The Code Committee ("Code Committee") of the UK Takeover Panel ("Panel") has published a consultation paper proposing a number of amendments to the City Code on Takeovers and Mergers ("Code") which, if adopted, will mark a significant departure from the current rules. The Code Committee is inviting responses to the consultation paper by 15 January 2021 and expects to publish the final amendments to the Code in spring 2021.
The main objectives of the proposed changes are to:
- simplify the offer timetable and amend it to accommodate regulatory approval processes which are now more complex and of longer duration than was the case when the current timetable was originally devised;
- remove the historic distinction between the treatment of UK and European Commission competition conditions and all other conditions relating to official authorisations and regulatory clearances; and
- make certain other changes to the existing Code timetable, in particular for contractual takeover offers.
The main changes being proposed are as follows:
- offer conditions relating to the UK Competition and Markets Authority ("CMA") or the European Commission ("EC") not commencing a Phase 2 competition review to be subject to the "material significance" requirement before they may be invoked (i.e., those conditions will be treated consistently with conditions relating to other regulatory approvals and authorisations);
- abolition of requirement for offers to contain a term that they will lapse if there is a CMA or EC Phase 2 competition review before a given date;
- introduction of a single "unconditional date" for the satisfaction of all offer conditions to contractual takeover offers. This will be set at the 60th day after posting the initial offer document, subject to acceleration or extension;
- acceptance condition for contractual takeover offers to be the final condition to be satisfied and to be capable of satisfaction only after all other conditions have been satisfied or waived; and
- withdrawal rights to be available for offeree company shareholders from the outset of a contractual takeover offer until it becomes or is declared wholly unconditional.
CONSISTENT TREATMENT FOR ALL REGULATORY CONDITIONS
At present, UK and EC antitrust clearance conditions are treated differently from other offer conditions relating to official authorisations and regulatory clearances ("Regulatory Conditions"), and the Code Committee is proposing that all Regulatory Conditions should be treated in a consistent manner.
Material Significance Requirement to Apply CMA and EC Regulatory Conditions
At present, an offeror may invoke a condition that no CMA Phase 2 reference or EC Phase 2 proceedings ("Phase 2 Referral") will be initiated without having to satisfy the so-called "material significance" requirement. However, if the offeror wishes to lapse the offer on any other Regulatory Condition (e.g., U.S. Hart-Scott-Rodino or CFIUS clearance), the material significance requirement must be satisfied.
As was demonstrated when WPP plc sought to invoke the no material adverse change condition to its offer for Tempus Group Plc, an extremely high hurdle is imposed in order to satisfy this requirement: it requires the offeror to demonstrate that the circumstances giving rise to the invocation of the condition are of "material significance to the offeror in the context of the offer". The Code Committee is proposing to abolish this distinction and put Phase 2 Referral conditions on the same footing as other Regulatory Conditions. Corresponding changes would be made to the regime governing pre-conditions.
This change will mean the removal of a protection which has been relied upon by offerors for decades, although rarely invoked, namely that when launching an offer, they would have the right, no questions asked, to terminate the offer in the event of a possibly protracted and costly Phase 2 Referral which, although not satisfying the material significance requirement, might nonetheless be very detrimental to their own, or the target's, business.
Suspension of Offer Timetable
Currently, if, by Day 39 of a contractual takeover offer, there has not been a decision as to whether a Phase 2 Referral will be initiated, the offeror or the offeree can request that the offer timetable be suspended pending the decision. This is to prevent the offer lapsing on Day 81 of the offer (being the date by which all conditions must normally be satisfied).
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