Takeover Panel's 2002/2003 Report

United Kingdom

The Takeover Panel's 2002/2003 annual report contains commentary by the Director General on the following Code Rules:

  • Rule 2.2(c): Under Rule 2.2, an announcement is required to be made where the offeree is the subject of rumour and speculation or where there is an untoward movement in its share price (and an announcement simply stating that offer talks are taking place or that a potential bidder is considering making an offer is usually sufficient). Under Note 1 to Rule 2.2, parties should consult the Panel if they are in any doubt as to whether or not an announcement should be made. The Panel has confirmed that parties should not delay an announcement in order to consult with it if it is clear that an announcement is required (but that the requirement for consultation does not necessarily mean that the Panel will require an announcement to be made).
  • Rule 2.2(e): An announcement must be made when negotiations or discussions are to be extended to more than a "very restricted number of people" outside those persons who need to know in the companies concerned and their immediate advisers. The Panel has clarified its interpretation of "very restricted number of people" by stating that it must always be consulted prior to more than six external parties being approached. All such external parties must keep the offer secret and not themselves approach additional third parties without consulting the Panel.
  • Rule 2.3: Once an approach has been made to the board of the target company the primary responsibility for making an announcement will normally lie with the board of the target company. If the approach is rejected by the target however the Panel has stated that the announcement obligation will normally revert to the bidder on the basis that only it will know if it intends to proceed with the offer. The Panel should be consulted if there is any doubt as to whose obligation it is.
  • Rule 5.2: Rule 5.2(a) and SAR 2(a) exempt "single shareholders" from the restrictions in Rule 5.1 (which sets out restrictions on the acquisition of shares and/or rights over shares increasing a person's voting rights to 30 per cent or more) and SAR 1 (which sets out restrictions on the speed with which a person may acquire between 15 per cent and 30 per cent of such voting rights) respectively. In clarifying to whom the term "single shareholder" applies, the Panel has stated that a fund manager managing investment accounts on behalf of a number of underlying clients (whether or not on a discretionary basis) is not regarded as a single shareholder for these purposes unless the interest acquired represents the interest of a single underlying entity. Again, when there is doubt, the Panel should be consulted.
  • Rule 9: When a group of shareholders is acting in concert the Panel will treat them as being the equivalent of a single person with the prime responsibility for making the offer on the person whose acquisition triggers the Rule 9 mandatory bid obligation. The usual procedure is that the offer is extended to all shareholders outside the concert party but not to members of the concert party itself. The Panel has stated that the person responsible for making the offer is also free to extend it to other members of its concert party if it wishes although the Panel considers that it would not normally be required to do so.
  • Rule 21.2: This Rule sets out certain safeguards which a target company must observe prior to agreeing to pay an inducement fee to a bidder/potential bidder. The Panel recognises however that inducement fees may be paid by the target to other persons, for example to a thrid party in the event that the target agrees to dispose of certain of its assets to that third party as part of a defence strategy. Such a contract would breach Rule 21.1(e) which prohibits the target, during the course of an offer or where it has reason to believe that a bona fide offer may be imminent, from entering into any contract otherwise than in the ordinary course of business without the approval of its shareholders. Provided the proposed inducement fee is de minimis (the Panel indicates the lower of 1 per cent of the consideration for the asset disposal and 1 per cent of the value of the target, calculated by reference to the offer price, by way of a guide) and the other safeguards in Rule 21.2 are observed, the Panel will permit such an arrangement being entered into without prior shareholder approval. The Panel should be consulted at the earliest opportunity where an inducement fee or similar arrangement is proposed. 
  • Rule 24.10: This Rule requires the offer document to contain an estimate by an appropriate adviser of the value of the securities when the offer involves the issue of unlisted securities (and the Panel consider this to apply in any case where the consideration securities are not publicly quoted). Where the valuation of the offer or securities may be problematic, the Panel may consider that it is not appropriate to publish an estimated value (if for example the bidder does not have access to sufficient information on the target), in which case a statement must be included in the offer document to the effect that the adviser was not able to publish an estimate of the value of securities. It is worth noting that, where no valuation under Rule 24.10 is published, the Panel is unlikely to be satisfied by a bidder's claim that the value of its offer exceeds the price of any purchases of target shares that might have been made to which Rule 6 applies (purchases within the 3 month period prior to the offer/announcement). The Panel has also stated that bidders should ensure that no purchases to which Rule 6 applies should be made unless a Rule 24.10 valuation will be published or a full cash alternative is provided, and that if any such purchases are made and a valuation cannot be published, the Panel is likely to prohibit the bidder from proceeding with its offer until such time as any purchases cease to be relevant for the purpose of Rule 6.

The Panel has also stressed the importance of consulting with it where there is any doubt whatsoever as to whether a proposed course of action complies with the Code.

The Panel's 2002/2003 Annual Report can be found in the "Reports" section of the Panel's website at http://www.thetakeoverpanel.org.uk/