The new 13th edition of the Takeover Code went live on 5 July 2021 (except for certain "on-going" offers) and less than five months later the Takeover Panel is now proposing further changes to the Code. While none of them are quite as significant as the new offer timetable and regulatory conditions changes that the new Code brought about, there are two important changes proposed that will apply to mandatory offers under Rule 9, as well as additional disclosure requirements for possible offer announcements and refinements to the way the rules imposing a three month "freeze" on resurrecting offers apply to lapsed offers (or "no intention to bid" announcements).
The Panel's consultation on the proposed rule changes will close on 18 February 2022 and the resulting changes are expected to be published in the Spring and to become effective one month later.
Mandatory offer changes
Two notable changes are proposed for offers required to be made under Rule 9. First, no share purchases by the bidder or its concert parties will be permitted during the last 14 days up to and including the offer's unconditional date (or, as relevant, the expiry of an Acceptance Condition Invocation Notice). This will allow target shareholders to decide whether or not to accept the Rule 9 offer, knowing the maximum percentage of the target that the mandatory bidder would be left with if its offer lapsed. It will also mirror the current effective restriction on a bidder triggering, during the last 14 days of its voluntary offer, a mandatory offer by acquiring 30% control.
Secondly, some big changes are proposed to the so-called "Chain Principle" as it applies to mandatory bids. This principle operates to trigger a mandatory bid in certain cases where "indirect control" of a Code target is obtained. The principle applies where party A acquires more than 50% of company B which has a controlling interest in C which is a Code company. A will normally not be required to make a mandatory bid for C unless either:
- B's interest in C is "significant" in relation to B (assessed at a relative value of 50%) (the "significant interest test"), or
- securing control of C was a "significant purpose" of A acquiring control of B (the "significant purpose test").
The Panel is proposing that the significant purpose test for the Chain Principle to apply should be dropped. It is also proposing that the "relative value" test for the significant interest test should be reduced to 30%.
The Panel is concerned that the significant purpose test has tended to become the de facto Chain Principle test (with consequent difficulties for the Panel Executive in giving rulings on whether it will be triggered and rendering the significant interest test almost redundant). Limiting the triggering of the Chain Principle to the significant interest test will provide greater certainty as to when the principle should apply though the Panel will retain the flexibility of being able to apply the principle in rare cases where the significant interest is not technically satisfied but this is only because a transaction has been deliberately structured so as to produce that result.
Minimum consideration disclosures
Stake-building by a bidder or its concert parties prior to the start of an offer period (i.e. before a Rule 2.4 announcement of a possible offer) can result in the bidder being required to offer a minimum level of consideration (including making a cash or securities offer) by reference to the terms of the relevant acquisition if and when it announces a Rule 2.7 firm intention to bid. The Panel is proposing that Rule 2.4 announcements would have to disclose any of these minimum consideration requirements that would apply to a subsequent firm offer announcement and that further announcements will be required if these requirements are triggered later during the offer period.
Restrictions on renewing lapsed offers or making offers following a Rule 2.8 (no intention to bid) announcement
Some more technical changes are proposed to the Code's rules that generally impose a three month "freeze" on a bidder whose offer lapsed or which made a Rule 2.8 announcement telling the market it would not be making a bid. These are largely clarificatory of the way in which the Panel sees the rules being intended to operate; for example, with a view to protecting market participants who may have traded in the target's shares following the bidder having previously made a final no increase offer statement, making it clear that where the bidder is allowed by the Panel to renew its bid within that three month period, its new bid cannot only be made on more favourable terms than applied under its lapsed bid. The Panel acknowledges that in some cases these changes could extend the period of time that, for example, a bidder is restricted from renewing its bid.
Other minor changes
The consultation details a number of more minor changes to the Code, including - because the Panel is too often and routinely being asked to give this confirmation - that custodians and depositaries of securities will not, in the ordinary course, be treated as having an interest in those securities for Code purposes.