Takeover Code changes

United Kingdom
On 4 July 2002 the Takeover Code Committee published its responses to a consultation exercise it had conducted on suggested revisions to the Notes on Rule 9.1 and the Substantial Acquisition Rules (SARs) to:

(a) address the potential for concerted practices between the trustees of an employee benefit trust ("EBT") and the board or a controlling shareholder/group of shareholders acting in concert (i.e. one holding more than 30%, but not more than 50%, of the voting rights); and

(b) clarify the Panel's position on the regulation of collective action by shareholders seeking ongoing control of a company's board.

With regard to the position of an EBT, a new Note 5 on Rule 9.1 has been introduced but there is no revision to the SARs. The mere establishment and operation of an EBT will not by itself give rise to a presumption that the trustees are acting in concert with the board and/or a controlling shareholder. However the Panel will consider "all relevant factors" and this may lead to a finding of concertedness. The Note contains a non-exhaustive list of such factors, including:

  • identities of the trustees
  • funding arrangements
  • percentage of share capital held by the EBT
  • number of shares held to satisfy awards to directors
  • established policy or practice of the trustees regarding decisions to acquire shares and vote shares held
The Panel will require prior consultation in advance of any proposed acquisition of new or existing shares if, as a result of the acquisition, the aggregate holdings of the directors, any other persons acting, or presumed to be acting, in concert with the directors and the trustees of the EBT will equal or exceed 30% of the voting rights or, if already exceeding 30%, will increase further. There is a similar obligation to consult in situations where a company has controlling shareholder and it is proposed the EBT acquires shares.

In a revision to Note 2 on Rule 9.1, the Panel has made it clear that it will normally presume shareholders who requisition or threaten to requisition the consideration of a "board control seeking proposal" at a general meeting (including an Annual General Meeting), together with their supporters at the date of the requisition or threat, to be acting in concert with each other and with the proposed new directors. The Panel will determine whether a proposal is "board seeking" by reference to a number of factors including the relationship between the proposed directors and any of the shareholders proposing them or supporting them and the number of directors to be appointed or replaced when compared to the total size of the board. The Note also sets out some of the factors the Panel will take into account in determining whether it is appropriate to regard the parties to be no longer acting in concert. No amendments have been made to the SARs.

For further information on the Takeover Code and further proposed developments, please copy and paste the following link into your address menu bar:


Alternatively, please contact:

Nick Callister Radcliffe
Corporate partner
Phone: +44 (0)20 7367 2394
Email: nick.callisterradcliffe@cms-cmck.com

Simon Howley
Phone: +44 (0)20 7367 3566
Email: simon.howley@cms-cmck.com

Peter Bateman
Phone: +44 (0)20 7367 3145
Email: peter.bateman@cms-cmck.com