Summary and implications
The City Code on Takeovers and Mergers (the Takeover Code) is a binding set of rules that apply to UK listed companies. The Takeover Code applies to all companies making a takeover bid of a UK listed company, whether or not the company making the takeover bid is based in the UK or overseas.
The Takeover Code now requires a company making a takeover bid of a UK listed company to disclose to the trustees of that plan its intentions towards the offeree's defined benefits pension plan (i.e. an employer-sponsored, funded plan which has the potential to have a funding deficit). This is so that trustees are informed of M&A activity at an early stage, and have a heads up on whether the offeror would seek to make changes to the benefits provided. Trustees will also now have the opportunity to append a circular to the company's offer circular (where the trustees provide this in good time before publication), which can include commentary on the ability of the offeree company, on being acquired by the offeror, to continue to financially support the plan.
The company will also need to disclose details regarding its financial history and how it intends to fund the takeover. This information is likely to influence whether or not the trustees will be supportive of the proposed takeover, and whether or not additional funding commitments to the pension plan may be sought from the offering company.
The intention is that the Takeover Code operates to provide the ability for the plan trustees to participate in a debate as to the effects of an offer on the plan. The trustees have duties to look after the best interests of the plan beneficiaries overall, and seeking financial support, or some other mitigation like a parent company guarantee on a takeover if the group covenant weakens is consistent with those duties. The impact of the Takeover Code may be to bring forward the timing of such discussions.
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.
