designed to reduce the ability of bidders to gain a perceived tactical advantage over a target's board by rebalancing the playing field in favor of a target's board, by:

  • Bidder identification (Rule 2.4(a)) — requiring all known potential bidders who have approached or continue to be in discussions with a target to be named by the target where a target announcement is made (whether voluntary or required by the Takeover Panel following a leak).
  • Extendable 28 day "Put-up or Shut-up" period (Rule 2.6(a)) —requiring, once publicly identified, potential bidders to announce either a firm intention to bid or no intention to do so within 28 days (a period extendable, with the consent of the Panel, at the target's request).
  • No inducement fees, break fees or other deal protections (Rule 21.2) — prohibiting, with the exception of a limited number of target commitments (including on confidentiality, regulatory clearances, employee incentives, and scheme timetabling) offer-related arrangements and agreements (including scheme implementation agreements).
  • Financing terms and fee disclosure — requiring offer documents to disclose greater information of matters, particularly on the financing of an offer, in order to provide shareholders and employees (and target boards, where the offer is hostile) with fuller details to evaluate the offer.

Formal Sale Process — A Cry for Help or a Helpful Structure?

Since the Code rule changes were introduced, several companies have announced a "Formal Sale Process." In many instances these companies have been in some financial distress (see, in particular, Blacks Leisure and Alexon), but in others (such as the process announced by Cove Energy plc) a private company type 'sell-side' process can effectively be started by the target's financial adviser using the public announcement to solicit interested parties (either for the company or certain of its assets). The parties can then work through bidding rounds after they have reviewed due diligence materials (which could include vendor due diligence materials relied upon by any successful bidder).

It should be noted that whether or not a target has entered into a Formal Sale Process is relatively binary. If the target's announcement does not specify that a "Formal Sales Process" is being instituted (and, additionally, provide details of how potential bidders may enter the process) it will not qualify as such. As a result, simply announcing the receipt of approaches from one or more named bidders and that target is entering into discussions with them and/or conducting a strategic review of the business does not, in the eyes of the Takeover Panel, qualify as a Formal Sale Process and therefore permit the bidder to benefit from the dispensations set out below.

In addition to potentially reduced diligence costs discussed above, the benefits for potential bidders of a Formal Sale Process also include dispensations from the Code (with the consent of the Takeover Panel) such that a bidder may (for so long as it participates in the Formal Sale Process):

  • Remain anonymous (Note 2 on Rule 2.6) — unless specifically identified in the press.
  • Dispense with the 28 day "Put-up or Shut-up" period (Note 2 on Rule 2.6).
  • Provide for an inducement fee (Note 2 on Rule 21.2) — of up to 1 percent of the successful participant's offer value.

However, if potential bidders choose not to participate in, or to leave, the process they will still be able to request the same information provided to other parties (under Rule 20.2 of the Code). On leaving the Formal Sale Process, a potential bidder which confirms that it is still actively considering making an offer for the target will be required to Put-up or Shut-up within 28 days. It is commercially unlikely a target will be willing to extend that deadline in such circumstances and the potential bidder would not be able to offer after the 28-day deadline unless an offer were put to the target's shareholders by another party; or where: (i) the target consented; (ii) the target issued a material number of new shares; or (iii) there was another material change in circumstances.

For targets, the risk that the process is ultimately unsuccessful will exist for those who choose to publicly put themselves up for sale using a Formal Sale Process either following a strategic review, an initial approach or otherwise. It could be said that the public announcement of one approach or more puts the target "in play" in any event, and so targets may consider the perceived benefits of running a Formal Sale Process outweigh the risk of a failed process, particularly where there is considered to be strong private equity interest in the target. In circumstances common to financial sponsor led public to private transactions (where certain management team members are not able to recommend the transaction to shareholders as a result of the share rollover or other incentive terms being offered to them in the proposed offer structure), the independent board members of the target may also consider a Formal Sale Process a possible mechanism for ensuring the best deal available for target shareholders is being obtained.

Given that the Code requires that the Takeover Panel should be consulted at the earliest opportunity when any of the dispensations in a Formal Sale Process may be sought, it will be particularly important for the target to inform the Takeover Panel after an approach in circumstances where the target wishes to subsequently announce a Formal Sale Process.

Disclosure of financing sources and terms

The new rules incorporated into the Code now require that all financing and refinancing documentation be put on display from the point a firm offer is announced. Prior to the new rules, the Code only required financing arrangements to be summarized in a more limited way and the financing documents only needed to be put on display in certain circumstances.

The offer document must now include a fuller description of how the offer is to be financed and the sources of finance. The new rules do not however require detailed descriptions of equity funding structures provided by funds of the sponsor to private equity bidding vehicles, but the equity allocation split between funds investing in the structure will require disclosure.

In giving its description of the financing (and any refinancing terms entered into during the offer period), the bidder will need to disclose potentially sensitive commercial terms:

  • The amount of each facility or instrument — however, "headroom" amounts available within a facility above the offer's value may be contained in a separate side letter or other collateral agreement to avoid disclosure identifying, to actual or potential counter bidders, a bidder's available resources
  • A summary of key covenants, security, repayment terms (including refinancing deadlines and requirements)
  • Details of the interest rates, including any "stepup" or other variation provided for (including disclosure of "flex" terms).

This last requirement to include details of the terms relating to the interest rate, including step-up arrangements, would appear to require disclosure of the right of the arrangers to "flex" the terms of a committed financing in a syndicated lending facility, including by an increase in facility pricing. Syndication during offer periods has become increasingly common in recent years as a result of the restricted credit markets. In the primary syndicated lending market, "flex" terms had not previously been disclosed to potential syndicates because of the potential distortion in pricing that could result (i.e. the syndication market migrates to the highest pricing point that the borrower is willing to pay).

Where UK public takeover deals require syndication through the takeover offer period, it may be that the new rules requiring flex disclosure result in changes to pricing and structuring. Since the rule changes were introduced, the Takeover Panel has in a number of offers applied the disclosure requirements pragmatically where banks have expressed concern about the sensitivity of flex terms, with the result that full disclosure of potential flex terms has not been required from the point of the Rule 2.7 announcement of a firm offer (as is required by Rule 26.1 of the Code), allowing syndication (and potential flexing of interest terms) to occur post-announcement (but pre-offer/scheme document publication).

While the market may continue to look to the Takeover Panel to provide dispensations to the disclosure requirements in appropriate cases, the new rules may also prompt more structural change in respect of flex terms. It is possible flex pricing could be removed and priced into the interest terms with a "claw-back" on the interest terms for sponsors where the syndication market triggers it. Another possibility is that the changes result in more offers being made on the basis of bridging or interim facility agreements, or even (where it is possible under a sponsor's fund arrangements) on an all-equity basis, with post offer re-financing. What is certain is that the full effect of the new rules on the financing by the primary syndicated lending market of UK public offers is still to be seen as the market reacts to, and evolves with, the Code's increased disclosure obligations and any dispensations that may be given in individual cases.

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.