UK Takeover Code – recent changes

Amendments to Practice Statement no 20 (2022/6)

Rule 2 of the Takeover Code includes requirements as to when an announcement about a possible offer needs to be made to the market, including that the Panel Executive should be consulted about the need to make an announcement under Rule 2.2 if there has been an untoward movement in the share price of the potential offeree company. The Practice Statement provides guidance on the Panel application of the Rule 2 requirements.

Rule 2.2 requires an announcement to be made when the offeree company is the subject of rumour and speculation or there is an untoward movement in its share price. Note 1(b) on Rule 2.2 provides that following an approach to a target company, unless an immediate announcement is made, the Panel should be consulted at the latest when the offeree company becomes the subject of any rumour and speculation or where there is a price movement of 10% or more above the lowest share price since the time of the approach. An abrupt price rise of a smaller percentage (for example, a rise of 5% in the course of a single day) could also be regarded as untoward and accordingly the Panel should be consulted in such circumstances.

Similarly, after a bidder first actively considers but before an approach is made to an offeree company, the Panel should be consulted at the latest when the offeree company becomes the subject of any rumour and speculation or where there is a price movement of 10% or more above the lowest share price since the time of the approach. An abrupt price rise of a smaller percentage (for example, a rise of 5% in the course of a single day) could also be regarded as untoward and accordingly the Panel should be consulted in such circumstances.

The amendments to the Practice Statement clarify when to consult if there has been a 10% or more share price movement. It states that the Panel Executive's policy is to treat a 10% share price movement as being relevant for determining the latest time by which it should first be notified of a possible offer by a potential bidder or target or their respective financial advisers. If the relevant party has already notified the Executive of the possible offer before the 10% share price movement, the Executive will not expect to be consulted again solely because of that change in a target's share price. However, as set out in Note 1 on Rule 2.2, the Executive will still expect to be consulted each time a target is the subject of rumour and speculation or there is an abrupt target share price rise (for example, by 5% in the course of a single day).

The other amendment specifically includes social media as one of the sources of information which advisers should monitor for rumour and speculation regarding a potential target.

See Panel Statement 2022/6, mark up of amendments and updated Practice Statement no 20.

Consultation to remove restriction on anonymous order book dealing

On 7 February 2022, the Takeover Panel published a consultation paper (PCP 2022/1) with proposals to delete Rule 4.2(b). This rule prohibits a bidder (and any concert party) from acquiring an interest in target securities through an anonymous order book or any other means during the offer period unless it can be established that the counterparty to the transaction is not an exempt principal trader connected with the bidder. It is considered that it is no longer proportionate to restrict these purchases and that the current prohibition can make it difficult, in practice, for a bidder to purchase target shares in the market at the prevailing market price. As a result of regulatory oversight of anonymous order book systems, the Code Committee considers that there is now a low risk that a connected exempt principal trader would agree to place sell orders on an anonymous order book to enable a bidder to purchase target shares at or below the offer price where it had acquired those shares at above the offer price.

But PCP 2022/1 highlights the continuing importance of: (i) the general prohibition in Rule 38.1 on a connected exempt principal trader assisting a bidder or target; and (ii) the specific restriction in Rule 38.2 on an exempt principal trader connected with a bidder knowingly dealing with the bidder in target shares during the offer period, and that a failure to comply with these provisions would represent a serious breach of the Takeover Code.

PCP 2022/1 also makes some consequential amendments to Rule 38.2 (which prohibits dealings between bidders and connected exempt principal traders during the offer period) and minor tidying up amendments to Rule 4.2(a).

Comments are due by 18 March 2022. The Code Committee expects to publish a response statement setting out the final amendments to the Takeover Code in spring 2022, at the same time as it publishes its response to the consultation in PCP 2021/1 (Miscellaneous Code amendments). The amendments are expected to come into effect approximately one month after publication of the response statement.