From Monday 19 September 2011, companies that find themselves the subject of unwanted takeover speculation will have their hand strengthened by changes to the Takeover Code. In order to stop target companies being put under siege for long periods, and particularly to prevent potential bidders putting a target into play, and hence under pressure, by announcing that they are considering making an offer, but without committing to doing so (a so-called "virtual bid"):
- If on or after 19 September 2011 (the Implementation Date) a target company announces the existence of a possible offer, or that it is seeking potential bidders, unless otherwise permitted by the Panel the announcement must identify every potential bidder with whom the target is then in talks, or from whom the target has received an approach which has not been unequivocally rejected. All such potential bidders must be named, irrespective of when they approached the target and whether or not any rumour and speculation about the target, or any untoward movement in the target's share price, was caused by their actions. The announcement will put the target into an "offer period".
- When a potential bidder first makes a possible offer announcement, or a target first makes an announcement that identifies a potential bidder, that potential bidder will, within 28 days of the announcement being made, have to either make a firm offer announcement or announce that it does not intend to make an offer for the target (known as "put up or shut up" or "PUSU") unless either:
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- the Panel agrees to extend the PUSU deadline. Only the target, and not the bidder, can request an extension; or
- another potential bidder has already made a firm offer announcement, or subsequently makes a firm offer announcement before the deadline expires.
- As a result of these changes, it is likely that:
-
- Potential bidders may well delay approaching a target until they are fairly confident that they will be in a position to announce a firm offer if they decide to do so. This is likely to mean potential bidders doing more due diligence and strategic planning before an approach is made.
- Private equity bidders may consider financing bids entirely through equity and then later syndicating the equity funding or refinancing it with debt. Private equity bidders will also usually be particularly keen to ensure that there is no announcement of their interest in the target or, if an announcement is made, that the target requests an extension to the PUSU deadline, because they may find it difficult to complete their due diligence within 28 days.
In addition, a bidder and any person acting in concert with it
will be prohibited in most circumstances from entering into any
"offer-related arrangement" with the target or any person
acting in concert with it during the offer period or when an offer
is reasonably in contemplation. "Offer-related
arrangements" include break fees (inducement fees),
exclusivity agreements, matching rights and other "deal
protection" measures that are commonly sought by bidders.
Offer-related arrangements that are entered into prior to the
Implementation Date will be unaffected. The prohibition is likely
to cause potential bidders to look for other ways to reduce the
risk of bid failure. In some circumstances, this might mean bidders
or their associates buying target shares in the market, or entering
into a derivative contract referenced to target shares,
particularly once an offer is likely to be made. Bidders may also
pressurise their advisers to agree to more success-based
fees.
Other changes will require bidders to include more information in
their offer document about how the offer is financed; the impact of
the offer on the bidder's earnings, assets and liabilities; and
the fees payable to advisers in connection with the offer. Target
employees will have more opportunity to make public their views on
the offer and its impact on the target.
The changes are the result of a wide-ranging review of the Takeover
Code initiated after the takeover of Cadbury plc by Kraft Foods Inc
in 2010.
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The original publication date for this article was 08/09/2011.