Takeover Code changes do not present major reform

Takeover Code changes do not present major reform

Will proposed amendments to the Takeover Code reform takeover conduct? Although strengthening certain elements, Adam Bogdanor, partner at Berwin Leighton Paisner LLP, does not believe the proposed amendments will make a significant difference to takeover conduct.

Original news

The Code Committee of the Takeover Panel (the Panel) has issued a public consultation paper proposing a series of diverse amendments to the detail of various provisions of the City Code on Takeovers and Mergers (the Code).

What is the background to the proposed changes?

Takeover activity in the UK has increased over the last few years, but it is still lower than in the period before the financial crisis (pre-2008). There were 17 announced transactions in the first half of 2014, only one of which was hostile. However, the Panel is neutral as to the level of takeover activity. The proposals which it sets out in its public consultation paper, ‘Miscellaneous Amendments to the Takeover Code (PCP 2014/1)’ are merely intended to refine certain elements of the Code.

Are there any themes or trends underpinning the consultation?

There are no particular themes running through the consultation. The proposed changes seek to provide greater certainty as to the applicable timetable and impose new restrictions on the acquisitions of interest in shares. Otherwise, the proposals codify existing practice.

What are the headline proposed changes?

Timetable for competing offer or clarification

Currently, under Rule 2.6 of the Code, when an offeror has announced a firm intention to make an offer, a publicly identified potential competing offeror must clarify its position by a date set by the Panel, on a case-by-case basis (usually day 50).

The Panel is proposing that the latest time by which a competing offeror must clarify its position is 5.00pm on the fifty-third day following the publication of the first offeror’s offer document.

Setting aside a ‘no-intention to bid’ statement

Under the Code, a potential offeror’s statement of 'no intention to bid’, pursuant to rules 2.6 and 2.8, may normally be set aside with the agreement of the target board, unless the statement was made following a firm offer announcement by a third party, and the third party offer has not been withdrawn or lapsed.

The Panel proposes that after a third party firm offer announcement, the restrictions in rule 2.8 (as to not announcing an offer, taking steps in connection with a possible offer etc for a period of six months) will only cease to apply to the potential offeror if the third party offer lapses or is withdrawn and the potential offeror and its concert parties have not acquired any interest in target shares in the meantime.

Restrictions following a Panel dispensation

The Panel also proposes that for three months from a dispensation from making an announcement of a potential offer, the relevant party, and any person acting in concert with it, may not actively consider making an offer, making an approach, or acquiring any interests in the target company's shares. The potential offeror and its concert parties will also be restricted from doing any of the things set out in the existing rule 2.8(A)–(E) within six months from the date of the dispensation.

Irrevocable commitments and letters of intent

The Panel has proposed various changes which will lead to earlier disclosure of irrevocable commitments and letters of intent.

Are any of these changes likely to have a significant impact on takeover conduct?

I think it’s unlikely. The main effect of the proposals, should they be enacted, will be to strengthen, albeit slightly, the restrictions that apply to parties who announce they do not intend to bid and to parties that do not need to make an announcement, as they cease actively to consider making an offer (‘pens down’).

What happens next and when are the changes likely to take effect?

Comments on the consultation paper are invited by 12 September 2014. Once the Code Committee has considered the responses, it will publish a response statement setting out the final text of the amendments to the Code.

Interviewed by Duncan Wood. The views expressed by our legal analysis interviewees are not necessarily those of the proprietor.

First published on LexisPSL Corporate. Click here for a free trial.

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