Changes will be made to the Takeover Code on 25 January 2010 which will impact on management incentivisation arrangements, “chain principle” bids and display documents as well as clarifying other areas such as the obligations of an offeror after its offer has been prohibited by a competition authority.
Management Incentivisation Arrangements
These are relevant to Note 4 on Rule 16. The amendments are as follows:
Relevance of offeree management shareholdings
Rule 16 will apply to all incentivisation arrangements for members of offeree management who are interested in offeree shares regardless of the specific form of arrangement. However, the Panel must be consulted where significant and/or unusual incentivisation arrangements are proposed in relation to members of offeree management who are not interested in offeree shares.
Independent Adviser’s Opinion
The offeree’s independent adviser’s “fair and reasonable” opinion on the arrangements with management should be applied to any incentivisation arrangements that are being entered into or where discussions have reached an advanced stage.
Panel Consent
Panel consent is not required for any incentivisation arrangement unless the value of any arrangement is significant and/or the nature of the arrangement is unusual, in either the context of the relevant industry or good practice.
Disclosure of the state of discussions on incentivisation arrangements
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Where no incentivisation arrangements are proposed, this must be stated.
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Where it is intended to put incentivisation arrangements in place, but either no or only limited discussions have taken place, this should be stated and relevant details of the discussions should be disclosed.
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Where arrangements have been entered into or an advanced stage has been reached, relevant details of the nature and extent of the arrangements or proposals should be disclosed and the offeree’s independent adviser must provide a “fair and reasonable” opinion on the arrangements.
Changes to the status of management incentivisation arrangements
Any change to the status of management incentivisation arrangements or discussions should be discussed with the Panel. If material, the Panel will require disclosure of relevant details, a “fair and reasonable” opinion from the Rule 3 adviser and, if appropriate, an independent shareholder vote.
Independent Shareholder Vote
Any independent shareholder vote on arrangements must be a separate resolution, not forming part of a composite resolution, e.g. a resolution to approve a scheme of arrangement. However, the resolution will be allowed to be inter-conditional with any other resolutions relating to the offer, such that the offer itself may be permitted to lapse if the separate resolution on incentivisation arrangements is not approved.
Display Documents
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All documents required to be put on public display should also be available for inspection on a website.
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The following documents are not required to go on display:
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offeree directors’ service contracts that are not entered into in connection with the offer; and
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any material contract not entered into by the offeror, offeree or their respective subsidiaries in connection with an offer.
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The length of time that documents on display should be made available will be extended until the end of the offer and not only until the end of the offer period. The documents on display should also be available during any competition reference period even though, with limited exceptions, an offer period ceases to exist.
Chain Principle Bids
This is relevant to Note 8 on Rule 9.1. That note sets out the limited circumstances in which a company (Company A) may be required to make a mandatory offer for a company (Company C) because Company A is proposing to make an offer for another company (Company B) which in turn has an interest (direct or indirect) in a controlling block of shares in Company C. Due to practical difficulties in applying the chain principle, Note 8 will be amended to strengthen the presumptions in favour of requiring a chain principle bid to be made and so to increase the level of protection available to Company C shareholders by:
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extending the relevant criteria for assessing the significance of Company B's interest in shares in Company C (currently including assets and profits) to include the relative market values of Companies B and C; and
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providing that a chain principle bid would normally be required if Company B’s holding in Company C might reasonably be considered to be significant to the decision of Company A in acquiring Company B. The Panel acknowledges that this does not totally remove the subjective judgement required in applying the existing test.
When there is no need to make an offer
This is relevant to the Note on Rule 2.7. Existing practice will be codified to make it clear that the ability of an offeror to choose not to proceed with an offer where a higher competing offer has been made should be subject to the consent of the Panel in all circumstances.
Offerors who decide not to pursue a competition clearance or whose offer is prohibited by a competition authority
Rule 12.2 is amended to clarify that:
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where the Competition Commission or European Commission refuses permission for the offer to proceed, the prohibited offeror or potential offeror will be restricted from making another offer for the same company for six months after that regulatory decision; and
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in the case of an offeror or potential offeror which, following a competition referral, decides that it does not wish to seek clearance from the Competition Commission or European Commission, that offeror or potential offeror will be required to announce its decision and be restricted from making another offer for the same company for six months after that announcement.
No obligation to extend offer
Rule 31.3 is amended to make it clear that the only circumstance in which the obligation to extend an offer falls away at the first or any subsequent closing date is if the acceptance condition has not been satisfied by that date.
Partial offer by scheme of arrangement
Rule 36 will require Panel consultation if a partial offer is implemented by means of a scheme of arrangement.
Intentions of offeree directors with regard to alternative offers
The Panel is given the power to require offeree directors to state for which alternative offer they intend to elect.
If a director has been required to state which of the alternative offers he intends to elect for and, following publication of the offeree circular, that director changes his mind and elects for an alternative other than the one stated in the circular, the Panel will need to be consulted to determine whether (and, if so, how) such information should be provided to offeree shareholders.
Although not a requirement, including an explanation in the offeree board's circular of the relevant factors that the directors have taken into consideration when deciding on which of the alternative offers to elect for may assist shareholders.
Click here to see Response Statement 2009/2.
