Proposed amendments to UK Takeover Code - December 2010

Articles Written by John Keeves (Partner)

The UK Takeover Panel has recently issued a response statement in relation to consultation on proposed amendments to the UK Takeover Code. The Panel's Code Committee does not intend to proceed with all the proposals previously consulted on, in the face of an "unprecedented" number of responses to the consultation paper. But a number of key amendments will be pursued:

Shortening the "phoney war"

Potential offerors - who in future will need to be named in any announcement related to a potential offer - will be required to "put up or shut up" with an offer within four weeks of the announcement of a 'potential offer', unless the potential offeror and target jointly apply to the Panel for an extended timetable.

Deal protection

Deal protection measures and "inducement fees" (break fees in Australian parlance) will be essentially prohibited, except where the target board has initiated a formal process to sell the company by means of a public auction.

Recommendations and non-price factors

The Code is to be amended to clarify that a target board is permitted to take into account factors other than offer price in deciding whether to recommend an offer.

Adviser fees

Offer related fees for professional advisers (including financial advisers, accountants, lawyers and PR advisers) will need to be disclosed, although a prohibition on success fees will not be implemented.

Offeror's financial information

Offeror will be required to provide detailed financial information for all offers - not just securities exchange offers, and a requirement (where material) for a post-offer pro forma balance and details of credit ratings) along with further details about offer financing - including 'public display' of all financing documents

Intentions

Statement of intention concerning the target's assets and employees "will be expected to hold true" for a period of one year after the offer becomes unconditional (although one considers what enforcement mechanism will be available).

Employees

Other amendments will facilitate the circulation of views concerning an offer by employee representatives.

Comments

The proposed amendments appear to be largely a reaction to the Kraft/Cadbury bid, and suggest that the UK is departing from Australian and US practice, at least as far as deal protection is concerned - the Australian Takeovers Panel does not necessarily require a "public auction" to justify deal protection provisions or break fees.  Disclosure of financial information will also go further that Australian requirements, as will disclosure of adviser fees (not required unless material). There is also no sanction for a genuine charge of intentions under Australian takeover law and policy.

It is conceivable, however, that the proposed changes to the UK Takeover Code will prompt calls for law reform in Australia. If some law reform takes place, we can hope that the opportunity will be grasped to tidy up the many drafting anomalies that plague Chapter 6, in order to dispense with the many ASIC class orders that, in effect, made general textual amendments to the takeover provisions.

Download the response statement here.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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