Practice Statement no. 5
On 27 October 2023, the Panel amended its Practice Statement no. 5 (Rule 13.5 – Invoking conditions and pre-conditions), following public consultation. The key impact of these changes was discussed earlier in this publication (A closer look: regulatory conditions to an offer). Please also refer to our Legal Briefing for further details on the changes made to Practice Statement no. 5.
Changes to Rule 21 and Practice Statement no. 34
On 11 December 2023, amendments were made to Rule 21 (Restrictions on frustrating action) of the Takeover Code, following public consultation. These amendments are designed to improve a target’s ability to operate in the ordinary course of business after an approach has been made by a potential bidder (or an offer period otherwise starts), whilst also protecting a bidder against unwarranted corporate actions after it has made a firm offer for the target.
Acquisitions and disposals
The Panel’s new Practice Statement no. 34 (Rule 21.1 – Restriction on actions by the board of the offeree company) includes further guidance on what matters the Panel will consider when determining whether an acquisition or disposal is in the ordinary course of business, including whether:
- the proposed transaction falls within the established business model of the target;
- the terms of the proposed transaction and the basis of valuation are in line with normal market practice; and
- the proposed transaction is part of an ongoing strategy, rather than a strategic change.
The Panel will also take into account the cumulative effect of all acquisitions and disposals during the restricted period (whether or not each individual transaction is material and/or in the ordinary course of the target’s business).
Incentive arrangements
The Panel has clarified that options or awards granted under a newly adopted incentive scheme (as well as existing schemes) will be considered to be in the ordinary course of business, if the timing and level of the proposed grants were publicly disclosed before the restricted period.
Please refer to our Legal Briefing for further details on the changes made to Rule 21.
Launch of a Digital Version of the Takeover Code
On 11 October 2023, the Panel launched a digital version of the Takeover Code at https://code.thetakeoverpanel.org.uk
Definition of Acting in Concert
As we reported in our 2023 edition, the Panel proposed amendments to the definition of acting in concert in 2022, and following public consultation they were adopted on 20 February 2023. A number of the changes simply represent codification of existing practice. The principal changes include the following:
- The threshold for presumed concertedness between affiliated companies being raised from 20% to 30%.
- Presumed concertedness in affiliates will apply both to (1) shares carrying voting rights and (2) equity share capital (whether or not the shares also carry voting rights). The 30% threshold will apply differently to each of these categories: voting control does not ‘dilute’ through a chain of ownership; whereas equity investment normally does ‘dilute’ through the chain of ownership, unless the equity investment is of more than 50% of the equity, in which case it does not.
- Interests in funds are to be treated in the same way as interests in a company’s equity share capital (codifying how concertedness can attach to fund investors).
- The introduction of a new presumption which codifies that an investment manager of or investment adviser to: (i) a bidder or an investor in a consortium; or (ii) the target, together with any person “controlling, controlled by or under the same control as” that investment manager or investment adviser, is presumed to be acting in concert with the bidder or the target respectively.
- Reduction of the thresholds at which the Panel may be willing to agree that the other parts of a consortium investor’s larger organisation are not acting in concert with the consortium.
Timetables on Competing Bids
As we reported in our 2023 edition, the Panel proposed amendments to the Takeover Code timetable in 2022, to deal with the situation where one or both competing offers is subject to regulatory clearance(s), and one is proceeding by way of an offer and the other is by way of a scheme of arrangement. These changes were adopted on 22 May 2023, which include the following:
- the parties to the offer must consult the Panel as to the applicable timetable, including:
- the latest date on which either competing bidder may announce a revised offer and, if necessary, the date on which the Panel will introduce an auction procedure; and
- the offer timetable thereafter, including, if relevant, Day 60 (the unconditional date);
- the Panel would not impose an auction until the regulatory clearance condition(s) of both offers had been satisfied or waived; and
- the unconditional date of the offer would generally fall between the shareholder meeting date and the sanction hearing date of the scheme, giving shareholders the opportunity to decide on the offer after discovering the outcome of the shareholder meetings on the scheme.
