The Takeover Panel has published a consultation paper on possible amendments to Rule 21 on frustrating action (PCP 2023/1). The Takeover Code changes that were published in April are now in force.

Takeover Panel consultation paper (PCP 2023/1)

Rule 21.1 of the Takeover Code restricts the board of an offeree company from taking any action which may result in an offer or bona fide possible offer being frustrated, unless the target obtains shareholder approval, or the Panel gives its consent, for the action.

Overall, the Panel says it thinks Rule 21.1 operates satisfactorily and so it does not propose fundamental amendments to the Rule. However, it is proposing to:

  • give companies more flexibility for actions which are either in the ordinary course of business for the particular company (such as buying or selling assets) or not material;
  • include in the Notes on the Rule and in a new Practice Statement further guidance on when certain actions by a target board, for example employee incentivisation arrangements or share buybacks, will be considered either not to be material or to be in the ordinary course; and
  • to apply the prohibition on frustrating action to a bidder on a reverse takeover.

A company will still need to consult the Panel about any proposed action that may be restricted by the Rule.

The Panel is also proposing a number of amendments to Rules 21.3 and 21.4 to reduce the administrative burden on the parties to an offer where a request for information is made under Rule 21.3 (equality of information to competing offerors) and to enhance the target's ability to protect its commercially sensitive information.

The consultation closes on 21 July 2023 and final amendments to the Code are expected to be published in Autumn 2023 (to come into effect approximately one month after publication).

Changes to the Takeover Code now in force

Changes to the Takeover Code came into force on 22 May 2023. The changes relate to:

  • the offer timetable in a competitive situation (RS 2022/3); and
  • various miscellaneous amendments including around the requirements for the recommendations by target directors on an offer (RS 2022/4).

For further information on the changes, see our blog post here.

The Takeover Panel has also made minor consequential amendments to some of its Practice Statements to reflect the rule changes.

Our latest public M&A podcast

In the latest episode of our public M&A podcast series, we discuss recent changes to the Takeover Code as well as current themes and trends in public M&A transactions in the UK. You can listen to the podcast here.

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