Public M&A Update: Takeover Code Amendments (May 2023)

Following the conclusion of relevant consultations by the Code Committee, various amendments to the Takeover Code took effect on 22 May 2023 which include:

• changes to the offer timetable in competitive bid situations where one / more bidders are using a scheme of arrangement; and
• miscellaneous changes (e.g. providing greater flexibility for the Panel in granting derogations or waivers from the Takeover Code in exceptional circumstances).

A summary of the key amendments and a note on the Panel’s ongoing consultation on proposed changes to Rule 21 (Frustrating Action) is set out below.

Competitive Bid Situations

The amendments clarify the Panel’s approach to competitive bids involving one / more schemes of arrangement especially where regulatory clearances remain outstanding.  See Response Statement 2022/3 for the background to the changes.

Note 2 to Rule 32.5 has been amended to confirm:

• that where the parties do not agree between themselves a date for an auction, the Panel will not normally seek to introduce an auction procedure under Rule 32.5 to end the competitive bidding dynamic until after the last condition relating to a regulatory clearance has been satisfied or waived by each bidder; and
• how the Panel will establish a framework for shareholders to decide between competing offers once all final offers have been made.

Miscellaneous Amendments

Certain miscellaneous amendments to the Takeover Code have also been made , including in relation to derogations and waivers).  See Response Statement 2022/4 for the background to these changes.

Derogations and Waivers

The Takeover Code has been amended to give the Panel greater flexibility to grant derogations or waivers from the requirements of the Takeover Code in exceptional circumstances (e.g. to facilitate the rescue of a target in serious financial difficulty).

Note 3 on Dispensations from Rule 9 (Mandatory Offers) has been amended to remove certain limitations on the Panel's flexibility to waive the requirements of Rule 9 in the case of a rescue operation to save a target.

Rumour and speculation / untoward share price movement caused by a clear public statement

Note 2 to Rule 2.2, which provides that the Panel will not usually require an announcement under Rule 2.2(d) if it is satisfied that a price movement results from a clear public statement, has been deleted.

Adjusted bid price under Note 3 to Rule 9.5

Note 3 to Rule 9.5 has been amended to provide that where the mandatory bid price is adjusted under Rule 9.5(c), the price payable by a bidder must be 'appropriate' rather than 'fair and reasonable'.

Target board recommendations

A new Rule 25.2(c) expressly requires a target board to make a recommendation to shareholders on an offer (and any alternative offer). The Panel confirmed that although target boards usually include a recommendation on the offer, it is important that shareholders are also provided with a target board recommendation on the action that shareholders should take in respect of an offer (or any alternative offer).

Example recommendation language has been included in Appendix C to Response Statement 2022/4.

A similar amendment has also been made to Rule 15.2 requiring a target board to recommend the action that holders of convertible securities should take on a relevant proposal.

Irrevocable undertakings and letters of intent

Rules 2.10 and 26 have been amended to accelerate the time by which an irrevocable undertaking or letter of intent obtained prior to a Rule 2.7 firm offer announcement must be published. Such undertakings / letters must now be published:

• by 12 pm on the following business day if entered into during an offer period; or
• by 12 pm on the business day after the commencement of an offer period or after the announcement that first identifies a potential bidder (as the case may be).

Effective Date

These amendments apply to all Takeover Code governed companies and/or transactions from 22 May 2023 – including any ongoing transactions which started before this date.

What is next?

On 15 May 2023 the Panel published its Public Consultation Paper 2023/1 setting out proposed amendments to Rule 21 (Frustrating Action) – the Rule which restricts a target board from taking certain actions without shareholder approval where those actions might result in an offer being frustrated.

In summary the proposals involve:

• restructuring and amending Rule 21.1 to give targets increased flexibility in carrying on their ordinary course activities (especially where ordinary course of business involves buying and selling assets);
• publication of a new practice statement to explain how the Panel interprets and applies Rule 21.1;
• amendments to Rules 21.3 and 21.4, which require information provided to a bidder (or potential bidder) to be given to another competing bidder (or potential competing bidder); and
• addressing issues which arose from the Panel's consultation on changes to the bid timetable in competitive bid situations (see above and Response Statement 2022/3) by:
  • introducing a new Note to Rule 21 to provide that, save in exceptional circumstances, the Panel will consent to the restrictions in Rule 21.1(a) not being applied where a target board seeks to sanction a scheme of arrangement in a competitive situation; and
  • allowing a bidder to extend a mini-long-stop date in a competitive bid situation with the Panel's consent (even where a target board does not agree to the extension).