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Company Law > Takeovers and Mergers > Flashcards

Takeovers and Mergers Flashcards

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1
Q

Who is the offeror company?

A

The bidder

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2
Q

Who is the offeree company?

A

The target

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3
Q

When does a takeover occur?

A

When a company or an individual acquires sufficient shares to control the board of another company

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4
Q

What is a takeover bid?

A

When the bidder sends a circular to shareholders offering to buy their share

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5
Q

Which section of the CA 2006 gives effect to the EU Takeovers Directive?

A

ss.942-992

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6
Q

The Takeovers Directive requires each member state to have an authority to supervise takeover bids. What is this authority in the UK?

A

The Panel on Takeovers and Mergers

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7
Q

Is the Panel a statutory body? What is the authority?

A

No - s.972 CA 2006

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8
Q

Which section of CA 2006 requires the Panel to issue rules to give effect to the Takeovers Directive?

A

s.943

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9
Q

What is significant about the composition of the Panel Executive?

A

Members can be appointed by certain financial and business institutions (i.e. Institute of Chartered Accounts, British Bankers’ Association)

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10
Q

Which section of CA 2006 requires the Panel to give rulings on the interpretation, application or effect of rules?

A

s.945(1)

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11
Q

Which section of CA 2006 holds that the Panel’s rulings on interpretation, application or effect of the rules are binding subject to the right to appeal?

A

s.945(2)

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12
Q

What panel committee can review the decisions of the Panel Executive?

A

The Hearings Committee

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13
Q

What independent body can hear appeals on decisions of the Hearings Committee?

A

The Takeover Appeal Board

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14
Q

Does a breach of the code amount to a statutory duty breach? Does it make any transaction void or unenforceable? What is the authority for this?

A

No.

s.956 CA 2006

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15
Q

How can the Panel enforce its rules?

A

s.955 CA 2006 - the Panel can apply to the court for an order in respect of any rule-based requirement (or disclosure requirement)

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16
Q

What disciplinary proceedings can the Hearings Committee institute? What is the source for this power?

A

s. 11(b) Introduction, The Code:
(i) Issue private statement of censure
(ii) Issue public statement of censure
(iii) Suspend, withdraw or impose conditions on any exemption, approval or special status that the Panel has granted to that person
(iv) Report the misconduct to the FCA or another appropriate regulatory body
(v) Publish a statement to the effect that the offender is someone who is unlikely to comply with the Code (this can result in cold-shouldering)

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17
Q

Can the Panel’s decisions be subject to judicial review?

A

Yes

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18
Q

What is the significance of the ruling in ex parte Datafin plc [1987]?

A

Authority for the fact that judicial review of Panel decisions is possible but the courts will generally only permit this after the event, and the court will generally only make a declaration as to how future bids should be conducted.

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19
Q

What is the significance of the ruling in ex parte Guinness [1989]?

A

The court recognised that in exceptional circumstances the court may review the decision by the Panel and give immediate effect in order to avoid injustice.

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20
Q

Why are the courts so deferential to the Panel?

A

(1) To prevent speculative applications in order to delay or sabotage a takeover bid
(2) Panel has been very successful and comprised of experts
(3) Need for quick and certain decision making when request rulings from the Panel

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21
Q

According to s.2(a) of the Takeover and Mergers Code what is its aim?

A
  • ensure fair treatment of shareholders in an offeree company
  • shareholders get chance to decide on merits of takeover
  • provide an orderly framework for takeovers
  • promote the integrity of the financial markets, along with other regulatory regimes
22
Q

What is the Takeover Code not concerned with, according to s.2(a)?

A
  • financial and commercial advantages and disadvantages of a takeover
  • facilitating or impeding takeovers
  • competition policy
23
Q

Where do the Code’s six general principles come from?

A

Art 3 of the Takeovers Directive

24
Q

What is the authority for the fact that the Code’s six general principles and its rules are broad guidelines to be applied in accordance with their spirit?

A

s.2(b) Introduction, Code

25
Q

What are the rough six general principles of the Code?

A

(1) equal treatment for shareholders
(2) ensure shareholders have sufficient time and information to reach decision on the bid
(3) board of offeree company must act in the interests of the company as a whole
(4) avoid creating false markets
(5) ensuring that offer announced only after ensuring that bid can be fulfilled in full the cash consideration or other consideration
(6) ensure that offeree company not hindered in conduct of its affairs for longer than is reasonable by a bid

26
Q

What does Rule 14 of the Code refer to?

A

Need for comparable offer to be made for each class of share whether it carries voting rights or not

27
Q

What does Rule 32.3 of the Code refer to?

A

When an offer is revised all shareholders who accepted the original offer are entitled to the revised consideration

28
Q

What does Rule 16 of the Code refer to?

A

An offeror cannot make any offers to shareholders with favourable conditions not extended to all without the consent of the Panel

29
Q

What does Rule 36 of the Code refer to?

A

Offers for a proportion only of the shares or a class of shares is possible only if the Panel consents

30
Q

What does Rule 6 of the Code refer to?

A

An offeror (or persons acting in consort) who purchases shares of a class 3 months before the offer period or during that period must either make or raise the level of the offer for that class to be paid outside it, if it is higher

31
Q

When does the Code apply in terms of defensive measures to a takeover bid?

A

Only applies from the point where the board has reasons to believe that an offer might be imminent (Rule 21)

32
Q

What rules apply to defensive measures against takeover bids before the Code applies?

A

The general principles of company law

33
Q

If the directors wished to allot new shares to frustrate a takeover bid whose approval would they need and where is the authority for this?

A

Shareholders at a general meeting - s.551 CA 2006

34
Q

If the directors did try to allot shares to parties who were unlikely to want to sell in order to frustrate a takeover which directors’ duty would they have breached?

A

s.171(b) CA 2006 - duty to exercise powers for the purposes for which they were conferred

35
Q

What is a poison pill and which provisions of the CA makes it hard for directors to do this to frustrate a takeover?

A

A poison pill is where the directors make a contractual agreement with a third party so that any takeover would have dire results - e.g. massive lump payment to third party.
s.171 and s.551 make this difficult

36
Q

In which case did Lord Scott suggest that a poison pill agreement would amount to a breach of s.171 CA 2006?

A

Criterion Properties Plc v Stratford UK Properties LLC [2004]

37
Q

What is the No Frustration Rule and where does it come from?

A

Rule 21.1(a) the Code - during an offer or before if a board has reason to believe that a bona fide offer might be imminent the board cannot [without the approval of shareholders in general meeting]:

(i) take any action which could result in the offer being frustrated or shareholders being denied opportunity to decide on its merits
(ii) create or issue shares
(iii) sell/dispose or acquire assets of a material amount
(iv) enter into contracts other than in ordinary course of business

38
Q

Once the No Frustration rule takes effect what are the permissible defence tactics for the board?

A

(a) convincing shareholders not to accept the offer (via response circular)
(b) persuade competition authorities that the bid should not go through
(c) encourage a white knight [alternative takeover bidder] to come forward

39
Q

Is it permissible for the board to pay an inducement to the white knight company to make an alternative takeover bid?

A

Yes

40
Q

What are the rules relating to the board’s response circular concerning the takeover bid?

A

Rule 25 - must circulate response within 14 days of publication of offer document
Rule 25.1(b) - must be published on website on same day
Rule 3.1 - board must obtain competent independent advice on financial fairness and include summary
Board must prepare response circular in accordance with s.172 CA 2006 (duty to act in interest of company)

41
Q

When is the mandatory bid procedure triggered? What is the authority for this?

A

Rule 9.1 Code

(a) when someone [and persons acting in concert] acquires 30+% of the voting rights
(b) already holds 30-50% and acquires more

42
Q

What is the mandatory bid requirement?

A

Must make the same offer to all shareholders

43
Q

What rules govern mandatory bids?

A

Rule 9.5 - offer must be at highest price paid by person or those in concert other the past 12 months
Rule 9.3 - must not be dependent on any condition other than giving 50% of voting rights

44
Q

What is the Code’s definition of persons acting in concert under C1?

A

Persons acting in concert comprise persons who, pursuant to an agreement or understanding (whether formal or informal) co-operate to obtain or consolidate control of a company

45
Q

Who are the persons which the Code presumes to be acting in concert with the offeror?

A
  • a company, its parent and fellow subsidiaries and their associated companies (own 20% or more of shares)
  • a company with its directors (and their close relatives)
  • a person and their close relatives
46
Q

When does the offeror get the opportunity to use the squeeze-out provisions? Authority?

A

When its offer has been accepted by 90% OF SHARES BID FOR - s.979(2) CA 2006

47
Q

What must an offeror do in order to use the squeeze-out provisions?

A

Give notice to the non-accepting shareholders, within three months of the last day of acceptance - s.980 CA 2006

48
Q

If minority shareholders do not want to be squeezed out what can they do?

A

Apply to the court under s.986(1) CA 2006 for an order either so that the offeror cannot buy their shares or that the terms of the acquisition can be amended

49
Q

If 90% of the shares bid for are accepted what can a minority shareholder do who did not accept but wants to be bought out now?

A

They can sell their shares under the sell-out procedure (s.983 CA 2006)

50
Q

What does Geoffrey Morse (1991) argue about the Takeover Panel? What do you need to remember about his article?

A
  • flexible legislative procedure
  • good for interpretation in spirit
  • but lacks uncertainty for legal advice
  • not good for investigative powers (but this has been remedied by fact that under CA can require disclosure of documents)
  • need to remember that published before Takeovers Directive and CA 2006 where Panel became a statutory body
51
Q

What does Jennifer Payne (2011) contend about the Takeover Code?

A
  • shareholder equality of treatment is important as otherwise bidders could divide and conquer to get company at lowest price possible
  • however, the issue with requiring minority protection through compulsory purchase is that this takes effect prior to them suffering any abuse and if they did they would have remedies available (Minority Shareholder remedies) and in listed companies could sell shares on market
  • concerned that long-term interest of the target company is not considered
  • yet concludes that no changes are needed to system

Company Law (4 decks)

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