Takeover Code Consultation: the offer timetable and conditions to offers

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In a public consultation paper dated 27 October 2020 (the PCP), the Code Committee of the Takeover Panel (the Panel), the body that regulates public M&A in the UK, has proposed various significant amendments to the Takeover Code (the Code) with regard to the offer timetable and conditions to offers. Here we summarise the key changes to the Code set out in the PCP.

Offer timetable and long-stop dates

Although the rules of the Code relating to the offer timetable remain fundamental to the stated objective of the Panel of providing an "orderly framework" for the conduct of takeovers (particularly in a competitive or "hostile" situation), in practice, many of the timetable rules have little or no application. This is the case, for example, where a contractual (tender) offer is recommended by the target company's board of directors, as the offer timetable can normally be extended with the consent of the Target board; or if an offer is implemented by way of a scheme of arrangement, which are the majority of the offers the Panel regulates, as the offer rules do not generally apply to schemes.

Accordingly, in order to simplify the offer timetable and to accommodate the potentially lengthy timeframes required in order to satisfy regulatory clearances, the Panel has suggested in the PCP, among other things, the following:

  1. A single date for the satisfaction of all conditions. Currently, a distinction is drawn between the date by which the acceptance condition to an offer is required to be satisfied and the date by which the other conditions need to be satisfied/waived. Under the new proposals set out in the PCP, the acceptance condition would only be capable of being satisfied once all the other conditions to the offer had been satisfied/waived (subject to certain exceptions). A bidder would also be free to make an "acceleration statement" which would condense the timeframe by bringing forward the date by which an offer may be declared unconditional. Such a statement would effectively replace the existing concept of a "no extension statement".         
  2. Long-stop dates for contractual offers. If the proposals in the PCP are adopted, a bidder would be required to set a "long-stop date" for a contractual offer in much the same way as is presently done in a scheme of arrangement.
  3. Withdrawal rights. Target shareholders would be able to withdraw their acceptance of an offer at any time prior to the satisfaction of the acceptance condition, and not only from the date which is 21 days after the first closing date (typically "Day 42" of an offer). This change, if implemented, would be consistent with the US tender offer rules, which in certain circumstances may apply to offers under the Code if the target has a US shareholder base of the necessary size.    

Invocation of conditions

In order to maintain the integrity of the financial markets, a bidder is generally prohibited under the rules of the Code from invoking a condition so as to cause the offer to lapse unless the circumstances which give rise to the right of invocation are of "material significance" to the bidder in the context of the offer.  

If the new proposals in the PCP are adopted, the rules of the Code would be clarified such that:

  • the consent of the Panel would be required in order for a bidder to invoke a condition so as to cause the offer not to proceed, to lapse or to be withdrawn;
  • language appropriately reflecting the above requirement should be incorporated into both the announcement of a firm offer for the target and the offer document; and
  • the Panel would judge whether circumstances are of "material significance" to the bidder in the context of the offer by reference to the facts of each case at the time the relevant circumstances arise.

Regulatory clearances

A takeover offer is typically subject to certain regulatory clearances, some of which may not be capable of being satisfied within the normal offer timetable. This often creates tension as an offer should not lapse without good reason.

The Code manages this tension in relation to clearance of an offer by the Competition and Markets Authority (the CMA) or the European Commission in a number of ways, primarily by suspending the offer timetable at the target and bidder's request pending a decision as to whether there will be a Phase 2 CMA reference.

The new proposals in the PCP would apply consistent treatment to any regulatory clearance to which an offer is subject. In other words, the Code should not apply different treatment to the CMA and the European Commission as compared with other regulatory authorities from which a regulatory clearance is required.

To this end, the new proposals include the following:

  1. Suspending the offer timetable for regulatory clearances. Either the target or the bidder would be able to request that the offer timetable should be suspended for a condition that relates to any regulatory clearance (not just clearance of any offer by the CMA or the European Commission), provided that, if only one of the parties to the offer wishes to suspend the timetable, the condition must relate to a "material" clearance. Bidders will need to be mindful of increased financing costs to cover any, potentially lengthy, period of suspension.
  2. Removal of the anomalous treatment given to the CMA and the European Commission. A bidder that wishes to invoke a condition relating to a Phase 2 CMA reference not being made would be required to demonstrate that the circumstances are of material significance to the bidder in the context of the offer in the same way as if the bidder wished to invoke a condition relating to any other regulatory clearance. Updated guidance on the factors that the Panel may consider when deciding whether a bidder can invoke a condition will be provided in due course. In addition, there would no longer be a requirement for an offer to lapse if, before a particular date, a Phase 2 CMA reference is made.

Mandatory offers

Finally, the Panel proposes in the PCP that it should be able to grant (albeit in exceptional circumstances) a dispensation from the restriction on Rule 9.3 of the Code on a person triggering a mandatory offer, if the making or implementation of that offer would be subject to any condition or consent where, among other things:

  • applying the "material significance" test described above, invocation of the condition is subject to the Panel's consent; and
  • the condition or consent relates to a material regulatory clearance.

Further information regarding changes to the Code

The Panel invites comments on the PCP by 15 January 2021 and expects to publish a statement in response to the PCP setting out the final amendments to the Code in Spring 2021, with changes to the Code expected to be implemented approximately 3 months later. If you require further information, please contact the expert listed below.

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