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Corporate analysis: Julian Henwood, M&A partner at Wragge Lawrence Graham & Co, casts an analytical eye over the draft Companies Act 2006 (Amendment of Part 17) Regulations 2015 that will prevent the use of cancellation schemes of arrangement to effect a takeover and predicts that increased transaction costs occasioned by the stamp duty charge applicable to certain takeovers effected by way of a transfer will not result in fewer takeovers.
Draft: The Companies Act 2006 (Amendment of Part 17) Regulations 2015, LNB News 13/01/2015 133
These draft regulations will amend the Companies Act 2006 (CA 2006) to prevent the use of share cancellations by target companies in takeovers conducted using schemes of arrangement. Companies would in future be required to use a ‘transfer’ scheme of arrangement or a contractual offer, on which stamp duty may be payable. The government announced its intention to make this change in its Autumn Statement 2014.
Since 28 April 2014 an exemption from stamp duty has been available on the transfer of shares which are traded on the AIM market of the London Stock Exchange (AIM). The analysis which follows is concerned with the stamp duty implications of a takeover of a target company which cannot benefit from this exemption. It should be noted, however, that although the company law changes discussed below will have no impact on the stamp duty effect upon a bidder for a company whose shares are traded on AIM, the transaction will in future have to be structured as a transfer scheme or a takeover offer. Either of those structures will continue to remain stamp duty exempt for the acquisition of an AIM company.
Offers and schemes
Traditionally, acquisitions of companies to which the City Code on Takeovers and Mergers (the Code) applies have been structured in one of two ways:
Of the 48 public takeovers announced
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