Clarification of Takeover Panel's approach to three Code Rules

United Kingdom
The Takeover Panel's 2001/2 Annual Report has given guidance on the way the Panel will interpret three Rules of the Takeover Code in the light of the Panel's experiences in recent bids. The three Rules are:

  • Rule 3.1 (Requirement for target company to obtain competent independent advice on an offer)

  • Rule 20.3 (Information that must be supplied by an MBO team bidder to the independent directors of the target)

  • Rule 24.7 (Confirmation that the bidder has sufficient resources to satisfy a cash offer)

The Director General of the Takeover Panel often uses his section in the Panel's annual report to indicate how the Panel considers particular Rules should be interpreted, or where it considers that new Rules are required to deal with certain practices and questions which have come to light during the course of the year under review.

In the Panel's 2001/2 Annual Report the Director General commented on the following Rules:

  • Rule 3.1: under this Rule the board of a target company is required to obtain advice on the offer from an adviser who must be "independent". Where the target's financial adviser also has an advisory relationship with the bidder it will not normally be regarded as independent. In one or two cases, groups have assumed that a potential conflict of interest arising from a bidder broking relationship can be addressed satisfactorily by the broker standing down from its role for the duration of the offer. The Panel has stated that this action will not normally be sufficient to resolve concerns as to independence. Instead, the Panel should be consulted at an early stage.

  • Rule 20.3: this Rule requires that information supplied by a management buy out team to its equity or debt funders must on request be promptly provided to the target's independent directors, so as to enable them to assess the merits of the MBO team's offer relative to the value of the target. Previously, there has been some debate as to whether the Rule applies only to information generated by the target or also to information on the target developed by or with the assistance of management. The Panel has now stated that Rule 20.3 information includes not only information generated by the target itself but also information on the target developed by or with the assistance of management. For the purpose of the transaction this could include business models prepared by the private equity backers, which normally include the opinions, estimates and projections of the management team based on their knowledge of the target. Similarly, due diligence reports prepared by accountants, lawyers and other professional advisers are likely to be disclosable under Rule 20.3, since they will be derived from information supplied by the target, reviewed by the management team for accuracy and shown to the financiers.

  • Rule 24.7: where an offer is for cash or includes an element of cash an "appropriate third party" (for example, the bidder's bank or financial adviser) must give confirmation that the bidder has cash resources sufficient to satisfy full acceptance of the offer. If the party confirming that the resources are available fails to act responsibly and to take all reasonable steps to assure itself that the cash is available, it may be required to produce the cash itself. The Panel has stated that a party which is a member of the same group as the bidder, or a member of the same group as a member of a consortium that is making an offer, will not normally be regarded as an "appropriate third party" for this purpose.

The Panel's 2001/2 Annual Report can be found in the 'Reports' section of the Panel's website at:

For further information please contact:

Gary Green at or on +44 (0)20 7367 2111


Peter Bateman at or on +44 (0)20 7367 3145