Takeover Panel consults on proposals for companies with dual class share structures and publishes two new Practice Statements

PCP 2025/1

The Panel’s proposals in PCP 2025/1 focus on DCSS companies, building on the FCA’s 2024 Listing Rules reforms, which permit DCSS companies to list in the commercial companies category. They aim to clarify how the Code applies to DCSS companies to protect minority shareholders and maintain orderly markets.

DCSS companies

DCSS companies typically have ordinary shares with standard voting rights and a second class, such as Class B shares or special shares, with enhanced voting rights or control compared to the ordinary shares. These special shares are often created pre-IPO for the benefit of founders or key shareholders. In one common model, Class B shares carry multiple votes (i.e. on all resolutions) from the point of issue and give holders a specific and identifiable percentage of the company’s voting rights. Such Class B shares are typically extinguished or converted into ordinary shares upon the occurrence of certain trigger events (such as the expiration of a fixed “sunset” period post-IPO, or upon the shareholder’s retirement or resignation, or on a transfer of the Class B shares).

Mandatory bid requirement for DCSS companies

Under the Panel’s proposals, any trigger event which increases a shareholder’s proportional voting rights in the company would be treated as an ‘acquisition’ of interests in shares for the purposes of Rule 9.1 of the Code. A mandatory offer may be required if that shareholder’s holding (together with any concert parties) crosses the Rule 9 threshold. However, it is proposed that dispensations from making a mandatory bid will normally be granted in such a circumstance.

Acceptance condition for DCSS companies

The proposals provide that any acceptance condition to a contractual offer for a DCSS company would be subject to a two-limb test: (1) whether the bidder has acquired or received acceptances in respect of more than 50% of the voting rights immediately prior to the Class B shares converting or extinguishing; and (2) whether the bidder has acquired or received acceptances in respect of over 50% of the voting rights in the target immediately after the Class B shares convert or are extinguished. This test is designed to ensure that enhanced voting rights do not distort support for a bid.

Other minor amendments

The Panel’s proposals include minor changes to further Code Rules, including requiring bidders to consult the Panel before making an offer for a DCSS company to ensure fair treatment for all shareholders and avoid preferential arrangements being reached with Class B or special shareholders.

IPOs

Companies that will fall under the Code post-IPO should disclose how the Code applies to them, including with respect to the circumstances where Rule 9 will be triggered, in their admission documents and consult the Panel for guidance. The Panel also proposes formally adopting its practice of granting a Rule 9 ‘dispensation by disclosure’ for companies making such disclosures at the point of IPO, waiving any mandatory bid requirement in certain cases (including for DCSS 1 companies).

Share buybacks

The Code Committee proposes updates to Rule 37 to improve clarity and align it with the new rules for DCSS companies. It also proposes changes to the disqualifying transactions provisions, relaxing these restrictions, giving companies greater flexibility to carry out share buybacks under an annual shareholder authority.

Next steps

The consultation closes on 26 September 2025. The Panel aims to publish the final rules by the end of 2025, with the amendments expected to take effect during the first quarter of 2026.

Two new practice statements

Practice Statement 35 provides guidance on profit forecasts, quantified financial benefits statements (QFBS), and investment research. It explains how the Executive applies Rule 28 to profit forecasts and QFBS issued by target companies or securities exchange bidders. It also clarifies how Note 4 to Rule 20.1 applies to investment research published by connected firms and sets out when the Executive expects to be consulted in such cases.

Practice Statement 36 provides guidance on unlisted share alternatives in offers (also known as ‘stub equity’ offers). It sets out when bidders should consult the Executive on the terms and disclosures of these alternatives, confirming that whilst bidders may limit unlisted share options to a maximum percentage of the company’s shares or set specific acceptance levels, they cannot impose minimum thresholds for investment by individual shareholders.

If you have any questions about the proposals set out in the consultation paper and how they may affect you, please feel free to get in touch with a member of our team at: SHCapitalMarkets@stephensonharwood.com.

Authors

David Dowding, Partner

Uzoma Udoyeh, Trainee Solicitor