Panel confirms that Disney will need to make mandatory offer following Fox acquisition

Panel confirms that Disney will need to make mandatory offer following Fox acquisition
Corporate analysis: The Takeover Panel has ruled that following the completion of the acquisition by Disney of Twenty-First Century Fox, Disney will be required to make a mandatory offer for Sky plc pursuant to Rule 9.1 of the Takeover Code. The ruling is an example of the so-called ‘chain principle’ under the Code.

Original news

The Takeover Panel (Panel) has issued a ruling that following completion of the acquisition by The Walt Disney Company (‘Disney’) of Twenty-First Century Fox Inc. (Fox) (the ‘Acquisition’), Disney will be required to make a mandatory offer (‘Offer’) to the shareholders of Sky plc (‘Sky’) pursuant to Note 8 on Rule 9.1 of the Takeover Code (‘Code’) as a result of Fox’s stake of approximately 39% in Sky. The ruling is an example of the so-called ‘chain principle’ under the Code.

What is the ‘chain principle’ and why did it apply here?

The ‘chain principle’ is dealt with under Note 8 on Rule 9.1 of the Code. Under this principle, an obligation to make a mandatory offer can arise where a person acquires 50% or more of the voting rights of a company (which need not be a company to which the Code applies) and, as a result, acquires or consolidates control of another company to which the Code does apply by virtue of the first company's interest in that second company.

For these purposes the person will be regarded as having acquired or consolidated control of the second company because the first company itself is interested, either directly or indirectly through intermediate companies, in a controlling block of shares in the second company, or is interested in shares which, when aggregated with those which the person or group is already interested in, secure or consolidate control of the second company.

The Code only requires a so-called 'chain principle' bid to be made when the second company is of 'significance' to the potential offeror, which the Panel interprets as being when either:

  1. the interest in shares which the first company has in the second company is 'significant' in relation to the first company, taking into account factors such as the assets, profits and market values of the respective companies (relative values of 50% or more normally being regarded as significant), or
  2. securing control of the second company might reasonably be considered to be a significant purpose for the persons acquiring a controlling interest in the first company

The Panel should always be consulted where there is a possibility that the chain principle might appl

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