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Changes to the Takeover Code

Print publication

15/03/2018

Rule changes

At the end of 2017, the Code Committee of the Takeover Panel published response statement 2017/2 setting out amendments to the Takeover Code in relation to statements of intention. These changes have taken effect and apply to all companies and transactions that are subject to the Takeover Code.

The key changes are to Rules 2.7, 24.1 and 24.2. They include:

  • Rule 2.7 – an offeror will now have to make statements of intention with regard to the business, employees and pension schemes of the target company (and, where appropriate, of the offeror itself) at the time of the offeror’s announcement of its firm intention to make an offer (rather than wait for the actual offer). The offeror will also still be required to state its intentions in the offer document.
  • Rule 24.1 – 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 target’s board.
  • Rule 24.2 – an offeror, when making statements of intention with regard to the business, employees and pension schemes of the target company (and, where appropriate, of the offeror itself), must explain the long term justification of the offer and make specific statements of intention with regard to any research and development function of the target company, any material change in the balance of the skills and functions of the target’s employees and management, and the likely repercussions of its strategic plans on the location of the target’s headquarters and headquarters functions.

New Practice Statement 32

The Takeover Panel has recently published Practice Statement 32 which relates to Rule 21.1 – Application following the unequivocal rejection of an approach.

Rule 21.1(a) provides that, during the course of an offer, or even before the date of the offer if the board of the target company has reason to believe that a bona fide offer might be imminent, the board must not, without the approval of shareholders in general meeting:

  • take any action which may result in any offer or bona fide possible offer being frustrated or in shareholders being denied the opportunity to decide on its merits; or
  • take certain specific actions described in the Rule.

The application of Rule 21.1(a) can sometimes be unclear where the board of a target company has received, and subsequently unequivocally rejected, an approach and does not know whether the potential offeror continues to be interested in making an offer. In this situation the question of whether, and if so for how long, the board should then be considered to have reason to believe that a bona fide offer might be imminent is left unanswered.

Practice Statement 32 clarifies that where the target’s board has received, and subsequently unequivocally rejected, an approach and does not know whether the potential offeror continues to be interested in making an offer, the Takeover Panel will normally consider that Rule 21.1(a) will continue to apply until 5pm on the second business day following the date on which the approach was unequivocally rejected unless before that time the rejected potential offeror has given the target’s board reason to believe that it continues to be interested in making an offer.

The Takeover Panel should be consulted if the board of a target company intends to take any action described in Rule 21.1(a) following the unequivocal rejection of an approach.

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