On September 19, 2017 the Takeover Panel (Panel) published a Panel Consultation Paper 2017/2 (the Consultation) proposing a number of changes to the Takeover Code (Code) rules relating to post-offer intention statements and undertakings and to certain requirements in connection with the timing of publication of offer documents. The proposals are summarised in further detail below.
Content of offeror statements of intention
The Consultation notes that statements of intention made in offer documents by offerors under Rule 24.2(a) of the Code can sometimes lack the specificity that the Panel would expect, and that this may make it difficult for the target company board to provide meaningful views under Rule 25.2(a).
In order to address this, it is therefore proposed that Rule 24.2(a) be expanded to include specific requirements for an offer to state:
- its intentions for the target company’s research and development function;
- its intentions with regard to any material change in the balance of the skills or functions of the target company’s employees and management; and
- the likely repercussions of its strategic plans on the location of the target company’s headquarters and headquarters functions.
The Panel also notes that, on occasion, an offeror may seek to qualify statements made under Rule 24.2(a) by referring to its “current” or “present” intentions – the Panel believes that such words should not be regarded as qualifying an offeror’s statements of intention and considers that they should therefore be avoided.
Timing requirements for offeror statements of intention
The specific statements offerors are required to make under Rule 24.2(a) regarding their intention for the target company business do not currently need to be made until the offer document is published – there is technically no requirement under the Code for such statements to be made in the offeror’s firm offer announcement under Rule 2.7.
The Consultation notes that, if such statements are not included in the firm offer announcement, it is then difficult for the target company’s employee representatives and pension scheme trustees to give a meaningful opinion on the effects of the offer on, respectively, employment and the offeree company’s pension scheme prior to publication of the offer/response document such that it can be included in that document. Whilst it is possible for employee representatives or pension scheme trustees to provide their opinion after publication of the offer/response document (with the target company being obliged to publish the opinion on a website and announce that it has been so published) the Panel considers this is likely to be a less effective means of communicating the information to target shareholders than including it in the offer/response document.
To address this concern, it is proposed that Rule 2.7 should require a firm offer announcement to include the same statements from the offeror regarding its intentions for the target business as are required to be included in the offer document under (amended) Rule 24.2(a) – this would be in addition to the requirement to include such statements in the offer document itself.
The Panel considers that this would:
- make it more practicable for employee representatives and pension scheme trustees to have their opinion appended to the offer/response document rather than be published on a website;
- enable an earlier and more informed debate to be held by shareholders and other stakeholders;
- assist the board of the target company in the preparation of the opinion and views it is required to give under Rule 25.2(a) as it would be able to take into account any opinions it may have received from employee representatives or pension scheme trustees; and
- provide additional time for employees in target companies that do not have recognised employee representatives to decide whether to elect or appoint a person to represent them for the purposes of providing an opinion.
Offeror not to publish offer document for 14 days without target board consent
Rule 24.1(a) of the Code normally requires the offeror to publish an offer document within a maximum of 28 days of it announcing its firm intention to make an offer, however the Consultation notes that offerors often publish an offer document more quickly than this. In a non-recommended offer, the target company must publish its response document within 14 days of the offer document.
Where a unilateral (i.e. non-recommended) offeror publishes its offer document shortly after it announces its firm intention to make an offer, in particular where the offer period has only commenced on the making of the Rule 2.7 announcement, the Consultation notes that it might be desirable for the board of the target company to have more time than 14 days to formulate its views on the offer (and the offeror’s intentions for the target) and prepare its initial “defence” against the offer.
In order to address this, it is proposed that an offeror should not be permitted to publish an offer document for 14 days from the firm offer announcement without the consent of the target company board.
The ability to withhold its consent would give the target board certainty that it would have at least 28 days from the date of the firm offer announcement until it had to publish its initial circular. The target company board would also have the certainty that the restriction in Rule 5.1 on the offeror or on persons acting in concert with it acquiring (except from a single shareholder or where one of the other exemptions to Rule 5 applied) interests in shares in the offeree company carrying 30 per cent or more of the voting rights would continue to apply for a minimum period of 35 days from the date of the firm offer announcement. In addition, the proposed ability to withhold consent to the publication of the offer document would increase the minimum time available for the offeree board to prepare its final response to the offer for inclusion in the “Day 39” circular, as contemplated by Rule 31.9.
Reports on post-offer undertakings and post-offer intention statements
In relation to post-offer undertakings, the Consultation Paper notes that the Panel’s current practice is to require an offeror or target company which has made a post-offer undertaking to publish, in whole or in part, any reports submitted to the Takeover Panel under Rule 19.5(h) as to its compliance with the undertaking. It is proposed that where an offeror or target company has made a post-offer undertaking, the requirement for it to publish, in whole or in part, any report submitted to the Panel should apply in all cases, not only at the discretion of the Panel, and where the post-offer undertaking has a duration of longer than a year, such reports should be published at least annually.
In relation to post-offer intention statements, it is proposed that where an offeror or target company has made such a statement, it should be required, at the end of the period of 12 months from the date on which the offer period ends (or such other period of time as was specified in the statement) to:
- confirm in writing to the Panel whether it has taken, or not taken, the course of action described in the post-offer intention statement; and
- publish that confirmation via a Regulatory Information Service.
It is noted that this would build upon the current practice of the Panel to seek private confirmations at the end of the relevant period in relation to compliance with any post-offer intention statements.
Comments on the Consultation are requested by October 31, 2017.
(The Takeover Panel, Consultation paper: PCP 2017/2, 19.09.17)