Impact of changes to the Takeover Code on bid financing
The Takeover Panel (the “Panel”) recently published changes to the Takeover Code (the “Code”) which are likely to impact bid financing documentation, particularly in relation to certain funds provisions and acquisition undertakings.
The revised Code will apply to all firm offers announced on or after 5 July 2021. Any firm offer made before that date (or announced in competition with a firm offer announced before that date) will continue to be subject to the current rules.
What changes are relevant from a financing perspective?
The key changes harmonise the treatment of official authorisations and competition and other regulatory clearances (together “Clearances”) across all jurisdictions and introduce various amendments to the contractual offer timetable.
Harmonising the treatment of Clearances
The Code currently provides for bids to lapse automatically if certain regulatory procedures are initiated in the UK or EU. There is no such consequence for regulatory referrals from other jurisdictions. The differing treatment of UK and EU regulatory referrals versus those from other jurisdictions stems from the fact that in the past many bidders were themselves UK companies and so the Code reflected that UK and EU Clearances represented the principal hurdle on most transactions.
Recognising that the majority of takeovers now involve a cross-border element, the changes introduce a consistent treatment across all Clearances to which a takeover offer is subject, thereby removing the separate way with which the Code currently deals with UK and European Commission competition conditions.
In practical terms this means removing the automatic lapse described above, with the result that if a bidder wishes to invoke unilaterally a bid condition relating to a Clearance from the UK or EU authorities, it will have to demonstrate to the Panel that the circumstances are of material significance to the bidder in the context of the offer, as is already the case for non-UK or EU Clearances. The change applies irrespective of whether the bid is made by way of contractual offer or scheme of arrangement.
The threshold for whether circumstances are of “material significance” is high. Practice Statement No 5, which is also being updated alongside the Code, sets out the Panel’s approach to invoking offer conditions. Although a bidder can take some comfort that one of the factors to be taken into account by the Panel is the consequences for the bidder and its directors if it were to complete the offer without the Clearance. This might be the case, for example, where completion of the offer without the required Clearance would be unlawful in the relevant jurisdiction.
Where the ‘”material significance” threshold cannot be satisfied, a bid would continue notwithstanding any ongoing Clearance processes and any conditions to Clearances that may be imposed by the relevant authorities.
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