CLLS and Joint Working Parties publish Q&A on MAR implementation

CLLS/ Law Society Company Law Committees' Joint Working Parties on Market Abuse, Share Plans and Takeovers Code publish Q&A on Market Abuse Regulation relating to takeovers.

The Market Abuse Regulation (MAR), which came into effect in the UK on 3 July 2016, aims to extend the scope of the market abuse regime in the UK to new markets and platforms, new instruments and new behaviours. A joint working party of the City of London Law Society (CLLS) and Law Society Company Law Committees’ Joint Working Parties (Joint Working Parties) has published a Q&A providing a suggested approach to implementing certain aspects of MAR relating to takeovers.

The Q&A explains how, in the view of the Joint Working Parties, MAR should apply in certain practical situations relating to takeovers. The Q&A covers the following areas of MAR: market soundings (Article 11); stake-building on a takeover (Article 9); and persons discharging managerial responsibilities (PDMR) dealings (Article 19).

There are five questions relating to market soundings. Q&As 1 and 2 confirm that negotiations to agree the terms of irrevocable undertakings to be given by target directors to accept an offer/ vote in favour of a scheme and the provision of agreed forms of irrevocable undertakings to the target directors would fall outside the market soundings regime. Q&A 3 confirms that communications between the bidder and shareholders to accept the offer/ vote in favour of the scheme (as applicable) would fall within the market soundings regime, provided the shareholders are not target directors. Q&A 4 confirms that references to the bidder in Article 11(2) should be read as including references to persons clearly acting as the bidder's agent/ on its behalf (eg its financial adviser or broker). Q&A 5 confirms that subject to compliance with Article 11(3) in all cases, non-compliance with the market sounding requirements does not automatically mean that a communication is unlawful or that the person making the communication is subject to sanctions simply on the basis of non-compliance.

There are two questions relating to stake-building on a takeover. Q&A 6 confirms that Article 9(4) is expressed not to apply in relation to stake-building. Q&A 7 confirms: (a) that while this should be determined on a case by case basis, it is possible for a bidder to determine that due diligence information ceases to be inside information on the announcement of both recommended and hostile bids, and (b) that once the defence document has been published by the target board such due diligence information would normally no longer constitute inside information.

There are four questions relating to PDMRs. Q&As 8 and 9 confirm that a PDMR can satisfy an irrevocable undertaking and vote in favour/ enter into an irrevocable undertaking during a closed period. Q&A 10 confirms that unless an exemption applies during a closed period under Article 19(11), a PDMR cannot accept/ enter into an irrevocable undertaking to accept a contractual takeover. Q&A 11 confirms that voting in favour of/ entering into an irrevocable undertaking in favour of a scheme or to accept a contractual offer does not need to be notified under Article 19(1).

For further information please see Market Abuse Regulation (EU MAR) Q&A.

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