UK offer conditions and timetable changes published (RS 2020/1)

The final changes to the provisions in relation to conditions to offers and the offer timetable in the UK Takeover Code (the "Code") have been published (RS2020/1). Broadly, these reflect the proposed changes in PCP 2020/1 published on 27 October 2020, many of which were the subject of an informal pre-consultation in January and February 2020.

The amendments take effect on 5 July 2021 and apply to all offers in respect of which a Rule 2.7 announcement is made on or after that date, unless to do so would give the amendments retroactive effect. Firm offers announced before that date (and any offers announced after that date which are in competition with an existing offer) continue to be subject to the current rules.

Whilst the circumstances in which some of the new rules apply may be limited, market practitioners still need to take them into account. For example one aspect to consider is the impact of the new long-stop date rule on offer financing.

Offer timetable

The 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 to which many offers are subject. They include:

New definitions of certain key dates

• "Day 60" is 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 are 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 will be automatically extended (or re-set) if Day 60 is extended; and

• there is no longer a Day 81 (currently the day by which all conditions must be satisfied).

Timetable suspension

The Panel can 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. But if only one of the parties wants to suspend the timetable, the condition must relate to a 'material official authorisation or regulatory clearance'. This is a new definition which is distinct from, but linked to, the 'material significance' test in Rule 13.5(a).

A suspension will normally start on "Day 37" and the offer timetable will 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.

The RS notes that a governmental approval in relation to national security under the National Security and Investment Bill would be an official authorisation or regulatory clearance for Code purposes but that clearance from the Pensions Regulator would not. (See UK Government's proposed powers to intervene in M&A transactions for more information.)

Single date for the satisfaction of all conditions

Under the new rules, there is no distinction between the date by which the acceptance condition needs to be satisfied (i.e. 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 (i.e. when the offer is 'wholly unconditional', currently Day 81).

Instead the offeror will state the date by which all the conditions to its offer will need to be satisfied or waived, known as the 'unconditional date'. If the offeror does not make an 'acceleration statement' (see below), the unconditional date is Day 60 and so will automatically be extended if the Panel extends Day 60.

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

'Acceleration statement'

An offeror can bring forward the unconditional date by issuing an 'acceleration statement'. This replaces 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.

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. The requirement for (1) the offeree company board to announce any material new information by no later than Day 39; and (2) a publicly disclosed potential competing offeror to clarify its position by no later than Day 53 will also be disapplied

'Acceptance condition invocation notice' (ACIN)

The way to lapse an offer on the acceptance condition has been changed. An offeror must serve an ACIN if it wants to invoke the acceptance condition and lapse its offer (on or after Day 21 and before the unconditional date). This gives offeree company shareholders notice of its intention to do so.  The RS notes that there is nothing in the new Rules to prevent an offeror from serving an ACIN when it publishes its offer document, provided that the notice period is at least 21 days. 

An ACIN must be published via a regulatory information service, with the Panel reserving the right to require that a copy is sent to offeree company shareholders.

Offers will, 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.

If an offeror gives an ACIN it must lapse its offer on the date it specifies, if the acceptance condition is not satisfied on that date.

Increased disclosure of acceptance levels

The timing of announcements of acceptance levels required to be made by an offeror under Rule 17 has changed. Acceptance levels will have to be disclosed on Day 21, then every seven days, and every day in the week before the unconditional date.

Long-stop dates for contractual offers

To address an offeror's concerns about a potential unexpectedly long suspension of the offer timetable, an offeror must set a 'long-stop date' for a contractual offer by which all conditions need to be satisfied if the offer timetable is suspended. This is similar to the long-stop date typically included in a scheme of arrangement. A long-stop date is also required for a pre-conditional offer.

Withdrawal rights

Offeree company shareholders who have accepted an offer will be able to withdraw their acceptances at any time until the acceptance condition is satisfied, instead of withdrawal rights normally only being exercisable after Day 42, assuming a first closing date on Day 21.

Conditions

Amendments to the rules relating to conditions include the following.

All regulatory conditions to be treated consistently - no longer distinguishing between UK/EU competition clearances and other regulatory clearances

As well as allowing an offer timetable to be suspended for all official authorisations or regulatory clearances, the changes include:

• there is no longer 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 will only be able to invoke a condition relating to CMA or European Commission competition clearances  if it can 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 has been removed. Subject to consultation with the Panel, an offeror can  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 has been amended to clarify how the 'material significance' test applies when invoking a condition to an offer.

The Panel has also amended Practice Statement No 5 (Rule 13.5(a) - Invocation of conditions). The amendments include additional factors which the Panel will take in to account when deciding whether or not a bidder should be able to invoke a condition.

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 amended Code expressly requires the offeror, once all relevant conditions had been satisfied or waived, to take the procedural steps necessary for the scheme to become effective, unless the Panel consents otherwise.

Mandatory offers

Rule 9 requires an offeror to make a mandatory offer in certain circumstances and that offer should be conditional only on an acceptance condition. The Panel can now allow a mandatory offer to include an additional condition if an official authorisation or regulatory clearance is required. The Panel has already allowed this in the bid for Trans-Siberian Gold.  The amended Code limits the circumstances in which this dispensation can 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 condition to the share purchase agreement (and the condition or pre-condition to the offer) can only be invoked with the Panel's consent. That consent will only normally be given if the circumstances allowing the offeror to invoke the condition satisfy the 'material significance' test in Rule 13.5(a).