UK: The UK Takeover Code: "Proposed Amendments 2014 - Be Careful What You Say!"

Last Updated: 15 December 2014
Article by Jodie Dennis

Overview

The UK Takeover Panel (the ''Panel'') released Consultation Paper PCP 2014/2 (the ''Consultation Paper'') on 15 September 2014, the aim of which is to introduce a new framework in the Takeover Code (the "Code") for the regulation of statements made by the parties to a takeover offer (i.e. either the offeror or offeree company) which relate to any particular course of action to be taken after the end of the offer period. In particular, the Consultation Paper distinguishes between statements which indicate an undertaking or commitment to take a certain course of action and those that amount to a mere statement of intention.

The deadline for responses to the Consultation Paper passed on 24 October 2014 and we eagerly await the Panel's response statement.

The need for change

The proposed alterations to the Code come in response to Pfizer Inc's recent attempts to takeover AstraZeneca plc in May 2014. In the course of that lengthy process Pfizer Inc issued a number of statements regarding its future plans and ambitions for AstraZeneca plc in the event the takeover bid was successful.

The degree to which such a statement would be binding was a source of considerable public debate and, helpfully, the proposed new Code provisions have now emerged to silence the debate and clarify the implications of such statements. In particular, the Consultation Paper addresses the following issues (amongst others):

  • the Code does not currently distinguish between a voluntary commitment made by a party to an offer, in which the party states what action it commits to take, or not take, and a statement of intention made by a party to an offer, in which the party states what action it intends to take, or not take;
  • the Code does not currently include provisions relating to either the formulation of a voluntary commitment or the circumstances in which the party making the commitment can prescribe that it should cease to apply; and
  • the Code does not currently include any mechanisms which the Panel can use to monitor the on-going compliance by a party to an offer with any voluntary commitment which it has made, which commitment might be stated to apply for a significant period of time following the conclusion of the offer.

The key changes

The core proposal, as might be expected from the Pfizer example given above, is that the Code should distinguish between those statements that might be deemed to be undertakings and those which are mere statements of intention, and treat them independently of each other.

In many ways these alterations could represent a significant relaxation of the current status quo. Currently the Code requires that an offeror must state in its offer document what action it does or does not intend to take with regards to the future of the offeree company and its employees and such statement will commit the offeror to its stated course of action for 12 months, whether the statement was one of intention or a bona fide commitment.

POST-OFFER Undertakings

Post-offer undertakings are statements relating to any particular course of action that a party to an offer commits to take, or not take, after the end of the offer period. Under the proposed Code amendments, a post-offer undertaking will be binding on the party making that statement, whom will be required to comply with said undertaking for the period of time specified therein, unless a qualification or condition set out in the undertaking applies.

Under the amended Code, parties who are planning to make a statement that would amount to a post-offer undertaking would be required to consult the Panel in advance in order for them to evaluate the effect of the Code on the proposed undertaking.

The statement would have to comply with certain content requirements, to be set out in new Rule 19.7, namely:

  • affirm that it is a post-offer undertaking to do or refrain from doing the actions referred to within it;
  • specify the length of time for which the undertaking is made or the date by which the course of action committed to will be completed; and
  • prominently state any qualifications or conditions to which the undertaking is subject.

A high degree of clarity must underlie the statement, it must be specific, precise and readily understandable, making the performance of its terms capable of objective evaluation. The terms of such post-offer undertaking must also not be dependent on subjective judgements of the party making it or its directors.

The revised Code restricts the number and breadth of the qualifications an offeror may place on an undertaking, in order to prevent the strength of that statement being nullified by the placing upon it of large numbers of exceptions. This rules out the possibility of force majeure clauses, and other clauses with a similar catch-all function, being inserted into undertakings. If a party subsequently wishes to rely upon any of the exceptions or conditions that may have been included as part of that undertaking, they must consult with the Panel and seek the Panel's consent before they can escape their obligations under it.

In order to ensure transparency and that stakeholders in a takeover deal are fully aware of the terms of any statements made, where an offeror gives an undertaking in relation to an offeree company that does not feature in the offer document, then that undertaking must be clearly stated in the next publication by the offeror, whatever that might be.

POST-OFFER Intention Statements

Post-offer intention statements are statements relating to any particular course of action that a party to an offer intends to take, or not take, after the end of the offer period. Intention statements are to be held apart from post-offer undertakings under the Consultation Paper with regards to the strength of the obligation of the party to adhere to the content of such a statement. This varies from the current position, as mentioned above, where no differentiation is made between undertakings and intention statements.

Under the proposed amendments to the Code, any post-offer intention statement must be:

  • an accurate statement of the party's intention at the time it was made; and
  • made on reasonable grounds.

There remains an obligation on those making statements of intention to ensure that they are willing and committed to adhere to the contents of that statement for a 12 month period (or such other period of time specified in the statement). Where a party wishes to deviate from the course of action stated in the post-offer intention statement, it must first consult with the Panel.

If there appeared to the Panel that the intention statement may have amounted to a sham declaration when it was made (i.e. it was not an accurate statement of the party's intention at that time or there were no reasonable grounds underlying such statement) or that there had been some other breach of the Code then it could issue disciplinary proceeding against the party who made the statement. Statements of intention are not, therefore, to be taken lightly under the revised regime.

Monitoring

Post-offer Undertakings

The Panel is also seeking to increase its monitoring powers and procedures with regard to ensuring that parties continue to observe their undertakings after a takeover deal has been concluded. These monitoring procedures have generally been lacking thus far.

The measures introduced by the Consultation Paper would include:

  • a requirement to provide a written report to the Panel at such intervals and in such form as the Panel may require confirming the status of any action taken or not taken in relation to the post-offer undertaking; and
  • a requirement, at the request of the Panel, to appoint an independent, Panel approved, supervisor to monitor compliance with the post-offer undertaking and to submit written reports regarding such compliance to the Panel. The costs of the supervisor would be met by the party making the post-offer undertaking.

Post-offer Intention Statements

The Panel still seeks to retain some degree of monitoring and control over statements of intention under the Consultation Paper, requiring that parties who wish to deviate from a previously issued statement of intention need to consult the Panel first and fully explain the reasons surrounding their desire to deviate. The Panel will then evaluate the suitability of the intention statement when it was made and how much time elapsed before the party decided to take a course of action that was in contravention of that statement.

Conclusion

Although, at first glance, it may appear that the revision of the Code encapsulated in the Consultation Paper represents an easing of the status quo, particularly regarding intention statements, the increased monitoring and discretion granted to the Panel mean this is not the case. If the proposed amendments are incorporated into the Code, great care will need to be taken by parties to takeover transactions to clearly demarcate whether they intend a post-offer statement to be an undertaking/voluntary commitment or only an intention statement. Going forward, parties should also be aware that even where a statement may simply be one of intention the Panel will still expected its terms to be followed closely and the party must be prepared to give a full account to the Panel of its reasoning should they wish to deviate. The position of post-offer undertakings will also become more entrenched under the proposed amendments and parties should accept that, where they give one, they will be obliged to follow it for the specified period and to comply with the monitoring requirements specified by the Panel.

Overall, the proposed amendments do bring clarity to a hotly debated issue and, if adopted, should assist in providing clarity for shareholders and other stakeholders as to the post-offer statements made by parties to a takeover offer. A response form the Panel is not expected until next year.

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.

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Jodie Dennis
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