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/