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The Takeover Panel has announced today proposals to make substantial changes to the UK Takeover Code. These are the most significant changes to the Code since the September 2011 amendments in the wake of the Kraft/Cadbury hostile offer. The proposals will remove the anomalous treatment of the UK ("CMA") and European ("EC") competition conditions. Alongside this, the Panel has proposed changes to the contractual offer timetable which are intended to simplify the offer timetable and accommodate the potentially lengthy timeframes required to satisfy certain regulatory conditions. The proposals are widely seen to benefit target companies and their shareholders and are expected to provide greater certainty that an offer, once announced, will complete.
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Conditions: At present, bidders are able to walk away from an offer if there is a "Phase 2" CMA or EC reference. All other regulatory conditions require the bidder to prove materiality before it can invoke the condition. Under the new proposals, a bidder will now need to prove materiality before invoking CMA or EC conditions. For bidders, these changes remove the safety net of the UK and European competition conditions being automatically available as a basis to amend, delay or withdraw an offer, as it is generally accepted that it is very difficult for bidders to invoke conditions which are subject to materiality under the Code.
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Timetable: Currently, bidders are required to satisfy all conditions within 81 days of making an offer. This is very challenging where significant regulatory clearances are required which often extend beyond this deadline. For bidders, especially hostile ones for whom implementing an offer by way of a scheme of arrangement (where there is significant flexibility to the timetable) is not possible, the amendments to the contractual offer timetable are to be broadly welcomed. For targets, the flexible approach will benefit those hoping to bind reluctant bidders but could make it harder to shake off unwelcome interest.
Acceptance condition and withdrawal rights: Under the proposed changes, the acceptance condition will be capable of satisfaction only once all other material conditions have been satisfied. Under current regulation, the bidder can propose multiple "closing dates" throughout the course of the offer. On these dates, the bidder has the option to close (lapse) or extend its offer if the acceptance condition has not been satisfied. The current proposals remove this optionality, although they permit "accelerated closing", whereby the bidder can bring forward the latest day by which all of the conditions to the offer must be either satisfied or waived (equivalent to a "no extension statement"). In order to make an "acceleration statement", a bidder will be required to waive all outstanding conditions and face the risk of sufficient shareholders accepting or not accepting the offer on the single testing date. The proposals also anticipate withdrawal rights running throughout the offer period, in line with the US market, which would give investors further flexibility.
Our initial thoughts: The proposals don't come as a surprise – the fact that the UK and EU competition conditions were not subject to materiality, while other regulatory clearances were, was a source of consternation and the 81 day offer timetable simply didn't reflect the global complexity of many offers. The Panel has levelled the playing field as between regimes by subjecting them all to the materiality test. This may make it more difficult for bidders to walk away and could create some uncertain outcomes, especially on hostile bids, where potentially material clearances are required, but, in the majority of cases, is likely to provide greater certainty to targets and shareholders that a bid, once announced, will proceed. The changes to the timetable and acceptance condition are extensive but largely procedural. However, the knock on impact might be that more deals with genuine make or break decision points are decided at a single testing date. In addition, extendable timetables may have unwelcome consequences, particularly with regard to the cost of "certain funds". However, the introduction of "long-stop dates" should allow financing banks to price in the risk of timetable extensions and limit a bidder's exposure.
Overall, it remains to be seen how these changes would in practice affect the dynamics of deals – we would be delighted to discuss with you.
With close to 600 M&A lawyers around the world, White & Case is an M&A powerhouse and one of the most active M&A practices among global law firms – ranked among the top 3 firms for take private transactions in Europe for 2019 by deal value and volume. We are equally adept at advising on big ticket, complex M&A deals as well as on mid-sized and smaller deals for strategic clients in EMEA and the rest of the world. Led by M&A heavy hitters, with a deep bench of public M&A and PE specialists with an established record advising targets and bidders on takeover offers and schemes. We also have a market-leading practice for acquisition finance and debt capital markets (including high yield), offering innovative financing solutions for both bidders and targets.
Jade Jack (Knowledge Manager, White & Case, London) contributed to the development of this publication.
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