The Takeover Code: consultation paper on statements of intention and related matters
On 19 September 2017, the Takeover Panel (the Panel) published a consultation paper (PCP 2017/2) outlining a number of proposed amendments to the Takeover Code (the Code). The amendments proposed are in relation to the existing rules regarding statements of intention and related matters. The aim of the changes is to try and address (i) the current generic nature of statements of intention, (ii) the timing of statements of intention and the publication of offer documents and (iii) the publication of post-offer undertakings and post-offer intention statements.
Statements of intention
Rule 24.2 of the Code currently requires that an offer document must include an explanation from the offeror of the long-term commercial justification for the offer and, inter alia, its intentions with regard to the future business of the offeree company, its employees and management and pension schemes. The Panel has found that the statements of intention provided by offeror’s have not been sufficiently specific and, as a result, it has proposed changes which require an offeror to make specific statements as regards its intentions in relation to:
- the offeree company’s research and development functions;
- any material changes to the balance of the skills or functions of the offeree company’s employees and management; and
- any repercussions of the offeror’s strategic plans on the location of the offeree company’s headquarters and headquarters functions.
It is the Panel’s hope that these proposed changes will result in a move away from the generic nature of many offerors’ statements of intention.
Timing requirements for offeror statements of intention
Rule 25.9 of the Code sets out the ability for the offeree company’s employee representatives and pension scheme trustees to give their opinion on the effects of an offer on, respectively, employment and the offeree company’s pension schemes.
As things stand under the Code, the offeree company’s board has 14 days from the date an offer document is posted to send its shareholders a circular giving its opinion on the offeror’s intentions. The offeror’s statement of intentions is important to employee representatives and pension scheme trustees when forming its opinion on the offer.
However, the Panel has become concerned that because (i) an offeror is not required to include its statement of intentions in the Rule 2.7 announcement announcing the offer and (ii) the offer document and offeree company's circular are often combined and sent to shareholders at the same time when an offer is recommended by the offeree company’s board, employee representatives and pension scheme trustees are not being afforded the opportunity that they should have to assess an offeror’s intentions and to communicate their opinion on the offer to the offeree company’s shareholders in an effective manner.
To address this issue, the Panel has proposed that Rule 2.7 of the Code should be amended so as to require a firm offer announcement to state the offeror’s intentions with regard to the business, employees and pension schemes of the offeree company (and, where appropriate, the offeror), as currently required by Rule 24.2 (as proposed to be amended) in relation to an offer document. The Panel believes that this change will enable the offeree company’s employee representatives and pension scheme trustees to provide meaningful input into a combined offer document and circular and, consequently, facilitate better informed stakeholder debate on the merits of the offer.
Timing of publishing of the offer document
Rule 24.1(a) provides that an offeror must normally publish an offer document within a maximum of 28 days of the date of the Rule 2.7 announcement. However, there is no minimum period so an offeror will often publish an offer document as soon as possible following the Rule 2.7 announcement to mitigate interloper risk by implementing the transaction as fast as possible.
The Panel feels that an offeree company’s board (and by extension, its employee representatives and pension scheme trustees) should have more time to evaluate the terms of an offer. It has therefore proposed amendments to the Code which would introduce a requirement under Rule 24.1(a) that an offeror must not publish an offer document for at least 14 days after the Rule 2.7 announcement without the consent of the offeree company’s board. No guidance is given on if and when it will be appropriate for an offeree company’s board to consent to earlier publishing.
Reports on post-offer undertakings and post-offer intention statements
The consultation paper also contains proposals which would require offerors and offeree companies to publish reports on post-offer undertakings and post-offer intention statements (which are currently both made just to the Panel) given during the course of an offer.
The changes proposed appear sensible as there can be no doubt that the speed at which takeover processes can be implemented often mean that there is little time, in practice, for statements of intention to be properly considered by employee representatives and pension scheme trustees – two key stakeholder groups. We would say though that guidance on the scenarios where offeree companies’ boards may consent to earlier publication would be very helpful to ensure this does not become the default practice. Improved visibility on the implementation of post-offer undertakings and post-offer intention statements is also a welcome development in terms of creating greater transparency and accountability.
The Panel requested that responses to the consultation paper should have been received by 31 October 2017.
This article was written by Mark Howard and Tom Smitham. For further information, please contact Mark on +44 (0)20 7203 8902 or at Mark.Howard@crsblaw.com or Tom on +44 (0)20 7203 5250 at Tom.Smitham@crsblaw.com.
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