Takeover Code Flashcards
What firms does the UK takeover code oversee?
- Registers offers for shares in companies which are:
o UK registered and trade on a UK regulated market; or
o UK plcs (not traded on a regulated market) if centrally managed and controlled from the UK
o Private companies if centrally managed and controlled from the UK and which have been fully listed in past ten years
Who monitors adherence to the takeover code?
- Takeover panel monitors adherence to the rules
What sanctions are there for breach of the code?
o Sanctions
Private or public censure
Cold shouldering
What are the six general principles of the takeover code?
1) Equivalent treatment of security-holders
2) Sufficiency of time and information for offeree security-holders
3) Offeree board must uphold nterest of the company as a whole
4) Prevention of false markets
5) Offeror care and responsibility relating to offer consideration, ensuring it can fulfil in full any cash consideration
6) Prohibition against unreasonable hindering of offeree company during takeover bid
What is announcement day?
- Once a firm offer has been announced, the offeror has 28 days in which to post the offer document, giving full details of their offer to offeree shareholders, and make this available to offeree employees and pension scheme trustees
What happens on day 0?
- The publication day is the day on which the offer document is sent to the offeree’s shareholders, which must be no later than 28 days from the firm announcement date
- Can only be published before 14 days following firm announcement if you have consent of the offeree company board
When should the first defence document by published?
No later than day 14
What should be contained in the first defence document in the context of both a recommended offer and a hostile offer?
Defence document contains the director’s response to the offer document, recommending that the shareholders reject the offer and explaining the reasons why. Should be published no later than Day 14.
-In a recommended offer, the document includes a letter by the company chairman to the company shareholders, setting out a recommendation that shareholders accept the offer, and including the Rule 3 adviser’s opinion.
-In a hostile offer, the offeree board must instead send a defence document to all shareholders by the 14th day after the publication day, i.e. by day 14.
What is the minimum acceptance period for an offer under the UK takeover code?
Day 21 – Minimum Acceptance Period
An offer must initially be open for acceptance until the later of day 21 and the date on which the offer becomes or is declared unconditional
What happens the day after day 21?
Acceptance Announcements
Announce the level of acceptances by 08.00 on the business day following day 21 and every seven days thereafter
What is the latest date for timetable suspension due to regulatory clearance?
day 37
What happens on day 39?
Day 39: Last day for the offeree board to announce or disclose any additional information or disclose any material new opinions. If any such announcement is made afterwards, the days are reset.
What is the latest date that an offeror may amend their offer?
Day 46: Offeror may amend its offer up to day 46. Following this date, the offeror must not buy shares in the market above the offer price (as this would trigger a revised offer)
What happens on day 53?
Day 53: Last day for a competing offer to be made, when a publicly identified potential offerer might make a competing offer. The potential offeror must either:
- Announce a firm intention to make an offer in line with Rule 2.7
- Announce that it does not intend to make an offer, so Rule 2.8 applies
What happens on day 60?
Day 60: Except with consent of panel, all conditions of offer must be satisfied or waiver, or the offer must lapse by midnight on day 60.W
What happens on day 74?
Day 74: Assuming the offer is unconditional on day 60, then day 74 is the earliest day on which the offer may close
In a takeover, what is a long-stop date?
Latest date takeover will be effective or offer will be withdrawn if acceptance level or regulatory clearance has not been achieved
In the context of takeover timelines, what is an acceleration statement?
Acceleration statement: Brings forward the last day offer could become unconditional from Day 60, must be at least 14 days from issuing the statement
What is an Acceptance Condition Invocation Notice (ACIN)?
Bidder must give at least 14 days notice to invoke the acceptance condition to lapse if insufficient acceptance
After a successful bid, when must all consideration be settled?
- Consideration for a successful bid must be settled within 14 days of the bid going unconditional in all respects
After a bid, how long are no purchases of shares by offeror at above the offer price in the post bid period allowed?
(six months)
What is rule 35 (restrictions following offers)?
Restrictions following offers
- If an offeror has previously failed with an offer, it cant come back with a new offer within a 12 month period
What is rule 2.1?
Absolute secrecy and security before announcmenet
What is rule 2.2?
Defines what announcements can be made
Either ‘firm intention’ or ‘in-talks’ or ‘no intention to bid’
What triggers the offer period?
The announcment of a potential approach
When are takeover announcements required?
- Firm intention to offer
- Mandatory bid is triggered
- Following an approach from a potential offeror, either:
o Untoward movement in share price
o Or rumour and speculation - Extension of talks beyond a resitcted few
- ‘Put up or shut up’ (Rule 2.6) within 28 days of start of offer period. If ‘shut up’ – no bid for six months
What should be the contents of a firm intention announcement?
- Terms of offer
- Identity of offeror
- Deal related agreements (e.g. break fees/inducement, these require panel consent)
- Financial adviser’s confirmation of sufficient cash for offer
- Needs to be announced to panel and Regulatory Information Service
- Offeree and Offeror must also subsequently disclose details on shares in issuance and holdings (by 9:00 on business day following announcement) – Rule 2.9
- Offeree board (and offeror under certain circumstances) must seek competent independent advice on the offer – Rule 3
What are opening position disclosures?
- Offeree, offeror, and any holder of 1% or more in either offeror or offeree must declare holdings within ten business days of start of offer period
- Includes options, conversion rights, derivatives, or any other agreement to buy or sell securities
If a holder has 1% or more of shares outstanding, when do they have to declare additional transactions if a firm is under offer?
- Offeree, offeror, and any holder of 1% or more in either offeror or offeree must declare transactions in either company’s securities by 12:00pm on T + 1 (or 3:30pm if not connected to the bid parties)
What is rule 6 in the context of pricing restrictions?
o Rule 6: Any shares bought in three months before bid?
Minimum price is highest paid in last three months
What is rule 11 in the context of pricing restrictions?
o Rule 11: 10% stake bought in 12 months before bid?
Minimum price is highest paid in last 12 months: cash offer required
Are profit forecasts mandatory?
- Profit forecasts not obligatory by either offeror or offeree
If a profit forecast is made, what must it include?
- Profit forecasts must include:
o Report from auditors and advsers (Rule 28)
o Full disclosure of assumptions
Are the offeree board allowed to take frustrating action?
- Offeree board may not take action which frustrates the ability of shareholders to accept offer
o Additional share issuance
o Inducement agreement (break fee) unless panel approves
After a hostile approach, what is the offeree board allowed to do in defence?
- Permitted to publish a defence document or seek an alternative purchaser; ‘white knight’. Can also lobby for referral to the CMA
What is rule 5., which restricts acquisitions of shares
- General prohibition against:
o Acquiring more than 30% of a company via market purchases (‘gaining control’)
o Acquiring any more shares if have a holding between 30-50% (‘consolidationg control’) - Breach of Rule 5 gives rise to a mandatory bid (Rule 9)
What happens if there is a breach of rule 5?
Gives rise to a mandatory bid (rule 9)
When are the exemptions from rule 9?
A mandatory bid is not required when:
- Acquisition approved by independent shareholders (known as ‘a whitewash’)
- Corporate restructuring/share buyback
- Immediately prior to or during an offer
- Purchase from a single shareholder and if it the only purchase in a seven day period
Who regulates competition?
CMA
What does the CMA do?
o Promotes competition for consumer benefit in the UK
o Investigates mergers that may restrict competition
Initial Phase 1 investigation may lead to…
More detailed Phase 2 investigation and final determination
What happens when CMA decisions are appealed?
- Appeals against CMA decisions are addressed to Competition Appeal Tribunal (CAT)
Who investigates anti-competitive mergers in the EU?
- Directorate General for Competition (DG Comp) will investigate potentiatlly anti-competitive mergers in the EU
What powers does the NSI act give the UK government?
- The National Security and Investment (NSI) Act gives the UK government powers to review mergers on national security grounds for ‘relevant enterprises’ e.g. defence companies, if either of the below conditions for the target company are met:
o UK turnover > £1m
o Market share > 25%
What are the conditions for the UK government to be able to review a merger on national security grounds?
If either of the below conditions for the target company are met:
o UK turnover > £1m
o Market share > 25%
Who considers takeovers in the context of pensions?
- The Pensions Regulator (TPR) considers if a takeover of a UK company would be detrimental to its occupational pension scheme, known as a ‘Type A event’
- The pension scheme trustees should safeguard their members’ interests in the event of a takeover
When can the UK government intervene in transactions?
Under national security grounds, or…
- UK government can intervene in transactions where one of the companies produces certain military or technological products and has a turnover £1m or greater
What industries have industry regulators?
- Utilities (energy, telecoms, and water) and newspapers have industry regulators who may refer a bid to the commission
What % shareholding is deemed to give effective control according to Takeover Panel?
30% - the level of ownership that is deemed ‘effective control’ is ownership of at least 30%.
At this level, a mandatory offer/bid is required
In terms of timeline, what is the length of time that a potential bidder cannot bid for after declaring they will not, and what is the length of time that a previously failed bidder must wait in order to rebid?
Potential bidder - must wait 6 months
Failed bidder - Must wait 12 months
In a takeover, is it the offeror or offeree who has to disclose holdings in the other?
Offeror must disclose how much they hold of the target
What is the latest day on which the timetable can be suspended due to outstanding regulatory clearrance?
Day 37
Who has the responsibility to prepare an insider list?
The issuer of a security
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