Takeover Panel launches consultations on various amendments to the Takeover Code, including the operation of the offer timetable in competitive bid situations

PCP 2022/3

A number of amendments were made to the Code in July 2021 in light of PCP 2020/1 (Conditions to offers and the offer timetable) which included permitting greater flexibility around competition clearances and other regulatory authorisations. Please see our ECM Hub Insight published earlier this year for our analysis of PCP 2020/1.

Following the implementation of these changes, the Panel has on occasion observed competitive bid situations where:

• bidders have required regulatory clearances that could not be obtained within the standard 60-day timetable; and
• ·one bidder was proceeding by way of a scheme of arrangement and the other by way of contractual offer.

In order that the recently modified offer timetable works equally for competitive situations, the Panel proposes to amend Note 2 on Rule 32.5 to clarify:

• that the Panel will not normally introduce an auction procedure under Rule 32.5 to bring the competitive bidding dynamic to a conclusion until after the last condition relating to a relevant official authorisation or regulatory clearance has been satisfied or waived by each of the bidders; and
• how the Panel will establish a framework for target shareholders to decide between competing transactions where one might be a contractual offer and the other, a scheme of arrangement once bidders have made their final offers (whether through an auction procedure or otherwise).

The Panel has also proposed minor amendments to Note 1 on Rule 31.3 and the Note on Rule 31.4. The terms of the proposed amendments are set out in Appendix A of PCP 2022/3.

Comments on the amendments should be sent to the Code Committee by Friday 13 January 2023. The Code Committee expects to publish a Response Statement to PCP 2022/3 in Spring 2023 setting out final amendments to the Code with amendments coming into effect one month after publication of the Response Statement.

PCP 2022/4

The Panel's other consultation paper proposes a number of miscellaneous amendments to the Code:

Derogations and waivers from Code requirements

The Code Committee proposes amending s 2(c) of the Introduction of the Code to grant the Panel greater flexibility to grant derogations or waivers from the requirements of the Code in exceptional circumstances, such as facilitating the rescue of a company in serious financial difficulty.

It is also proposed to amend Note 3 of the Notes on Dispensations from Rule 9 to remove limitations on the Panel's ability to waive Rule 9 requirements in the event of a rescue operation to save a company from serious financial distress.

It is hoped that these amendments will help facilitate the rescue of distressed companies.

Where rumour and speculation or an untoward share price movement is caused by a clear public statement

Until now, a potential bidder who is actively considering an offer for a target company but has not made an approach will not normally have to make an announcement under Rule 2.2(d) by virtue of Note 2, if the Panel is satisfied that changes in the share price of the Company as a result of rumour or speculation arises only due to a clear and unequivocal public statement (such as the making of a disclosure under the FCA Handbook or a "dawn raid"). The Panel proposes to delete Note 2 on Rule 2.2 due to the potential adverse consequences and contradictions with Rule 2.6(a) which governs timings following a possible offer announcement.

Adjusted mandatory offer price under Note 3 on Rule 9.5

The Panel proposes amending Note 3 on Rule 9.5 to provide that where a mandatory bid price is adjusted by the Panel, it must be 'appropriate' rather than 'fair and reasonable' as currently drafted.

The change is aimed at avoiding confusion with the concept of 'fair and reasonable' which is typically used in the assessment of the financial terms of an offer under the Code.

Furthermore, any Panel decision to adjust the price of a mandatory bid is to be 'made public' rather than published by the Panel itself. This brings the provision into line with current practice, where Panel decisions adjusting the highest price payable is explained in the firm offer announcement under Rule 2.7.

Target board recommendations and disclosure of directors’ intentions in respect of their own shares

Amendments to Rule 25.2 and Rule 15.2 are proposed which introduce an express requirement that a target board make a recommendation to shareholders and holders of convertible securities, options and subscription rights as to the action they should take in respect of an offer or a Rule 15 offer or proposal. Where there are alternative offers, amendments to Rule 25.4(a)(v) will require the target board to disclose which alternative the directors intend to elect for in respect of their own shares, and specify that the Panel may require that the document states their reasons for doing so.

Irrevocable commitments and letters of intent

The Code Committee proposes amending Rule 2.10 to require that where a bid party or any person acting on the deal obtains an irrevocable undertaking or letter of intent during an offer period, or before the commencement of an offer period, such party will be required to publish it (i.e. fully) on a website by the current deadline for announcing details of the undertaking or letter of intent (rather than only following announcement of a firm intention to make an offer). The Code Committee considers that it is important for market participants to understand the exact terms of irrevocable undertakings rather than relying on summary details.

The terms of the proposed amendments are set out in Appendix A of PCP 2022/4. Comments on the amendments should be sent to the Code Committee by Friday 13 January 2023.

As with PCP 2022/3 the Code Committee expects to publish a Response Statement to PCP 2022/4 in Spring 2023 setting out final amendments to the Code with amendments coming into effect one month after publication of the Response Statement.