This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
Summary and implications
In a busy spell, the Takeover Panel (the Panel) has released two Practice Statements, three Response Statements implementing changes to the Takeover Code and publicly criticised two law firms and an investment bank. This note summarises the key things practitioners need to be aware of from these various issuances.
The amendments to the Takeover Code (acting in concert, calculating voting rights and dividends) take effect on 23 November 2015.
Summary
- The definition of "acting in concert" is expanded to explicitly include close relatives of a person (spouses/civil partners/cohabitants, children, parents, brothers, sisters, grandchildren and grandparents).
- Shareholders in a private company which is acquired by a public company or is subject to an IPO are presumed to be acting in concert.
- Other than treasury shares, all shares count towards calculating the total voting rights other than those where any suspension or restriction on voting rights is agreed with the Panel to avoid a Rule 9 offer requirement.
- Offerors must include an additional term in their offer terms and conditions that the offer price will be reduced by the amount of any dividend paid or payable by the offeree unless the offer expressly allows offerees to retain it.
- The Panel has set out the rules it expects to apply when there is restricted disclosure of sensitive information to a "clean team" (typically for competition/anti-trust filings) – including undertakings to be given by the firms involved to the Panel.
- In guidance on offer-related arrangements, the Panel has reinforced the point that offeree companies cannot enter into agreements or arrangements which restrict the offeree and discourage a competing offer, giving examples of what it considers acceptable and not acceptable.
- In a public criticism of a number of the professional advisers involved, the Panel highlighted that in cases of doubt as to the interpretation or application of the Takeover Code, the Panel should be consulted, on a full and open basis, at the earliest opportunity. Specifically, it is not sufficient to rely on advisers’ views where there is any doubt.
Amendments to the Takeover Code
Additional presumptions to "acting in concert"
- The Takeover Code is being amended to reflect existing Panel practice with regard to relatives of a person and the selling shareholders of a private company who become shareholders of a public company.
- The additional (rebuttable) presumptions will now be that the following are acting in concert with each other:
Calculation of voting rights – restrictions and suspension of voting rights
- Where a company has shares which are subject to a legal, regulatory or contractual restriction on the exercise of the voting rights attaching to those shares, those shares will normally still count towards the calculation of the total voting rights exercisable at general meetings of the company.
- This differs from shares held by the company itself (or by one of its subsidiaries), whether or not held or classed as treasury shares, which are disregarded.
- The exception to this requirement will now be limited to instances where the Panel has agreed to the restriction or suspension as an alternative to making a Rule 9 (mandatory) offer, where the shares will not count towards the calculation of the total voting rights exercisable at a general meeting.
- As a consequence, the only restrictions and suspensions which allow shares to be excluded from being shares with voting rights exercisable at a general meeting are those restricted or suspended by agreement with the Panel to avoid a Rule 9 offer.
Dividends
- When announcing an offer, the offeror must state that it has the right to reduce the consideration by the amount of any dividend paid or payable by the offeree, except to the extent that the offer specifically states that offeree shareholders are entitled to retain the dividend.
- If the offer consideration is reduced as a result of dividend, offeree shareholders must be entitled to receive and retain that dividend.
- If a dividend is paid following an offeror making a "no increase" statement, the offeror will normally be required to reduce the offer consideration by the amount of the dividend.
- When calculating the minimum price at which an offer must be made, any dividends (other than "ex dividend" acquisitions) may be deducted in determining the highest price paid.
Practice Statements
Offer-related arrangements and the exclusions to Rule 21.1
Practice Statement 29 addresses offer-related arrangements and the exclusions to Rule 21.1 set out in Rule 21.2, and addresses a number of issues which the Panel have addressed in the recent past. The Practice Statement stresses that in all cases where there is any doubt about the compliance of an arrangement with Rule 21.1, the Panel must be consulted at the earliest opportunity.
- Obtaining official authorisation or regulatory clearance
- Invoking offer conditions
- Directors’ irrevocable commitments and letters of intent
- Reverse break fees
- Employee incentive arrangements
- Bid conduct agreements
- Inducement fees
Rule 20.2 Dispensations
Practice Statement 30 addresses the issue of when information disclosed to one offeror does not need to be given to all offerors under Rule 20.2. As an exception to the requirement of Rule 20.2, this is a Panel dispensation and needs to be cleared with the Panel.
In summary, the Panel will allow information which is disclosed on an “outside counsel only” basis (which will include economists in the case of competition filings) to be disclosed on a similar basis to other offerors provided that the information does not reach any offeror itself. The recipient of the information must establish a “clean team” which is limited to the absolute number of individuals and does not include any director, employee or other adviser to the offeror. In order to protect the information:
- the number of recipients must be kept to the absolute minimum;
- effective information barriers must be in place to prevent other members of the deal team accessing the information;
- no advice or communication may contain any of the restricted information (which means that the restricted information must be redacted from the draft submissions which the offeror reviews);
- all advice and communications must be vetted by a "designated responsible member" of the "clean team";
- the relevant authority must be advised of the need to protect the confidentiality of the restricted information; and
- in consulting the Panel, the Panel will normally expect:
Requirement to consult the Panel
In its (rare) public criticism of an investment (the financial adviser responsible for advising on the Takeover Code) and two law firms involved, the Panel emphasised the need to consult with it at an early stage where there are doubts as to the application or interpretation of the Takeover Code. In addition, the Panel reiterated that it expects to be provided with all relevant facts, not an argued position which (intentionally or otherwise) omits matters which may be relevant to the Panel’s consideration of the facts concerned.
The Panel was concerned in this case that the parties took it upon themselves in the first instance to determine how the Takeover Code should be interpreted and applied, rather than consulting with it, and that subsequent disclosures neglected facts which the Panel considered would have been relevant for it to know and which were known by the advisers concerned.
This criticism highlights how important it is to contact the Panel as soon as any doubt emerges in respect of the interpretation of the Takeover Code.
