Chapter 17 - Takeovers

Question 1

Does the EU Takeover Directive lay down a maximum or minimum level of protection for shareholders that member states must implement?

Answer 1

Is establishes a minimum level of protection.

Question 2

Which part of the CA implements the EU Takeover Directive?

Answer 2

Part 28.

Question 3

Which Code governs takeovers in the UK?

Answer 3

The City Code on Takeovers and Mergers

Question 4

What is meant by the term “change of control” of a company?

Answer 4

A situation where a purchaser acquires control of a company.

Question 5

Is a takeover bid made to the shareholders of a plc with shares traded on the AIM governed by the city code?

Answer 5

If an AIM quoted company is incorporated in the UK, Channel Islands or Isle of Man, the UK Takeover Code will apply if the company is considered by the Panel to be ‘centrally managed and controlled’ in the UK.

Question 6

What is a hostile takeover bid?

Answer 6

A purchaser seeking to take control of a company against the wishes of its board of directors.

Question 7

Why are CA 2006 Part 26 schemes of arrangement popular to effect takeovers?

Answer 7

Due to their flexibility in allowing 100% control to be gained with only 75% agreement.

Question 8

What happens to the shares in the target company in a typical takeover?

Answer 8

The members surrender their shares in exchange for shares in the offeror company. The target company becomes a subsidiary of the offeror.

Question 9

What are the 6 general principles of the City Code?

Answer 9

1) Shareholder classes must be afforded equal treatment
2) Shareholders must be given appropriate time to reach a decision of a bid
3) The board of the offeree company must act in the interests of the company as a whole
4) False markets must not be created
5) An offeror must announce a bid only after ensuring that they can fulfil any cash consideration
6) An offeeree company must not be hindered for any longer than is reasonable by a bid,

Question 10

What is the rationale for the City Code, Rule 9 requirement that a person who obtains 30% or more of the voting rights in a company must make a cash offer to all other shareholders?

Answer 10

This is because in practice a person holding 30% of shares can exercise control

Question 11

Compare and contrast the triggers for the CA 2006 s979 right of the offeror to buy out minority shareholders, and the right of a minority shareholder to insist that he be bought our under s 983.

Answer 11

The minority shareholder’s right is based in the entire ownership rights of the offeror company, while the buy-out rights of the offeror is based on the success of the takeover offer.

Question 12

Identify two sets of supplementary legal rules that almost inevitable come into play in a takeover.

Answer 12

1) FCA Listing Rules, DTR, and Prospectus Rules

2) Competition law

Question 13

Outline briefly the key functions of the Panel on Takeovers and Mergers

Answer 13

The Panel issues and makes rulings on the interpretation, application and effect of the City Code. It can also impose sanctions on those who breahc the City Code

Question 14

Describe the two-stage review process for Panel decisions.

Answer 14

1) Internal review by the Hearing Committee

2) Independent review by the Takeover Appeal Board.

Question 15

Explain the decision in R v Panel on Takeovers and Mergers, ex parte Datafin plc

Answer 15

Datafin confirmed that Panel decisions are subject to review by the courts.