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Takeovers: proposed changes to the offer timetable and conditions to offers

  • United Kingdom
  • Competition, EU and Trade
  • Corporate
  • Equity Capital Markets

03-11-2020

The Code Committee of the Takeover Panel (“Panel”) has published a consultation paper proposing a number of significant amendments to the Takeover Code (“Code”) in relation to the treatment of conditions to offers and the offer timetable.

Whilst there is a considerable amount of detail in the consultation paper, this briefing highlights some of the key proposals for change.

The offer timetable

A number of significant changes are proposed to the offer timetable for contractual offers, including:

  1. Single date for satisfaction of all conditions – there would no longer be a distinction between the date by which the acceptance condition to an offer needs to be satisfied (currently the date that the offer becomes or is declared ‘unconditional as to acceptances’) and the date by which the other conditions to the offer need to be satisfied or waived (currently referred to as the date that the offer is declared ‘wholly unconditional’).

Under the proposals, the Code would require all of the conditions to an offer to be satisfied by Day 60 (subject to the offeror not making an ‘acceleration statement’ (see paragraph 3 below)). This would be defined as the 60th day following the publication of the initial offer document or any later date set by the Panel if the offer timetable is extended. This date is referred to as the ‘unconditional date’. All other significant dates in the offer timetable, such as Days 39, 46 and 53 would be set by counting back from Day 60 (rather than counting forward from Day 0 (in the case of Days 3 and 53 currently)). As a consequence, Days 39, 46 and 53 would be automatically re-set or extended if Day 60 is extended.

  1. Acceptance condition to be the last to be satisfied – subject to certain exceptions, the acceptance condition would only be capable of being satisfied once all of the other conditions to the offer had been satisfied or waived.
  2. Acceleration statements - the proposals introduce the concept of an ‘acceleration statement’ which would enable a bidder to bring forward the unconditional date and set a shorter timeframe for satisfaction or waiver of the conditions. The concept of a ‘no extension statement’ will disappear and will be replaced by ‘acceleration statements’.
  3. Acceptance condition invocation notices - if a bidder wishes to lapse its offer for non-satisfaction of the acceptance condition, it will be required to publish an ‘acceptance condition invocation notice’ giving the target’s shareholders 14 days’ notice that it intends to lapse the offer if insufficient acceptances are received by a specified date. Accordingly, an offer would no longer have ‘closing dates’. Amendments would also be made to the timing of announcements of acceptance levels by a bidder under Rule 17.
  4. Long-stop dates – under the proposals, the bidder would be required to set a ‘long-stop date’ for a contractual offer, similar to the long-stop date typically included in a scheme of arrangement.
  5. Withdrawal rights – target company shareholders who have accepted an offer would be able to withdraw their acceptance at any time following publication of the offer document and prior to the satisfaction of the acceptance condition. Target shareholders currently only have a limited window to withdraw acceptances.

 Official authorisations and regulatory clearances

The Code Committee considers that the Code should apply consistent treatment to any official authorisation or regulatory clearance to which an offer is subject, and not apply different treatment to conditions relating to there being no Phase 2 Competition and Markets Authority (“CMA”) reference or Phase 2 European Commission proceedings.

Under the proposals:

  • a bidder and/or the target company would be able to request that the offer timetable should be suspended in relation to a condition relating to any official authorisation or regulatory clearance, provided that, if only one of the parties wishes to suspend the timetable, the condition must relate to a ‘material’ authorisation or clearance;
  • there would no longer be a requirement for a bidder to include as a term of its offer that the offer will lapse if, before a particular date, a Phase 2 CMA reference is made or Phase 2 European Commission proceedings are initiated;
  • all conditions and preconditions relating to an official authorisation or regulatory clearance, including from the CMA or the European Commission but also potentially including merger control clearances from other jurisdictions (as well as other regulatory processes, for example, foreign direct investment screening), would be subject to the requirement that they may only be invoked where the circumstances are of material significance to the bidder in the context of the offer; and
  • the distinction between pre-conditions relating to the CMA or the European Commission and those relating to other official authorisations or regulatory clearances would be removed.

Other proposed changes

New requirements for schemes of arrangement – in practice currently, a bidder may be able to prevent a scheme of arrangement from becoming effective by refusing to take certain actions in connection with the court sanction hearing. The consultation paper therefore proposes amending the Code so that the bidder will be required to confirm that all conditions have been satisfied (or waived) and to undertake to be bound by the scheme and take all other procedural steps necessary for the scheme to become effective.

Mandatory offers - the Panel is considering granting a dispensation from the restriction in Rule 9.3 on a person triggering a mandatory offer where the triggering share purchase would itself be subject to a condition relating to a material official authorisation or regulatory clearance.

Next steps

The consultation closes on 15 January 2021, and a Response Statement with final amendments to the Code is expected in Spring 2021. The Code Committee anticipates that amendments will come into force after a further period of three months to allow practitioners and market participants time to plan for the changes to the Code.

Comment

These are the most significant changes to the Code to have been proposed since the changes introduced following the Kraft/Cadbury offer and, prior to initiating the consultation, the Panel undertook an extensive pre-consultation exercise to enable the Code Committee to refine the proposals. Whilst the proposed changes may take practitioners a little time to become familiar with (the Panel has indicated it will allow a period of 3 months following publication of its Response Statement at the end of the consultation period before the changes take effect), there is an obvious logic to many of the proposed changes that will help to simplify the timetable for contractual offers and support market integrity.

The changes to official authorisations and regulatory clearances to create a level playing field as between the UK with other jurisdictions are sensible and timely. From a merger control perspective clearances can often be needed in a number of jurisdictions (not only the UK or the EU). It would also be an anomaly to put the EU in a different position to other regulatory processes given the UK’s exit from the EU. In addition, these changes would enable the public offer process to take account of other regulatory processes such as foreign direct investment screening which has expanded significantly in recent times (with a number of jurisdictions expanding or introducing new foreign direct investment regimes and a new UK regime expected to be announced imminently). See our article here on the new EU regime.

Useful links

Public Consultation by the Code Committee – Conditions Offers and the Offer Timetable