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IMC IE Chapter 6 > 6.5 Takeover & Merges & Takeover panel > Flashcards

6.5 Takeover & Merges & Takeover panel Flashcards

1
Q

Who owns a company?

A

Shareholders

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2
Q

Who manages a company and who appoints the people who manage the company?

A

Directors manage the company and directors are appointed by shareholders (the owners).

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3
Q

Who is deemed the legal owner of a company?

A

Any shareholder who acquires >50% of the shares in a company is deemed the legal owner because they are able to appoint directors to run the company according to their wishes.

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4
Q

When does a takeover bid occur?

A

Whenever anyone attempts to acquire >50% of the shares in a company. The person trying to take over the other company could be an individual or a company.

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5
Q

Even though the terms takeover and merger are used interchangeably, in what context is the term merger most commonly used?

A

When two similarly sized companies are to be joined together.

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6
Q

The Department for Business, Innovation and Skills (BIS) created in 2009 is an amalgamation of which departments?

A
  1. Department for Business, Enterprise and Regulatory Reform
  2. The Department for Innovation, Universities and Skills.
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7
Q

Why was the Department for Business, Innovation and Skills (BIS) created?

A

In an attempt to bring all of the levers of the economy together in one place.

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8
Q

List the policy areas of the Department for Business, Innovation and Skills (BIS).

A
  1. Skills and Higher education
  2. Innovation and science
  3. Business and trade
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9
Q

What is the purpose of the policy areas of the Department for Business, Innovation and Skills (BIS)?

A

To help drive economic growth

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10
Q

List the 5 objectives of the Department for Business, Innovation and Skills (BIS).

A
  1. Raise the productivity of the UK economy
  2. Improve the skills of the population, on the way to ensuring a world-class skills base by 2020
  3. Promote world-class science and innovation in the UK
  4. Deliver the conditions for business success in the UK
  5. Improve the economic performance of all English regions and reduce the gap in economic growth rates between regions
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11
Q

What are the aims of the Competition Act 1998 and the Enterprise Act 2002?

A

To ensure that mergers and acquisitions in the UK do not result in uncompetitive practices or a substantial lessening of competition.

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12
Q

What rights are given to the Competition and Markets Authority (CMA) under the Enterprise and Regulatory Reform Act 2013?

A

Under the Enterprise and Regulatory Reform Act 2013, the Competition and Markets Authority (CMA) is empowered to look at ‘qualifying mergers’ and decide whether they are allowed to proceed. In certain
sectors, such as utility companies in the UK, referrals may be made to the Competition and Markets Authority (CMA) by relevant government ministers.

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13
Q

What happens in regards to takeovers and mergers where there are more national issues?

A

Where there are more national issues, for example issues of national security, the Department for Business, Innovation and Skills (BIS) will intervene and take decisions instead of the Competition and Markets Authority (CMA).

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14
Q

For a merger to qualify for further investigation, one of 3 tests must be satisfied. List the 3 tests.

A
  1. As a result of the merger, the combined enterprise accounts for at least 25% of the supply or acquisition of particular goods or services, either in the UK as a whole or in a substantial part of it (Share of Supply Test)
  2. The turnover of the entity being acquired exceeds £70m (Turnover Test)
  3. Any other substantial lessening of competition
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15
Q

How many days does the Competition and Markets Authority (CMA) have to complete its initial study (phase one)?

A

The Competition and Markets Authority (CMA) has up to 40 days to complete its initial study (phase one). If it believes there is a substantial lessening of competition, it will move to phase two.

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16
Q

What powers does the Competition and Markets Authority (CMA) have in phase two?

A

In phase two, the Competition and Markets Authority (CMA) has the power to prevent a takeover or merger proceeding, or impose restrictions on the takeover or merger.

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17
Q

How was the EU Takeover Directive implemented and what are its aims?

A

The EU Takeover Directive was implemented in the UK in 2006, by means of a combination of interim statutory provisions and amendments to the existing City Code. It aims to create a level playing field across the European Union to ensure equal treatment for shareholders during takeovers.

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18
Q

Do all countries use the rules listed in the EU Takeover Directive?

A

No! Some countries will continue to use their existing rules though. In the UK, the Takeover Panel remains the regulator of takeover and merger activity.

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19
Q

Who is the regulator of takeover and merger activity in the UK?

A

The Takeover Panel

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20
Q

Who does the EU Takeover Directive apply to?

A

All EU companies that trade on any EU regulated market

21
Q

What does the EU Takeover Directive state?

A

The EU Takeover Directive states that it is necessary to protect the interests of holders of the securities of companies governed by the law of a member state when those companies are subject to takeover bids or to changes of control.

22
Q

What does the Takeover Panel administer?

A

The Takeover Code

23
Q

What are some other names for the Takeover Code?

A
  • The City Code
  • The Code
24
Q

What is the Takeover Panel’s concern?

A

Ensuring all shareholders in a takeover are treated fairly and equally

25
Q

What is NOT the takeover panel’s concern?

A

Competition policy, which is the responsibility of the Competition Commission

26
Q

How is the Takeover Panel funded?

A

The Takeover Panel is funded by the receipt of levies on large transactions in UK equities. There is currently a flat levy of £1 on all transactions in UK equities with consideration in excess of £10,000.

27
Q

Who pays levies to the Takeover Panel?

A

The purchaser and the seller

28
Q

What kind of organisation is the Takeover Panel?

A

An independent, statutory body.

29
Q

Who appoints the Chair of the Takeover Panel?

A

The Governor of the Bank of England

30
Q

Who are the members of the Takeover Panel?

A
  • Many of the Takeover Panel members are seconded from industry, e.g. insurers, bankers, accountants, corporate finance professionals, etc.
  • Certain professional bodies, such as the British Bankers’ Association, the Association of Investment Companies and The National Association of Pension Funds are also nominated members of the Takeover Panel.
31
Q

What is the Takeover Code (City Code) is based on?

A

Certain articles in the Takeover Directive

32
Q

What legislation gives the Takeover panel the power to create the rules of the Takeover Code (City Code)?

A

Companies Act Part 28

33
Q

What 5 sanctions can the Takeover Panel impose as set out in the City Code?

A
  1. To issue a private reprimand
  2. To issue a public censure
  3. To report the offender to another regulatory authority, such as the Department for Business, Innovation and Skills (BIS), the London Stock Exchange (LSE) or the FCA. This is the most effective power since offenders may find themselves being denied market facilities (e.g. suspension of a company’s shares) or authorisation
  4. To order a person to pay compensation
  5. To seek approval from the court to ensure compliance with the rules or to seek an injunction
34
Q

Who does the Takeover Code apply to?

A

The Takeover Code applies in respect of the takeover of listed and unlisted public companies which are resident in the UK, Isle of Man or Channel Islands.

35
Q

Who do the rules imposed by the Takeover Code apply to equally?

A

`The responsibilities imposed by the Code apply equally to company directors of both the bidding and target companies and to all the professional advisors involved (e.g. accountants, corporate finance houses, etc.).

36
Q

List the 6 General Principles of the Takeover Code.

A
  1. All shareholders of the same class of the target company must be given equivalent treatment
  2. Shareholders must be given sufficient time and information to reach a decision on the bid
  3. The board of the target company must act in the interests of the company as a whole
  4. False markets must not be created
  5. The predator must announce a bid only after ensuring that it can fulfil in full any cash consideration
  6. The target company must not be hindered in the conduct of its affairs for longer than is reasonable by the bid
37
Q

What is meant by the term ‘control’ in the Takeover Code?

A

Legal control is determined by influence over more than 50% of the voting shares. The panel, however, uses a benchmark of 30% as effective control; many of the rules start to apply at this level.

38
Q

What is meant by the term ‘offer period’ in the Takeover Code?

A

Offer period means the period from the time when an announcement is made until the date when the offer becomes unconditional or lapses.

39
Q

What happens before a public announcement is made?

A

Before a public announcement is made, the predator company must first approach the target company’s board or its advisors.

40
Q

What conditions must any information announced meet?

A

It must be accurate and fairly presented.

41
Q

What is the responsibility of the directors of the offeror and offeree?

A

To take a duty of care to ensure information announced is accurate and fairly presented and to ensure that omissions that could mislead the market are avoided.

42
Q

Which rules apply once the bid has been announced?

A

Timing rules

43
Q

The City Code sets out a framework within which events must take place during a takeover. List the events in the timeline in time order.

A
  • Impact Day: London Stock exchange announces firms intention to make an offer.
  • Day 0: Offer document published to target. It must be published within 28 days of the Impact Day.
  • Day 14: If the offer is not recommended, this is the last day for the Target to advise shareholders of its view of the bid. This is called the first defence document.
  • Day 21: This is the earliest closing date for the offer.
  • Day 39: This is the last day on which the Target may announce material new information (including trading results).
  • Day 46: This is the last day on which the predator can revise the offer.
  • Day 60: The final closing date for the offer. If the bid lapses on this date, then the predator company will be unable to make another offer for 12 months.
44
Q

List 3 things the offer consideration may consist of.

A
  1. Cash only
  2. Shares or loan stock (a paper offer)
  3. A choice offering a number of alternatives
45
Q

What is the minimum price to be offered?

A

The highest price paid by the offeror in the last three months.

46
Q

When must a compulsory or mandatory bid be made?

A

If a predator (and others acting in concert with it) acquires influence over 30% or more of the voting rights of a company, it must make an offer for all the remaining shares of the company (a compulsory or mandatory bid).

A predator already having influence over 30% or more of the voting rights of a company must, if it acquires any further influence, make an offer for all the remaining shares.

47
Q

What happens once the predator gains influence over more than 50% of the target company?

A

The City Code states that a mandatory offer will become unconditional once the predator gains influence over more than 50% of the target company. The predator is then obliged to purchase the shares of all those who have accepted the offer. The offer period remains open for another 14 days after becoming unconditional.

48
Q

What are the rules of offer type for compulsory bids?

A

Offers must be in cash or accompanied by a cash alternative at not less than the highest price paid by the predator during the offer period and within the 12 months prior to its commencement.

49
Q

Explain the term ‘squeeze out’

A

The Companies Act contains provisions which enable a bidder to acquire compulsorily the shares held by shareholders of the target who do not accept the offer. Where the bidder has received acceptances in respect of 90 per cent or more of the shares to which the offer relates, it may, subject to any court order to the contrary, acquire the outstanding shares on the same terms set out in the offer. It can also, in these circumstances, be forced by the minority shareholders themselves to acquire their outstanding shares. This rule applies to both mandatory and voluntary bids.

IMC IE Chapter 6 (6 decks)

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