UK: Shareholder Activism: Takeover Code Consequences

Last Updated: 25 July 2003

By Simon Allport and Leon Ferera

For most publicly quoted companies, the day-to-day management is very often divorced from the ownership of the company in terms of its shareholders. A company's board of directors may collectively own some shares, but rarely more than a few percent, with voting control usually vested in the hands of large institutional shareholders. As long as the directors perform to expectations, such shareholders are generally happy to remain as passive investors. However, when the directors are no longer performing to the expectation of its shareholders, it is possible that those shareholders will wish to take action to protect themselves.

Although out and out shareholder activism is still relatively rare in the UK, particularly among institutional shareholders, there are a number of legislative provisions in UK company law which allow shareholders to provoke change in the day-to-day management of a company, should they so wish. In particular, shareholders owning 10% or more of the voting shares in a company have an ability to requisition a meeting of shareholders to vote on such resolutions as they may wish to propose. When this right is exercised, the proposals put forward may include the removal and appointment of directors such that the effect of such action could be for the requisitioning shareholders to obtain actual control of a company through the composition of its board.

In some cases, requisitioning shareholder meetings for these purposes is seen as a takeover of the Company through the backdoor. In the UK, the City Code on Takeovers and Mergers ("the Code") seeks to regulate public takeovers, but its focus is primarily on takeovers through the acquisition of shares rather than through changes to a company's board. The Code does not generally seek to prevent shareholders from exercising their rights, as shareholders, in voting in a particular way.

Notwithstanding this, shareholders who seek to participate in the requisitioning of a shareholders meeting need to have regard to the potential Code consequences of such action. Following a consultation process, the Code Committee of the Panel on Takeovers and Mergers ("the Code Committee") (the body responsible for considering and approving amendments to the Code) has published changes to the Code to introduce a new note which sets out the manner in which the Panel on Takeovers and Mergers ("the Panel") will approach these situations. The purpose of this Jones Day Gouldens Commentaries is to summarise the main principles that will apply in such circumstances.

Shareholder Activism and Concertedness

Fundamental to the manner in which the Panel approaches shareholder activism is the definition of acting in concert. Persons are considered to be acting in concert where there is an agreement or understanding (whether formal or informal) actively to co-operate through the acquisition by any of them of shares in the company so as to obtain or consolidate control of that company. For these purposes, control is defined as an aggregate shareholding of 30% of more.

It is important to bear in mind that notwithstanding the definition of acting in concert, it is not necessary to acquire shares in order to be acting in concert and so in circumstances where a shareholder or shareholders requisition a meeting to consider a particular proposal, the question of whether there will be deemed concertedness between the requisitioning shareholder and others who support the requisition will be dictated by two issues. These are:

a) whether there is an agreement or understanding between the requisitioning shareholders and their supporters at the time that the requisition is made or threatened; and

b) whether the proposal that is the subject of the requisition is considered by the Panel to be a board control seeking proposal.

Where these circumstances exist or are deemed to exist, the mere fact of concertedness will not have any Code implications provided there are no acquisitions of shares. However, where the aggregate holdings of parties is near to or in excess of 30%, a subsequent acquisition of shares by the requisitionists or persons deemed to be acting in concert with them could give rise to an obligation to make a mandatory Rule 9 general offer to all shareholders of the company. In such circumstances, the offer price would generally have to be at the highest price paid for shares in the company by any member of the concert party at any time during the previous 12 months. In view of these potentially draconian consequences, there needs to be some certainty as to whether a mere supporter of a particular proposal is or is not in concert. This is particularly important because it will usually be the case that, once a requisition is proposed, there will be a battle between the requisitionists and the incumbent board for the support of other shareholders. However, the Panel recognises that merely persuading other shareholders to support a requisition should not of itself result in those shareholders being deemed to be acting in concert with the requisitionists.

So what are the tests in establishing whether or not concertedness exists? In its guidance note, the Code Committee has laid down certain parameters (which are not exhaustive) which it will consider in deciding whether or not there is concertedness between requisitionists and their supporters.

Is the Proposal a Board Control Seeking Proposal?

The first issue to establish is whether or not the proposal is board control seeking. The Panel normally will take into account a number of issues in assessing this as follows.

First, the Panel will look at the relationship between any proposed directors and any of the shareholders proposing or supporting the proposal at the time of the requisition. Proposals may be deemed to be board control seeking, depending on the further factors set out below, if there is or has been any prior relationship between any of the activist shareholders and proposed directors, or there are any agreements, arrangements, or understandings regarding the proposed directors' appointments (unless the Panel considers such relationships or arrangements to be insignificant) and, in particular, if any of the proposed directors will be remunerated in any way by any of the activist shareholders following their appointment.

The next issue the Panel will look at is the number of directors being proposed in the context of the existing board. Generally, a proposal to appoint or replace only one director will not be considered to be board control seeking, whereas a proposal to replace the entire board or to make board changes such that the proposed directors would represent a majority of directors on the newly constituted board would be considered to be board control seeking. If the proposal would not result in the proposed director representing the majority of directors, then the Panel would not normally consider the proposal to be board control seeking unless the further factors below suggest otherwise.

The Panel will also take into account the board positions held by the directors being replaced and proposed to be held by the proposed directors. For example, if the proposal was to change the key executive directors only, but these changes would not result in the proposed director representing a majority of the Board, this could still result in the Panel concluding that the proposal was board control seeking. In this regard, the Panel will take into account the nature of the role being proposed for the proposed directors, whether any of the activist shareholders are likely themselves directly or indirectly to benefit as a result of the proposal (other than merely through the holding of shares in the company) and whether there is an existing relationship between the proposed directors and the activist shareholders.

Is There an Agreement or Understanding?

If it is established that a proposal that is the subject of a requisition is a board control seeking proposal, then the Panel will generally view those parties who sign the requisition, together with the proposed directors, as being in concert with each other. In addition, any other shareholder who supports the requisition at the time it is made or threatened will also be deemed to be acting in concert with each other and with the proposed directors.

It should be noted from this that, once a requisition is made or the threat of a requisition is publicly announced, the Panel will not normally treat shareholders who subsequently agree to support the requisitionists as having come into concert with them merely by virtue of their decision to support the proposals, unless there is some other reason for them to be viewed as being in concert.

What are the Practical Consequences?

There are no consequences to parties being deemed to be acting in concert under the Code provided there are no acquisitions of shares. The difficulty is that, in circumstances where there is shareholder activism, opportunities may well present themselves to either the requisitionists or persons who support a particular requisition for the purchase of shares. It is therefore essential to know whether concertedness exists so that particular shareholders knows whether or not they can acquire shares without unforeseen consequences arising.

On a practical level, any shareholders who are considering requisitioning shareholder meetings would need to assess at the outset whether a particular proposal is board control seeking. Bearing in mind that the tests now set out in the Code are very subjective and depend on the Panel's interpretation of particular circumstances, even where the proposal would appear not to be board control seeking, it would always be sensible to seek confirmation of this from the Panel, particularly if between them the requisitionists, proposed directors and supporters have anything near an aggregate 30% shareholding.

If a proposal is board control seeking, then it would be prudent for the requisitionists to ensure that all parties who sign the requisition, all of the directors who are being proposed, all supporters of the requisition who are contacted prior to the requisition being served or threatened (and, in some cases, all companies in the same groups as the requisitionists) commit in writing not to acquire shares in the company concerned without the consent of all of the other parties involved. This is particularly important because, if a Rule 9 mandatory bid obligation were to arise, the Panel could impose this obligation on all or any of the members of the deemed concert party.

How Long will the Concertedness Continue?

If a board control seeking requisition is served and the requisitionists and/or supporters of the requisition are constrained from acquiring shares by virtue of that concertedness, it will naturally be important to those parties as to when the Panel will view the concertedness as coming to an end. In such circumstances, it will always be necessary to consult with the Panel in determining this, but the Panel has laid down a number of factors which it will take into account in making this decision. Those factors include:

a) whether the parties have been successful in achieving their objectives through the requisition;

b) whether there are any other facts or circumstances which would suggest that the parties should continue to be viewed as acting in concert;

c) whether, notwithstanding the success of the requisition, there is evidence of an ongoing struggle between any of the activist shareholders and the board.

In assessing these issues, the Panel will take into account the nature of the activist shareholders, the relationship between them and the relationship with any of the new directors.

Are these Changes to the Code Welcome?

The Panel's approach to shareholder activism has largely been something which the Panel has ruled on, from time to time, on an ad hoc basis. On occasions, this has led to parties inadvertently falling foul of the definition of acting in concert with consequences that mandatory bid obligations have arisen.

By setting out specifically in the Code the Panel's approach to shareholder activism, this can only serve to create a more certain regulatory environment for those participating in this area. Bearing in mind the UK Government's desire to promote greater shareholder activism amongst institutional shareholders, these developments have broadly been welcomed.

Of course, as the Panel has now set out explicitly the parameters for determining whether a shareholder activist will be viewed as acting in concert in the Code, this reduces the scope for practitioners deciding to proceed with a proposal without seeking guidance from the Panel Executive in advance and then seeking to justify the position subsequently.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances. ©2003 Jones Day Gouldens. All rights reserved.

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
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.