Overview of the current position
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).
Overview of the key proposed changes
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:
- Meetings/telephone calls will be required to be policed where they take place: (i) prior to an offer period (but only if the meeting or call relates to a possible offer or would not be taking place but for the possible offer7); (ii) during the offer period but before announcement of a firm offer; or (iii) following announcement of a firm offer, but normally only where the firm offer is not recommended or there is a competitive situation.
- Meetings/telephone calls should not (subject to prior consultation with the Panel) normally need to be policed where they take place after announcement of a recommended firm offer and provided there is no competitive situation. Instead, a senior representative of target/bidder who attended will normally be permitted to make the necessary confirmations to the Panel.
- Meetings or telephone calls will not need to be policed where they are attended only by one or more advisers to bidder or target (other than a financial adviser or corporate broker – e.g. a PR adviser) and one or more “sell side” investment analysts. Instead, a senior adviser who attended should be permitted to make the necessary confirmations to the Panel.
- No confirmation to the Panel will be required where the only persons who attended the meeting or call on behalf of bidder or target are one or more financial advisers or corporate brokers.
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.