On December 11, 2017 the Code Committee of the Takeover Panel published Response Statement RS 2017/2 confirming a number of amendments to the Takeover Code (Code). These amendments will take effect on January 8, 2018 and follow on from Public Consultation Paper PCP 2017/2 (the Consultation) published in September 2017. These amendments relate to post-offer intention statements and undertakings and to certain requirements in connection with the timing of publication of offer documents. In light of responses to the consultation, the Code Committee has adopted the amendments to the Code proposed in RS 2017/2, subject to certain modifications as set out in Appendix B to RS 2017/2.
Content requirements for offeror statements of intention
In the Consultation it was proposed that Rule 24.2(a) (Intentions of the offeror with regard to the offeree’s business, employees and pension scheme(s)) should be amended to require an offeror to make specific statements of intention with regard to the offeree company’s research and development functions, the balance of the skills and functions of the offeree company’s employees and management, and the location of the offeree company’s headquarters and headquarters functions.
These proposals are being adopted with one minor amendment which recognises that certain offeree companies may not have a research and development function. As regards the new requirement for an offeror to state its intentions with regard to “any material change … in the balance of the skills and functions of the employees and management”, the Code Committee notes that an offeror will need to consider the consequences of its plans for the offeree company on the composition of the workforce. If, for example, the proportion of workers with certain technical skills or particular qualifications, or the proportion of employees or management allocated to production, research and development or other functions, would be likely to change following the offer, this will need to be stated.
The Code Committee also considers that any statement made by an offeror under Rule 24.2(a) should be specific and bespoke, appropriately reflecting the offeror’s unique business rationale for seeking to acquire the offeree company and intentions as to what it will do (or not do) in the 12 months following completion of the acquisition. The Code Committee recognises that there may be circumstances where an offeror’s intentions for the offeree change during the course of an offer (for example, the intentions of a hostile offeror may change as a result of negotiations with the offeree company board) but notes that, if this does occur, it would be likely to be a material change to the information previously disclosed and therefore the new intentions would be required to be announced promptly.
The Code Committee also notes that, if an offeror wishes to state that it will undertake a review of the offeree company’s business following completion of the offer, then a statement that it intends to undertake such a review will not, of itself, satisfy the requirements of Rule 24.2 (or the new Rule 2.7(c)(iv)) and, in such circumstances, the offeror should disclose what the review is likely to cover and its expectations in relation to the review.
Timing requirements for offeror statements of intention
The Consultation also proposed the amendment of Rule 2.7 (Announcement of a firm intention to make an offer) so as to introduce the requirement for an offeror to state in its firm offer announcement its intentions with regard to the business, employees and pension scheme(s) of the offeree company (and, where appropriate the offeror) as currently required by Rule 24.2 in relation to an offer document.
In light of responses, the Code Committee has adopted the amendments to Rule 2.7 and Rule 25.9 (Employee representatives’ opinion and pension scheme trustees’ opinion) as proposed, subject to one minor amendment.
The Code Committee has confirmed that (as is currently the case) there will be no requirement under the revised rules for an offeror to include statements of intention in a possible offer announcement (as opposed to a firm offer announcement under Rule 2.7).
The Code Committee has also confirmed that there is no requirement under the Code for the board of the offeree company to comment on the statements of intention made by an offeror until it publishes its offeree response circular.
Offeror not to publish offer document for 14 days without offeree board consent
The Consultation proposed the amendment of Rule 24.1(a) (Offer document) so as to provide that an offeror must not publish an offer document for 14 days from the announcement of its firm intention to make an offer without the consent of the board of the offeree company.
While the majority of respondents supported these amendments, a significant minority did not. However, the Code Committee noted that it continues to believe that an offeree company board should be provided with the ability to take more than the current period of 14 days to formulate its “defence”. Whilst it recognises that there are various means by which this might be achieved, the Code Committee does not consider that the alternative solutions suggested by respondents were demonstrably better than the amendment which was proposed in the Consultation . Whilst it accepts that one effect of the amendment to Rule 24.1(a) may be that an offeror’s ability to build a stake in the offeree company is, in practice, delayed, the Code Committee does not consider this to be a disproportionate consequence for offerors.
One respondent to the Consultation queried whether the offeree board could give its consent to earlier publication of the offer document without being in breach of Rule 21.2 which prohibits “offer-related arrangements” between an offeror and offeree company. While the Code Committee considers that a “bid conduct agreement”, or any similar agreement entered into by an offeror and the offeree company, would not be permitted to include an agreement by the board of an offeree company that it will consent to the offeror publishing its offer document within 14 days of its firm offer announcement, it considers that it would be permissible for a firm offer announcement made jointly by an offeror and the board of the offeree company to include a statement that the board had provided its consent to the publication of the offer document and the offeror would then be able to rely on that statement for the purposes of the amended Rule 24.1(a).
The Code Committee considers that the amended Rule 24.1(a) would apply to a subsequent competing offeror in the same way as to the initial offeror. In each case, it will be for the board of the offeree company to decide whether or not it wishes to consent to the publication of the relevant offeror’s offer document within 14 days of the announcement of that offeror’s firm intention to make an offer.
Reports on post-offer undertakings
The Consultation proposed amendments to Rule 19.5(h) (Post-offer undertakings) such that: (i) the requirement for an offeror or offeree company to publish, in whole or in part, any report submitted to the Panel with regard to a post-offer undertaking should apply in all cases and not only at the discretion of the Panel; and (ii) where a post-offer undertaking has a duration of longer than a year, such reports should be published at least annually.
The proposed amendments have been adopted in the form set out in the Consultation.
In response to a query from one respondent about whether (with the consent of the Panel) commercially sensitive text could be redacted from a report published in accordance with Rule 19.5(h)(iv), the Code Committee noted that the revised rule requires the report submitted to the Panel to be published “in whole or in part as required by the Panel”, so this provides scope for the Panel either to require only parts of the report to be published or to consent to the redaction of parts of the report prior to its publication.
Confirmation of post-offer intention statements
The Consultation proposed the introduction of a new Rule 19.6(c) (Post-offer intention statements) to require a party to an offer which has made a post-offer intention statement, at the end of the period of 12 months from the date on which the offer period ends (or such other period of time as was specified in the statement), to confirm in writing to the Panel whether it has taken, or not taken, the course of action described in the post-offer intention statement and to publish that confirmation via a Regulatory Information Service.
The Code Committee has adopted the amendments as proposed. It comments that any such confirmation given to the Panel is likely to be relatively brief and should not contain any material new information. This is because, if a party to an offer has, contrary to its post-offer intention statement, not taken the intended course of action (or taken a different course of action), the Code Committee would expect the relevant details already to have been announced (as a result of Rule 19.6(b)) prior to the time of the confirmation required under the new Rule 19.6(c).
The Code Committee notes that the Panel Executive will continue to require the parties to an offer to provide to it a schedule of the intention statements made during an offer as one of the supplementary forms submitted with the checklist for an offer document or offeree board circular.
In relation to the question of adviser’s responsibilities after the end of an offer, the Code Committee refers to its comments in Response Statement 2014/2 (paragraphs 2.6, 2.7 and 2.9) and it confirms that these continue to represent the Code Committee’s views on this issue. The points raised in those paragraphs include: that the Code Committee recognises that an adviser’s mandate is likely to come to an end once the offer has ended and would not, therefore, expect an adviser to be responsible for ensuring that its former client complies with a post-offer undertaking after that time; and that an adviser’s involvement in any subsequent investigation or action by the Panel would be limited to responding to questions in relation to the advice which it gave at the time the post-offer undertaking or intention statement was made.
These amendments to the Code will take effect on January 8, 2018 and will apply from that date to all companies and transactions to which the Code relates, including ongoing transactions that straddle January 8, 2018 except where to do so would give the amendments retroactive effect.
As regards specific Rules:
- Rules 2.7 and 24.2: If an offeror announces a firm intention to make an offer under Rule 2.7 before January 8, 2018 and publishes an offer document on or after that date, it will need to comply with the requirements of amended Rule 24.2.
- Rule 24.1(a): If an offeror announces a firm intention to make an offer prior to January 8, 2018 but has not yet published an offer document, it will only be able to do so within 14 days of its firm offer announcement with the offeree board’s consent.
- Rule 19.6(c): A party to an offer which makes or repeats a post-offer intention statement on or after January 8, 2018 will be required to give confirmations in relation to those post-offer intention statements under the new Rule 19.6(c) at the end of the period of 12 months from the date on which the offer period ended, or such other period as was specified in the statement.
(Takeover Panel, Statements of intention and related matters, 11.12.17)