Takeovers and Mergers Questions Flashcards
What is the scope and purpose of the PTM?
The Panel on Takeovers and Mergers is an independent body
Main functions:
1) To issue and administer the City Code on Takeovers and Mergers
2) To supervise and regulate takeovers and other matters to which the City Code applies, in accordance with the rules set out in the City Code
the PTM’s function is to ensure shareholders of an offeree company are treated fairly and are not denied an opportunity to decide on the merits of a takeover, and to ensure offeree shareholders of the same class are afforded equivalent treatment
The code is not concerned with financial or commercial advantages of a takeover, and questions of public interest are dealt with by the Department of Business, Energy & Industry Strategy (BEIS) and the European Commission (EC)
The PTM may impose sanctions through private warnings, public censure and or reference to other regulators. it can ‘Cold Shoulder’ offenders to ensure that the facilities of the market are withdrawn from them, with respect to take-over activity, for a period of time
What is the PTM’s role in Takeovers?
The PTM’s role in takeovers is:
1) Provide advice and guidance on the application and interpretation of the relevant rules to offerors, oferees, advisers and market participants
2) To monitor the progress of an actual or completed takeover bid for breaches of compliance \
3) Enforce the Code through decisions on issues arising, or seeking enforcement through the courts
What is the purpose of the takeover code and the competition and markets authority?
1) Ensure that shareholders of an offeree company are treated fairly and can decide on the merits of a takeover
2) Ensure that offeree shareholders of the same class are afforded equivalent treatment by a bidder
3) CMA - competition and markets authority - promotes competition for the benefit of consumers, both within and outside the UK. Its aim is to make markets work well for consumers, business and the economy.
What is the CMA responsible for?
The CMA is responsible for
1) Investigating mergers that could restrict competition
2) conducting market studies and investigations in markets where there may be competition and consumer problems
3) Investigating where there may be breaches of UK or EU prohibitions against anti-competitive agreements and abuses of dominant positions
4) Bringing criminal proceedings against individuals who commit a cartel offence
5) Enforcing consumer protection legislation to tackle practises and market conditions that make it difficult for consumers to exercise choice
6) Cooperating with sector regulators an encouraging them to use their competition powers
7) Considering regulatory references and appeals
How might the pensions regulator be involved in a takeover bid?
The Pensions Regulator’s objectives are to:
1) Protect the benefits of members of occupational pension schemes
2) Reduce the risk of situations arising that may lead to compensation from the Pension Protection Fund
3) Promote Understanding of the food administration of work-based pension schemes
4) Maximise employer compliance
5) Minimalise adverse impacts on the sustainable growth of an employer
The TPR considers whether companies entering into transactions may weaken their financial position to the detriment of a defined pencion scheme. This transaction would be classified as a Type A Event.
When the TPR considers there might be a real cause for concern, it may issue a:
1) Contribution notice - Company must make a payment into the pension scheme if a transaction hasmade a pensiondeficiet less likely to be recovered
2) Financial Support Direction - Financial support arrangements must be made for the scheme. Will be issued if the TPR considers a company may be unable to fund its scheme and a connected person (e.g. parent company) should be made responsible
3) Restoration Order - if there has been a transaction at an undervalue involving the schemes assets. Allows for action to be taken to allow the sceheme’s assets (or equivalent value) to be restored to the scheme
4) Clearance statement - gives assurances that the TPR will not use its anti-avoidance powers to issue to the applicants either contribution notices or financial support directions.
What type of companies does the takeover code apply too?
The take over code applies to all offers to acquire control of the following:
1) Companies registered in the UK, the Channel Islands or the Isle of Man that are traded on a regulated market, or an MTF (including AIM and NEX Exchange Growth Market) in the UK, or any stock exchange in the Channel Islands or the Isle of Man
2) Plcs (Public Limited Companies) not traded on a regulated market, which are registered in the UK, Channel Islands or Isle of Man, but ONLY if they have their place of central management and control within those jurisdictions
3) Private companies registered in the UK, Channel Islands or the Isle of Man, but only if their place of central management and control is within those jurisdictions and if, at any time during the past ten years, their securities have been admitted to trading on a regulated market or MTF in the UK or any stock exchange in the channel islands or isle of man, or if dealings and /or prices for their securities have been published on a regular basis for a continuous period for at least six months in the ten years prior to the relevant date
4) If an offeree company is traded in one EEA member state but incorporated in another the code provides for shared jurisdiction between the regulators. The regulator of the member state where the offeree company is incorporated will determine matters relating to the rights of shareholders or company law, and the regulator of the state where the offeree company is traded determines matters relating to the dealings in and disclosures in relation to securities
What are the 6 General Principles of the Take Over Code?
The 6 General principles of the Take Over Code are:
1) All holders of the securities of an offeree company of the same class must be given equal treatment; and if a person acquires control of a company the other holders of securities must be protected
2) The holders of securities of an offeree company must have sufficient time and information to reach an informed decision on the bid. If the board of an offeree company advises the holders of securities, it must give its views on the effects of the implementation of the bid on employment, conditions of employment and the locations of the company’s places of business
3) The board of the offeree company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid
4) False markets must not be created in the offeree, the offeror or any company concerned by the bid in a way that causes artificial fluctuation in the prices of securities and the distortion of the normal functioning of the market.
5) Any offeror must only announce a bid after ensuring it can fulfil any cash consideration and after taking all reasonable measures to secure the implementation of any other type of consideration
6) An offeree must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities
A breach of any of these principles, even when in compliance with the rules, is deemed to be a breach of the code itself
What are the definitions of persons acting in concert?
Acting in concert is defined as “Persons who, according to an agreement or understanding, cooperate to obtain or consolidate control of a company, or to frustrate the successful outcome of an offer for a company.
Control means an interest, or interests, in shares carrying an aggregate of 30% or more of the voting rights of a company
Only the PTM can determine who is or not acting in concert, and any concert parties must be agreed upon by the PTM
The following persons are presumed to be acting in concert with other persons in the same category unless the opposite is established:
1) A company, its parent, subsidiaries and fellow subsidiaries, associated companies and companies of which such companies are associated companies - all combined (In this case, ownership or control of 20% or more of the equity share capital of a company is regarded as the test of associated company status)
2) A company with any of its directors (including their close relatives and related trusts)
3) A company with any of its pension funds and the pension funds of any company covered in point 1
4) A fund manager with any investment company, unit trust or other person whose investments the fund manager manages on a discretionary basis, in respect of the relevant investment accounts they manage
5) A connected advisor with its client and, if its client is acting in concert with an offeror or with the offeree company, with that offeror or with that offeree company, in each case in respect of the interest in shares of that advisor and the persons controlling, controlled by or under the same control as that advisor
6) Directors of a company which is subject to an offer or where the directors have reason to believe an offer for their company may be imminent
How would acting in concert apply to an investment bank that undertakes market making as well as providing asset management and corporate finance advice?
Dealings and interests in securities held by members of concert parties are aggregated. An Offeror’s shareholding in an offeree will be aggregated with that of its investment bank adviser, taking into account all interests held in all parts of that bank, including the fund management arm, the market makers and the principal traders. This could restrict principal traders and fund managers.
If the PTM is satisfied that effective Chinese walls or other arrangements are in place, it can grant the fund managers and principal traders exempt status, providing an exemption from the obligation to aggregate interests in shares with those of the bank’s corporate finance clients
What is the definition of interests in securities?
Interests in securities: A person who has a long economic exposure, whether absolute or conditional, to changes in the prices of securities, is treated as being interested in those securities. A short position in securities is not treated as an interest.
A person will be treated as having an interest in securities if:
1) They own them
2) They have the right to exercise, or direct the exercise, of the voting rights attached to them, or have control of those rights
3) By virtue of an agreement to purchase, option or derivative, they
- have the right or option to acquire or call for the delivery
- Are under obligation to take delivery of them
4) They are party to any derivative whose:
- Value is determined by reference to their price and
- which results, or may result, in them having a long position in that security
5) In regard to Rule 5, They have received an irrevocable commitment in respect of those securities
Rule 5 - when a person, in aggregate with its concert parties, is interested shares carrying 30% or more of the voting rights, but they don’t already hold 50% or more, they may not increase their holding without making an offer.
In addition, when a person (in aggregate with concert parties) already holds an interest in shares carrying between 30-50% of the voting rights in a company, they may not acquire an interest in any further shares in that company (referred to as consolidating control)
Relevant securities include:
1) Securities of the offeree company for which an offer has been received or which carry voting rights
2) Equity share capital of the offeree company and an offeror
3) Securities of an offeror which carry substantially the same rights as any to be issued as consideration for the offer
4) Securities of the offeree and an offeror carrying conversion or subscription rights into any of the previously listed securities
During the offer period, what dealing restrictions apply?
Following a talks announcement, an offeree company enters an offer period. This is the period between the announcement of a proposed or possible offer AND the first closing date (or if later) the date the offer becomes, or is declared, unconditional as to acceptances or is withdrawn / lapses.
Dealing restrictions during the offer period are:
1) Dealings on the basis of inside information about a proposed offer are prohibited, except where securities are offered by the offeror
2) The offeror, and any persons acting in concert with it, are not permitted to sell any securities in the offeree company, except with the prior consent of the PTM, and following 24 hours public notice that such sales might be made. The PTM will not consent for sales if a mandatory offer is being made
3) The offeror and its concert parties may not acquire shares in the offeree through an anonymous order book system, unless it is shown that the purchase is not from an exempt principal trader connected with the offeror
4) No financial advisor or corporate broker to the offeree, or any member of their group, may deal in offeree securities
5) The offeror and offeree and their concert parties must not enter into, or unwind, any stock lending agreements in relation to offeree shares, without the PTM’s approval
6) An exempt principal trader connected with either the offeror or offeree must not carry out any dealings with the purpose of assisting the offeror to the offeree company
What are the requirements on the disclosure of dealings in an offer period?
Public disclose - a disclosure to the market through an RIS (Regulated Investment Service). This made be made in respect of:
1) Any dealings in relevant securities by the offeror, offeree or their concert parties on their own account or on behalf of discretionary clients
2) Any dealings by persons with interests in securities representing 1% or more of the voting rights of a securities exchange offeror or offeree
3) Any dealings by a principal trader connected to either of the bid parties
4) A summary of the total acquisitions an disposals by except principal traders (such as market makers) with highest and lowest prices
What are the disclosures of interests?
1) Opening position disclosures - At the commencement of the offer period and, if later, the announcement that first identifies an offeror, Opening Position Disclosures are required. These are announcements containing details of interests or short positions in, or rights to subscribe for, any relevant securities of a party to the offer.
They must be made by
- The offeree company
- The Offeror (after its identity is publically disclosed)
- Any person that is interested in 1% or more of any class of relevant securities of any party to the offer
Opening position disclosures must be made within 10 business days
2) Disclosures in the offer document
The offer document must disclose details of the offerors interests in, or right to subscribe to, relevant securities in the offeree company, specifying the nature of the interests or rights concerned. It must also disclose details of any short positions. If there are no interests or short positions to be disclosed, then this should be stated.
If the offeror (and or its concert parties) has dealt in relevant offeree securities during the period starting 12 months prior to the offer period, the details of those dealings must be stated. Where no dealings have taken place, this must also be stated
3) Disclosures in the defence document
The Offeree’s first major defence document must include certain details of interests and dealings. This must include details of any relevant offeror securities in which the offeree company or its directors has an interest or right to subscribe. Also, it should detail any short position, agreements to sell, or delivery obligations. It must show details of any interests in or rights or short positions over offeree company securities held by the offeree company, its directors or its concert parties
The document must also show whether the offeree directors intend, in respect to their own beneficial shareholdings, to accept the offer or reject it
When would a mandatory offer be required?
If a person (alone or in concert) takes their interest in a company to an aggregate level of 30% or more of the voting rights, they are required to make a mandatory offer to acquire the shares of all remaining shareholders under Rule 9 of the code. This includes a party that already owns between 30 - 50 % of the shares and wishes to increase their offering.
Under am mandatory offer, the offeror’s discretion to impose conditions is removed and the following rules apply:
1) The minimum price of a mandatory offer is the highest price at which the offeror has purchased shares in the offeree company within the last 12 months
2) The offer must be for cash, or have a full cash alternative available for all offeree shareholders
3) The offer must remain open after the offer has become, or has been declared, unconditional as to acceptances, for at least 14 days after it would have expired
4) The mandatory offer may only be subject to 2 conditions:
- Regulatory clearances where required
- An acceptance threshold of a simple majority (over 50%)
If a mandatory offer is triggered inadvertently the PTM may grant a Rule 9 waiver. For instance, if a shareholder’s interest int the securities of a company is increased by a share buy-back scheme or other reduction in capital. The PTM will waive any obligation providing a whitewash procedure is carried out and independent shareholders agree to no mandatory offer being made. However, if the shareholders acquired interests n shares in the knowledge of the proposed buy–back, this waiver wont be granted.
Who is responsible for the information contained in an offer document?
Each document published in connection with an offer by, or on behalf of, the offeror or the offeree company must state that the directors accept responsiibility for the information in the document. They must be careful not to omit important information or give misleading impressions
