United States: UK Takeover Code: Clarification Of Rules Relating To Irrevocable Commitments And Letters Of Intent By Target Company Directors

Last Updated: January 27 2014
Article by Richard May

On 17 January 2014, the UK Takeover Panel published Practice Statement No. 27 relating to how the prohibition on "offer-related arrangements" applies to irrevocable commitments and letters of intent given by target company shareholders who are also directors of the target company1.


Until relatively recently, it was common practice in the UK for potential bidders to require target companies, in the context of recommended offers, to agree to various deal protection measures. These included break fees, exclusivity undertakings, matching rights and implementation agreements. In light of concern that such measures may deter potential competing bidders, and, specifically, the public controversy relating to Kraft Foods Inc.'s bid for Cadbury plc, in September 2011 the Panel amended the UK Takeover Code to introduce a general prohibition on "offer-related arrangements" of this sort, subject to certain exceptions2.

Under Rule 21.2(a) of the Code, except with the consent of the Panel, neither the target company nor any person acting in concert with it may enter into any "offer-related arrangement" with either the bidder or with any person acting in concert with it during an offer period or when an offer is reasonably in contemplation. Directors of the target company are presumed to be acting in concert with the target company for this purpose.

Subject to certain exclusions, an "offer-related arrangement" means any agreement, arrangement or commitment in connection with an offer. Rule 21.2(b)(iv) of the Code excludes irrevocable commitments and letters of intent from the definition of "offer-related arrangement".

Application of rules to irrevocable commitments and letters of intent

The Panel has now confirmed that while the Code allows a shareholder in a target company who is also a director of the target company to enter into an irrevocable commitment or letter of intent to accept an offer (or to vote in favour of a scheme of arrangement) with respect to the shares in the target company which he holds or controls, it does not allow such a shareholder to enter into other kinds of "offer-related arrangements" with the bidder or with any person acting in concert with the bidder. Provisions which have been included in such irrevocable commitments and which the Panel regards as being in breach of these rules have included commitments:

  • not to solicit a competing offer;
  • to recommend an offer to target company shareholders;
  • to notify the bidder if the director becomes aware of a potential competing offer;
  • to convene board meetings and/or vote in favour of board resolutions which are necessary to implement the offer;
  • to provide information in relation to the target company for due diligence or other purposes;
  • to assist the bidder with the satisfaction of its offer conditions;
  • to assist the bidder with the preparation of its offer documentation; and
  • to conduct the target company's business in a particular manner during the offer period.

In the Panel's view, such commitments are entered into by the relevant individual in his capacity as a director of the target company and, consequently, are in breach of Rule 21.2. For this purpose, the fact that the relevant commitments are stated to be subject to the relevant director's fiduciary or statutory duties is not relevant.

Rule 21.2(b)(iv) does, however, allow the inclusion in an irrevocable commitment or letter of intent of provisions which are designed solely to give effect to a commitment to accept the offer (or to vote in favour of the scheme of arrangement). These include:

  • an undertaking not to dispose of the shares or withdraw an acceptance of the offer;
  • an undertaking to elect for a particular form of consideration when alternative forms of consideration are offered; and
  • representations regarding title to the shares to which the commitment relates.


Practice Statement No. 27 comes as no surprise. In the Statement issued by the Panel following its review of the changes made to the Code in September 20113 it noted that some advisers and other market participants continued to "push the envelope" in relation to the prohibition on "offer-related arrangements." One specific issue identified by the Panel was the inclusion in irrevocable undertakings by target company directors of restrictions on soliciting competing offers, commitments to recommend the bidder's offer to shareholders, and undertakings to notify the bidder if the director becomes aware of a potential competing offer. In its view, such provisions are not permitted by Rule 21 as they "...relate to matters undertaken not solely in their capacity as [target] company shareholders but also in their capacity as [target] company directors (and therefore as persons acting in concert with the [target] company)"4.

That said, it represents a useful reminder of where the Panel draws the line in this regard and of the need to liaise with the Panel wherever there is doubt as to whether a proposed irrevocable commitment or letter of intent complies with the rules. There seems to be little doubt that, given this latest statement by the Panel and its comments in the review of the Code which preceded it, any future breach of these rules will be dealt with severely.


1 See: http://www.thetakeoverpanel.org.uk/wp-content/uploads/2008/11/PS27.pdf

2 For more background on these changes see: http://www.friedfrank.com/siteFiles/Publications/9-6-2011%20-%20TOC%20Memo%20-%20Amendments%20to%20UK%20Takeover%20Code%20Finalised.pdf

3 See: http://www.thetakeoverpanel.org.uk/wp-content/uploads/2012/01/2012-8.pdf . For more information on this review, see: http://www.friedfrank.com/siteFiles/Publications/11-27-2012-TOC%20Memo-UK%20Takeover%20Code%20- %20Statement%20on%20Recent%20Amendments%20to%20the%20Takeover%20Code.pdf

4 See paragraph 3.6.

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 Mondaq.com.

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

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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 unsubscribe@mondaq.com 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.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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