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Under the Takeover Code (Code) Motorola was required to include a statement in the scheme document setting out its intentions for IndigoVision’s business, employees and pension schemes. When discussing its integration plans, Motorola acknowledged that these might lead to proposals to change certain employees’ job responsibilities in scope and nature, but these were not expected to be material in the context of IndigoVision’s overall number of employees. However, this was qualified by a statement that Motorola would continue to monitor the impact of the coronavirus pandemic closely and ‘was mindful that, should the wider economic environment in which IndigoVision operates deteriorate materially, urgent mitigating actions may be necessary and that these actions may include the possibility of more material headcount reductions than is currently envisaged.’
In making this qualification, Motorola was no doubt mindful of the special treatment of post-offer statements of intention under the Code.
The statement by Motorola in the scheme document was a post-offer intention statement for the purposes of the Code. A post-offer intention statement is a statement made by a party to an offer in any document, announcement or other information published by it in relation to the offer relating to any particular course of action that the party intends (as opposed to commits) to take, or not take, after the end of the offer period.
Any post-offer intention statement must be an accurate statement of that party’s intention at the time that it is made and be made on reasonable grounds.
If a party to an offer has made a post-offer intention statement and, during the period of 12 months from the date on which the offer period ended, or such other period of time as was specified in the statement, that party decides either:
to take a course of action different from its stated intentions, or
not to take a course of action which it had stated it intended to take
it must consult the Takeover Panel (Panel). The party must then make an announcement describing the course of action it has taken, or not taken, and explaining its reasons for taking, or not taking, that course of action (as appropriate).
For this reason companies should think carefully before making such statements, particularly given the uncertainties created by the COVID-19 situation.
For further details, see Practice Note: Provision of information during an offer—Rules 19.5 and 19.6—Post-offer undertakings and intention statements.
to take a course of action different from its stated intentions (eg, large scale redundancies), or
it must consult the Panel. The party must then make an announcement describing the course of action it has taken, or not taken, and explaining its reasons for taking, or not taking, that course of action (as appropriate).
This may be very relevant for recent offer parties that have ‘active’ statements of intention in industry sectors particularly affected by the COVID-19 pandemic.
Post-offer undertakings are rare, but there have been some high profile examples of these being provided since their introduction (eg, the takeovers of ARM Holdings, Cobham, GKN and Inmarsat).
Post-offer undertakings are more problematic for a party that wishes to take a different course to that contained in the undertaking, as an offer party will be excused compliance with the terms of a post-offer undertaking only if a qualification or condition set out in the undertaking applies. If a party to an offer wishes to rely on a qualification or condition to a post-offer undertaking, it must consult the Panel in advance and obtain the Panel’s consent to rely on that qualification or condition.
As reported in our UK Public M&A Trend Report update—1 January–31 March 2020, public M&A activity is significantly down compared with previous quarters in 2019, but for those transactions that are taking place, the coronavirus pandemic presents new challenges.
One of the obvious areas in which scheme documentation is impacted is companies reporting on current trading and experts reports on asset valuations, where there is evidence of companies and advisers grappling with the uncertain outlook created by the COVID-19 pandemic.
A further complication is the government’s ‘Stay at Home’ measures, which prohibit public gatherings of more than two people. On a scheme of arrangement, this presents legal and practical issues as companies are required to hold shareholder meetings to approve the scheme. The government has announced that it will be introducing legislation to ensure those companies required by law to hold AGMs will be able to do so safely, consistent with the restrictions on movement and gatherings introduced to address the spread of COVID-19. Companies will temporarily be extended greater flexibilities, including holding AGMs online or postponing the meetings.
It is not clear whether this impending legislation will extend to all shareholder meetings, but in the meantime an example of how companies are responding to these challenges is ii Group’s offer for Share where notices of the court meeting and general meeting to implement the scheme had been sent to shareholders before the introduction of the Stay at Home measures. Following the introduction of the measures, Share issued an announcement informing shareholders that they must not attend the scheme court meeting or the general meeting in person and encouraged them to submit their votes by electronic proxy (although written proxy votes would also be counted if submitted validly). For further details, see Practice Note: Coronavirus (COVID-19)—holding general meetings and AGMs.
Companies that announced a firm intention to make an offer before the decline in share prices may be exploring ways of extricating themselves from transactions (eg, through invoking ‘material adverse change’ conditions). However, the Code provides that an offeror will only be able to do this where the circumstances giving rise to the right to invoke the condition or pre-condition are of material significance to the offeror in the context of the offer. In the case of a MAC, or similar, condition, the Panel has stated that this requires the offeror to demonstrate that the relevant circumstances are of very considerable significance striking at the heart of the purpose of the transaction. For further details, see Practice Note: Conditions, pre-conditions and terms to an offer—Invoking or waiving conditions.
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