Substantial changes proposed to UK Takeover Code’s rules

The UK Takeover Panel has published its proposals for changes to the conditions to offers and the offer timetable in the UK Takeover Code (the "Code") (PCP 2020/1). Most of these proposals were the subject of an informal pre-consultation in January and February 2020.

Many of the timetable changes will only be relevant when the offer is hostile or there is a competitive situation as the rules have no practical application when it is a recommended 'contractual offer', as the timetable can normally be extended with the consent of the board of the offeree company. The timetable rules also do not generally apply to offers implemented as schemes of arrangement under Part 26 of the Companies Act 2006.

Offer timetable

The proposed changes to the offer timetable are intended to simplify it and to accommodate the lengthy timeframes that can be needed to satisfy conditions relating to official authorisations and regulatory clearances that many offers are subject to. They include:

• New definitions of certain key dates:

  • "Day 60" would be defined as the 60th day following the publication of the initial offer document or any later date set by the Panel pursuant to an extension of the offer timetable;
  • Days 39, 46 and 53 would be set by counting back from Day 60 (by respectively 21, 14 and seven days) as opposed to counting forwards from Day 0 (as is currently the case with Days 39 and 53).  So, Days 39, 46 and 53 would be automatically extended (or re-set) if Day 60 is extended; and
  • There would no longer be a Day 81.

• Timetable suspension: the Panel would be able to suspend the offer timetable (and therefore extend Day 60) if any official authorisation or regulatory clearance (not just clearance by the CMA or EU Commission as is currently the case - see below) has not been satisfied or waived before Day 39, provided that, if only one of the parties wants to suspend the timetable, the condition must relate to a 'material' authorisation or clearance. A suspension would normally start on "Day 37" and the offer timetable would normally resume on "Day 32" to allow an offeree company seven days in which to prepare for the announcement of any material new information on Day 39.

• Single date for the satisfaction of all conditions: there would be no distinction between the date by which the acceptance condition needs to be satisfied (ie when the offer is 'unconditional as to acceptances', currently Day 60) and the date by which the other conditions to the offer need to be satisfied or waived (ie when the offer is 'wholly unconditional', currently Day 81).

  The date specified by the offeror as the date by which all the conditions to its offer would need to be satisfied or waived would be defined as the "unconditional date". If the offeror does not make an 'acceleration statement' (see below), the unconditional date would be Day 60 and would therefore automatically be extended if the Panel extended Day 60.

  Subject to certain exceptions, the acceptance condition would only be capable of being satisfied once all the other conditions to the offer had been satisfied or waived.

• 'Acceleration statement': an offeror would be able to bring forward the unconditional date by issuing an 'acceleration statement'. This will replace the current 'no extension statement' pursuant to which a bidder can make a statement that the offer will not be extended beyond a specified date.

  The new unconditional date must be not less than 14 and not more than 27 days from the date of that statement. If an acceleration statement is made, the offeror must at the same time waive any outstanding conditions relating to an official authorisation or regulatory clearance and the requirements which would otherwise apply to an offeree company on Day 39 and to a potential competing offeror on Day 53 will be disapplied.

• 'Acceptance condition invocation notice': the way to lapse an offer would change. An offeror would be required to serve an 'acceptance condition invocation notice' if it wanted to invoke the acceptance condition and lapse its offer (on or after Day 21 and before the unconditional date). This will give offeree company shareholders notice of its intention to do so. Offers would, therefore, no longer have 'closing dates' on which the offeror can decide either to lapse the offer if it has received insufficient acceptances or to extend the offer. The Panel is also proposing to amend Practice Statement No 5 (Rule 13.5(a) - Invocation of conditions).

• Announcements of acceptance levels: amendments would be made to the timing of announcements of acceptance levels required to be made by an offeror under Rule 17.

• Long-stop dates for contractual offers: to address an offeror's concerns about a potential unexpectedly long suspension of the offer timetable, an offeror would be required to set a "longstop date" for a contractual offer by which all conditions would need to be satisfied. This would be similar to the long-stop date typically included in a scheme of arrangement. A long-stop date would also be required for a pre-conditional offer.

• Withdrawal rights: offeree company shareholders who have accepted an offer would be able to withdraw their acceptance at any time until the acceptance condition is satisfied.

Conditions

The proposed amendments to the conditions include:

• Applying consistent treatment to any official authorisation or regulatory clearance to which an offer is subject: in addition to the proposal to allow the suspension of an offer timetable in relation to all official authorisations or regulatory clearances, the changes would include:

  • There would no longer be a requirement for an offer to include a term that it must lapse if a Phase 2 CMA reference is made or Phase 2 European Commission proceedings are initiated;
  • An offeror that wants to invoke a condition relating to CMA and European Commission competition clearances would need to demonstrate that the circumstances are of material significance to the offeror in the context of the offer in the same way as if it wanted to invoke a condition relating to any other official authorisation or regulatory clearance; and
  • The distinction between pre-conditions relating to CMA and European Commission competition clearances and those relating to other official authorisations or regulatory clearances would be removed. Subject to consultation with the Panel, an offeror would be able to announce an offer subject to a pre-condition in relation to an official authorisation or regulatory clearance if either the offeree company agrees to it; or the authorisation or clearance is a 'material official authorisation or regulatory clearance'.

• 'Material significance' test: Rule 13.5 would be amended to clarify how the 'material significance' test applies when invoking a condition to an offer.

• Requirement to take necessary procedural steps in relation to a scheme of arrangement: where an offer is being implemented as a scheme of arrangement, the Code would expressly require the offeror, once all relevant conditions had been satisfied or waived, to take the procedural steps necessary for the scheme to become effective.

• Mandatory offers: Rule 9 requires an offeror to make a mandatory offer in certain circumstances and should be conditional only on an acceptance condition. The Panel can, however, allow a mandatory offer in certain circumstances if an official authorisation or regulatory clearance is required. The proposals would limit the circumstances in which this dispensation could be given to where:

  • it is a 'material official authorisation or regulatory clearance';
  • the condition to the share purchase agreement is in identical terms to the condition or pre-condition relating to the material official or regulatory clearance; and
  • the invocation of the condition to the share purchase agreement (and the condition or pre-condition to the offer) is subject to the 'material significance' test in Rule 13.5(a).

Next steps

Comments on the proposed amendments are due by 15 January 2021.

The Code Committee expects to publish a Response Statement with final amendments in Spring 2021 and those amendments would come into effect approximately three months after the publication of the Response Statement in relation to firm offers announced after that time.