How will latest changes to Volcker Rule affect non-US banks?
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.
On February 15, 2016, the UK Takeover Panel (the Panel) published Consultation Paper 2016/1 (the Consultation) setting out various proposed changes to the UK Takeover Code (the Code) in relation to the communication and distribution of information during an offer. Areas covered include:
The Consultation closes on April 15, 2016. This briefing sets out our views on the key changes proposed and some of the practical implications for companies and their advisers if these are implemented in the form set out in the Consultation.
The Panel is proposing to introduce new requirements relating to information or opinions published or provided in relation to an offer or party to an offer. In summary:
As is currently the case, the Panel recognises that there are certain circumstances in which it will be appropriate for information or opinions (including material new information or significant new opinions) to be provided in confidence to Relevant Parties - for example meetings with significant shareholders of target to gather irrevocables prior to announcing a bid. Under the revised rules it is therefore proposed that:
The Panel is proposing to clarify that any announcement required to be published under the Code must be made via RIS and to expand the current rules on “out of hours” publication to cover all announcements required to be made under the Code (not just those announcements currently specified in Rule 2.9(a)).
Where the Code requires an announcement to be published, it is proposed that the Panel should also have the ability to require a copy of the announcement to be sent to target shareholders, employee representatives and trustees of target pension schemes.
The proposed amendments around making shareholders insiders in relation to certain information on an offer are largely no more than a codification of current practice and, as such, we would not expect them to result in any material changes to the way in which parties to an offer currently engage with significant shareholders. Similarly, the proposed revisions clarifying that RIS announcements will be the primary means of communicating material new information or significant new opinions to the market reflect what most practitioners would consider to be the Panel’s current approach. Extending the rules to require website publication of presentation materials is logical, but on the basis that such presentations will be based on the information contained in the offer documentation we expect this to be, on balance, more of an administrative issue. It will however be interesting to see if any concerns in this area lead to parties to an offer moving away from formal presentations to more informal discussions.
Under the current rules, meetings between, on the one hand, representatives of bidder or target or their respective advisers and, on the other hand, shareholders or other persons interested in the securities of bidder or target, 6 analysts, brokers or others engaged in investment management advice prior to or during an offer period must typically be policed by an appropriate representative of the financial adviser or corporate broker to bidder/target. The relevant individual must then confirm in writing to the Panel (by noon the following business day) that no material new information was forthcoming and no significant new opinions were expressed at the meeting (or, where the meeting is prior to publication of a Rule 2.7 announcement that any such information or opinions will be included in the Rule 2.7 announcement if and when made).
The Panel recognises that, although the current rules continue to play an important function in ensuring that material new information or significant new opinions are not made available on a selective basis, there are significant costs and practicalities associated with the current policing requirements. They are therefore proposing that a new Rule 20.2 is introduced which provides that:
Where a representative of, or adviser to, the target or bidder (other than a financial adviser or corporate broker) is to provide a written confirmation to the Panel under the proposed new Rule 20.2, the financial adviser to the relevant party will be required to provide an appropriate briefing to them prior to the meeting on the requirements of proposed Rule 20.2 and the information and opinions which may (and may not) be provided.
The Panel is clarifying that meetings, for these purposes, include telephone meetings and meetings held by electronic means (e.g. video conferences). It is also proposing to make clear that the new rules will apply to all meetings, even where these are unscheduled. The current wording that excludes meetings that “take place by chance” is therefore not being replicated in the new rules. The Consultation notes that, where a representative of (or adviser to) bidder or target receives an unscheduled incoming telephone call from a relevant third party during a period where the new rules on policing will apply, they should either immediately arrange for an appropriate individual from the financial adviser or corporate broker to join the call or terminate the call and arrange for it to be reconvened with an appropriate individual in attendance.
Relaxing the rules around policing of meetings in the context of recommended offers is arguably a major departure from an approach that has been a key aspect of takeover regulation under Rule 20.1 for many years. That said, in our view the Panel is correct to question the value of policing on “lower risk” transactions as against the costs and practicalities involved for bidder and target companies, and we expect the proposed change in approach will be welcomed by the market.
It is not surprising that the Panel is proposing to remove the requirement to police meetings that take place prior to commencement of an offer period (provided they are not in connection with a potential offer) as a situation where such unconnected, ordinary course meetings require policing is not particularly satisfactory, and dispensations from the current rules are frequently sought from the Panel in this context.
The difference of approach as between meetings and calls has been increasingly difficult to reconcile, so it is understandable that the Panel has moved to align the rules in this area. The proposal that calls and meetings where the only bidder or target attendees are their financial advisers/corporate brokers should not be subject to the confirmation regime reflects a sensible compromise, as requiring written confirmations to be submitted to the Panel in respect of such calls would introduce additional administrative burdens for financial advisers whilst providing limited benefit.
More generally, the move towards self-policing and self-certification makes sense and we expect will be welcomed by the market, but we are not surprised that the Panel proposes to include a formal requirement that financial advisers brief the relevant parties in advance, given the role of financial advisers in ensuring that their clients comply with the Code.
Although videos may be used by a bidder or target as a means of communicating information or opinions in relation to an offer, they are not specifically dealt with under the current Code. The Panel is proposing to introduce specific provisions into the Code (in the form of a new Rule 20.3) requiring the Panel’s prior consent to the publication of videos by bidder or target that include any information or opinions relating to an offer or party to an offer and introducing a requirement for the video to be published on a website and announced via RIS. The proposed new rule also states that such videos must comprise only a director or senior executive reading from a script or participating in a scripted interview (the Consultation notes that a video that did not comply with these limitations would be likely to be regarded as an advertisement for the purposes of Rule 19 of the Code).
Again, the Panel recognises that bidder and target companies may want to communicate information or opinions relating to an offer via social media, although it notes that this will still need to comply with the standards of care and presentation contained in Rule 19.1 of the Code. The Panel proposes to introduce a new Rule 20.4 which provides that social media must not be used by or on behalf of a bidder or target to publish information relating to an offer or a party to an offer other than:
Minor amendments are proposed to the rules around posting documents on a website during an offer period, including a requirement for these to be published “promptly” 8 following publication of the relevant document, announcement or information (currently the rules only require certain documents to be posted on a website by noon the following business day). The Panel’s view is that this reflects the fact it is now possible to publish information on a website significantly more quickly than was the case when the rules on website publication were originally introduced.
On the whole the Panel’s proposed approach in this area seems sensible and proportionate. The recognition in the Code of the changing dynamics in shareholder communication and in the increased use of social media was inevitable, with bidders and target companies having been increasingly keen to use these channels of communication over recent years, and formalisation of the Panel’s approach is helpful. We are not particularly surprised that the Panel are seeking to restrict the use of social media to sharing offer documentation or drawing attention to its existence on websites and elsewhere, but it will be interesting as to how the market responds to the proposals in this area.
The Panel is proposing to clarify the rules on publication of advertisements, including by broadening the scope of the prohibition on publication of advertisements so that it applies not only to advertisements “connected with an offer” but to all advertisements published “during the course of an offer” (although the Consultation notes that this is not expected to affect the way that the rules currently operate in practice given that the exceptions to the prohibition will remain broadly the same, including product advertisements and corporate image advertisements which do not relate to the offer). The requirement for advertisements to include a responsibility statement is also proposed to be removed as it is considered unnecessary.
The relevant provisions are also proposed to be moved from Rule 19.4 to a new Rule 20.5 (on the basis that they more logically sit with the rules around methods of communicating information and opinions relating to an offer).
Certain minor amendments are proposed to the rules in relation to telephone campaigns, including moving current Rule 19.5 to a new Rule 20.6
While the proposed amendments to the Code will have an impact on certain aspects of market practice, particularly in the context of policing of meetings, we do not think they will have a dramatic impact on the way in which offers are conducted.
The totality of the proposed changes seems proportionate to the issues that Rule 20 of the Code seeks to address, and it is an area where the market has been expecting changes for some time. We expect the proposed move towards increased self-policing and self-certification will be welcomed by the market as (aside from costs and practicalities associated with the current regime) the Panel is frequently asked for dispensations to the application of the rules in practice, not least in the context of pre-offer period and ordinary course shareholder engagement, particularly by international bidders. Financial advisers will, however, still be under scrutiny to the extent that there are any breaches of Code restrictions in such unpoliced meetings, and in that context we expect the focus of the Panel will be very much on the extent to which the relevant individuals were appropriately and adequately briefed by the financial adviser in advance.
The proposals to tighten up the rules on making materials available on websites and to clarify the Panel’s approach to use of social media are not particularly surprising developments, and we expect that these will primarily be seen as process related and administrative changes rather than having a substantive impact on the conduct of transactions.
Other than in a document sent to target shareholders and persons with information rights.
Or other persons interested in securities (including debt securities) of bidder or target.
Whether in an interview or discussion or in an article, press release, letter or other document.
The Consultation notes that a presentation or document provided or used in meetings with Relevant Parties will be updated from time to time and that different versions may be used in different meetings. It is not proposed that every version be published on a website/announced – if there are different versions only the latest version needs to be published on a website (provided it does not omit any relevant information or opinion included in a previous version) and there would be no need to announce the fact that a presentation or document is replaced by a later version unless the new version contained any material new information or significant new opinion relating to the offer or a party to the offer.
The Consultation proposes to delete current Note 2 on Rule 20.1 (which provides that parties to an offer must take particular care not to disclose new material in interviews/discussions with the media and sets out the consequences if such information is disclosed) on the basis this is superseded by the new proposed rules.
The Panel is proposing that this be limited to persons interested in “relevant securities” of the bidder/target in line with the Panel’s current practice.
The Panel does not consider it necessary for the proposed new rules on policing of meetings to apply to “ordinary course” meetings (i.e. meetings at which the possible offer will not be discussed and which would have taken place regardless of the possible offer) which take place prior to commencement of an offer period. It considers that the risk of material new information or significant new opinions being provided in such circumstances is low and recognises that such meetings will be subject to the legislation and regulations which govern the passing of information outside an offer period.
In the Consultation it is noted that this should be regarded as a requirement to publish as soon as practicable, taking into account what is reasonable in all the circumstances.
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.
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