Changes to the definition of 'acting in concert' confirmed by the Takeover Panel
In May 2022 we published an article on the Takeover Panel's proposals to amend the definition of 'acting in concert' set out in the Takeover Code. The Takeover Panel has now confirmed the changes that will be made to this definition in its Response Statement 2022/2 (the "Response Statement"), published on 14 December 2022.
'Acting in concert'
The definition of 'acting in concert' is an incredibly important part of the Takeover Code as there are a number of not insignificant consequences of being a concert party of an offeror or offeree, including disclosure requirements, dealing restrictions and mandatory bid obligations.
Although, as we noted in May, the amendments to the definition are, in part, seeking to codify existing market practice, it is important that offer parties and their advisers work to familiarise themselves with the changes before they come into effect on 20 February 2023.
Under the existing definition persons who actively co-operate together to obtain or consolidate control of a company and persons and their 'affiliated persons' are considered to be 'acting in concert' – those elements of the definition are not changing.
The definition also establishes a number of categories of persons who will, unless the contrary can be established to the Takeover Panel's satisfaction, be presumed to be acting in concert with one another – it is in relation to those categories of presumption that changes are being made.
What is changing?
We have summarised certain of the key changes and clarifications below:
- Under existing presumption 1, a company is presumed to be acting in concert with its parent, subsidiaries and fellow subsidiaries and their associated companies, with the test of associated company status being ownership or control of 20 per cent. of more of the equity share capital of a company. From 20 February 2023, the threshold for "associated company" status will be raised from 20 per cent. to 30 per cent. to align with the threshold for "control" as defined in the Takeover Code. Two new presumptions will replace existing presumption 1 and apply this increased threshold to (1) shares carrying voting rights (whether or not they are also equity share capital) and (2) equity share capital (whether or not the shares also carry voting rights). The 30 per cent. threshold will apply differently to each of these categories of shares – voting control will not dilute through a chain of ownership but interests in equity share capital will dilute through a chain of ownership. This will apply to companies, funds, partnerships, trusts and individuals.
- Existing presumption 4 - which presumes that a fund manager is acting in concert with a person whose funds that fund manager manages on a discretionary basis - will be deleted.
- A new presumption 5 will provide that an investment manager or investment adviser to (i) a bidder, (ii) an investor in a bidder consortium, or (iii) a target, together with any person controlling, controlled by or under the same control as that investment manager or investment adviser, will be presumed to be acting in concert with the bidder or target, as applicable.
- The amended definition will incorporate a new Note 7 to clarify that the new presumptions (1) and (2) (referred to above) will be applied to an investor in a limited partnership or investment fund as if the partnership or fund were a company and the investor were interested in a corresponding percentage of the company's equity share capital.
- Investors forming a consortium for the purposes of making an offer and subject to certain exceptions, any person presumed to be acting in concert with those investors under the new presumption (1) will be presumed to be acting in concert with the vehicle established for the purpose of making the offer (i.e. the bidco). Where a person presumed to be acting in concert with a consortium is part of a larger organisation, the Takeover Panel may, depending on the particular circumstances, agree to disapply the presumption in relation to members of that larger organisation if it can be satisfied that they are independent, taking into account, among other things, the size of the investment in the bidco, what other role(s) other parts of the organisation are playing in relation to the offer (i.e. advisory and/or lending) and the adequacy of the information barriers established between the various operations of the organisation.
- The Takeover Panel is no longer persuaded that private equity portfolio companies should be treated differently and so they will be treated in the same way as companies within a corporate group, meaning that the Takeover Panel's practice of rebutting the presumption of concertedness in relation to private equity portfolio companies where the private equity firm manages and/or owns 20 per cent. – 50 per cent. of the share capital will cease.
The full text of the amendments to the Takeover Code is set out in Appendix B to the Response Statement.
Navigating these changes
Whilst both the Consultation Paper that was published in May 2022 and the Response Statement of last week contain helpful guidance to assist with navigating the changes to this definition, the Takeover Panel acknowledges the complexity of these changes and the importance of ensuring that offer parties and their advisers understand how to apply the new definition correctly and, with that in mind, plans to hold a webinar on the amendments ahead of the implementation date of 20 February 2023. Further details about how to register to attend the webinar are in Panel Statement 2022/21 which announced the publication of the Response Statement.
In the meantime, if you have any questions about these changes please feel free to get in touch with a member of our team: SHCapitalMarkets@shlegal.com