Hostile takeovers and defence tactics—the legal and regulatory restrictions
Hostile takeovers and defence tactics—the legal and regulatory restrictions

The following Corporate practice note provides comprehensive and up to date legal information covering:

  • Hostile takeovers and defence tactics—the legal and regulatory restrictions
  • Code restrictions on frustrating action
  • Legal restrictions
  • Directors' duty to act within their powers
  • Directors' duty to promote the success of the company
  • Balancing directors' duties and Rule 21.1
  • Defence tactics
  • Recommending rejection of the offer
  • Views of financial advisers
  • Profit forecasts and quantified financial benefits statements
  • More...

This Practice Note, produced with input from Rebecca Cousin of Slaughter and May on market practice, discusses some of the main defensive tactics an offeree might seek to deploy when facing an imminent or actual unwelcome takeover offer and looks at the legal and regulatory restrictions on the taking of defensive action.

When a company is, or predicts that it may be, subject to a takeover offer which is, or may become, hostile, it is likely to seek to employ a number of defensive tactics to either see off the offeror altogether or to encourage the offeror to increase its offer.

Such defensive tactics or frustrating actions are limited by both law and the provisions of the City Code on Takeovers and Mergers (Code).

Code restrictions on frustrating action

The Code contains restrictions on frustrating action, which limit the extent to which an offeree may take action which may frustrate an offer without the consent of its shareholders, and which have particular application in the context of an unwelcome takeover offer. Frustrating action can take many forms, but is generally action which reduces the value of the offeree to the offeror in some way, or makes the offeree more expensive or difficult to acquire.

General Principle 3, of the Code states that:

‘the board of directors of an offeree company must act in the interests of the company as a

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