QCA and CLLS share their thoughts on proposed Takeover Code amendments
The Quoted Companies Alliance (the "QCA"), and a joint working party of the Company Law Committees of the City of London Law Society (the "CLLS") and the Law Society of England and Wales (the "Law Society") (the "JWP") have both now published their responses to the amendments to the Takeover Code proposed by the Code Committee of the UK Panel on Takeovers and Mergers (the "Takeover Panel").
The principles-based Takeover Code is designed to ensure that shareholders are treated fairly, are not denied an opportunity to decide on the merits of a takeover, and are afforded equivalent treatment by an offeror. In keeping with its aims, the Code Committee proposed amendments to certain provisions of the Takeover Code in early December 2021 and as part of the consultation process, the QCA has published its response.
Proposed changes to the Takeover Code and responses
The QCA and the JWP responded as follows to the key proposed amendments:
- Announcing a minimum level that a potential offeror is obliged to offer- requiring a publicly identified potential offeror to announce any minimum level, or particular form, of consideration which it may be obliged to offer to target company shareholders under Rule 6 or Rule 11 at the start of the offer period.
QCA - considers this to be a logical and helpful addition to the Takeover Code, in that such information is relevant for the market to know and would otherwise not be readily available to investors (especially given that DTR disclosures do not typically include a share's purchase price). The QCA cautioned that this amendment should contain a degree of flexibility as there are certain scenarios where the announcement may be triggered prior to the offeror having established contact with presumed concert parties.
JWP - expresses practical concerns about this proposal (it cites as an example leak announcements, which may happen at a very early stage in a process and at a time when there is significant uncertainty about whether an offer will be forthcoming, and when the bidder may not yet have full detail of the interests and dealings of its concert parties). Instead, the JWP proposes that a formal requirement for a bidder to disclose any obligations to offer a particular level or form of consideration could be better dealt with by disclosure in its Opening Position Disclosure.
- Restricting a mandatory offeror from obtaining additional interests in shares in the offeree company- amending Rule 9.4 to restrict a mandatory offeror from obtaining additional interests in shares in target in the 14 days up to and including the unconditional date and the expiry of the acceptance condition.
QCA – whilst it understands the intention and logic behind the proposal, it asks the Takeover Panel to consider limiting the scope of the proposal to certain scenarios, e.g. applying only when the further acquisitions are not at a premium to the offer price, and they cause the offeror’s holding to exceed certain intermediate thresholds.
JWP – is not convinced there is sufficient rationale for this amendment, given that target shareholders will be aware of the existing control position of the bidder and of any purchases by way of the customary requisite market disclosures.
- Clarifying the application of the Rule 9 "look-back period"- proposing a new Note 5 on Rule 9.5 which clarifies the application of the "look-back" period for determining the minimum price of a mandatory offer so that the period will start on the date which is 12 months prior to the date on which such offer ought to have been announced and will end on the date on which the offer is actually announced.
Both the QCA and JWP agreed that the clarificatory wording would be a logical and fair amendment to the Takeover Code. Moreover, both supported the deletion of Note 8 on Rule 9.1, which will reduce the test for the circumstances in which the chain principle applies to just a one-limb test, clarifying its application.
Further proposed amendments, such as the amendments to the Notes on Rules 35.1, 35.2, 2.5, and 2.8 in relation to the restrictions following the lapsing of an offer or a statement of no intention to bid, as well as minor amendments to Section 7 were also supported by the QCA and the JWP, whilst the JWP went further and raised certain drafting related points, as well as suggesting where further clarification would be helpful.
Rule change timeline
The Panel's Response Statement with the final confirmed Code amendments is expected in Spring 2022. Those amendments can be expected to come into effect approximately one month after the publication of the Response Statement.