Changes to the Takeover Code and consultation on further changes

United Kingdom

Disclosure of securities in issue: new Rule

In PCP 14 the Panel consulted on whether a new Rule 2.10 should be introduced to require target companies during an offer period to disclose to the market details of all their securities in issue.  The same obligation would apply to bidders unless the offer is wholly in cash.  The change was proposed in order to avoid the type of situation, which has occurred on a number of takeover offers, where it is uncertain exactly how many securities a target company has in issue and under option during an offer period. 

As responses to the consultation proved overwhelmingly positive, in Response Statement 14 the Panel introduced the proposed Rule, which obliges the target, when an offer period begins, to announce to the market as soon as possible and in any case by 9.00am the following day "details of all classes of relevant securities issued by [the target], together with the numbers of such securities in issue", and to make further announcements of any changes to this information.  "Relevant securities" is defined in Note 2 on Rule 8 and broadly comprises securities and equity share capital in the target and any share options, warrants, other subscription rights and derivatives referenced to any of these (but is likely to exclude any shares held in treasury).  Unless the bidder (or any named potential bidder) has stated that its offer is wholly in cash, the bidder (or potential bidder) will also have to announce such information about its own 'relevant securities'.  Although this change will mean that more information about the target's share capital will be available to the bidder from the target's RIS announcements, it will still be advisable for the bidder to send the target a letter under Note 3 on Rule 10 requesting information about (for example) option exercise dates and prices and the terms of any option schemes.

At the same time the Panel amended note 1 to Rule 9 and paragraph 6 to Appendix 1 so that disclosure of details of any Rule 9 waiver in respect of convertible securities, options or rights to subscribe for shares, or the issue of such rights, should now be made in the company's accounts rather than included in its Extel card.  Disclosures in the accounts should continue to be made until such time as the relevant securities to which the rights relate have either been issued or it is confirmed that no issue will be made.

Copies of Response Statement 14 (RS 14) may be obtained from the consultation documents section of the Panel's website at  The Statement includes the wording of the Rule changes.

Subjective conditions for the benefit of the target: consultation on Rule change

On 21 July the Panel published PCP 15 relating to proposed amendments to Rule 13 (Subjective Conditions).  This Rule provides that offers must not normally be subject to conditions which depend solely on subjective judgements made by the bidder's directors, or conditions the fulfilment of which is in hands of the bidder's directors.  Note 2 to the Rule also limits the circumstances in which a bidder can invoke non-fulfilment of such a condition as grounds for lapsing its offer: this will only be permitted by the Panel where the non-fulfilment is of very material significance in the context of the offer. 

Conditions that are included in offers for the benefit of the target company are not currently subject to Rule 13, and it is therefore unclear whether they can be framed in subjective terms and the circumstances in which they may be invoked by the target.  Such conditions are commonly included in recommended offers where the bidder is offering its own shares as consideration, and the board of the target wishes to make sure that the value of the consideration shares remains substantially the same as it was when the board agreed to recommend the offer.  The conditions are considered by the Panel to be a legitimate means for the board of the target to protect the best interests of its shareholders particularly because, in the absence of such conditions, the only options available to the target's board - such as withdrawing the recommendation or any acceptances which have been given - will not help where the bidder has managed to secure enough target shares to declare the offer unconditional as to acceptances. 

The Panel therefore proposes that Rule 13 be extended so that it would apply in the same way to conditions which are in favour of the target.  In practice this will mean that the Panel is unlikely to permit the target to invoke non-fulfilment of such a condition as a means of rejecting a previously recommended offer unless the non-fulfilment is of very material significance in the context of the bid.  Where the condition relates to the value of the consideration shares, the Panel may have to determine what degree of fall in value should be considered material for this purpose. 

The deadline for responses to the consultation exercise is 1 September 2003.  Copies of the Panel's consultation document (PCP 15) may be obtained from the consultation documents section of the Panel's website at

For further information please contact either Bill Carr at  [email protected] or on +44 (0) 20 7367 2002 or Peter Bateman at [email protected] or on +44 (0) 20 7367 3145.