In a couple of very high-profile recent takeover deals, particular attention has been paid to what the offeror might do to the offeree’s business after it acquires control. Kraft’s takeover of Cadbury and Pfizer’s offer for AstraZeneca (which did not proceed) focused the attention of politicians, the investment community, trade unions and the business press on how what an offeror says when in pursuit of the offeree might be enforced post-deal.
Given to the Panel to sort out
This tricky problem was handed over to the Takeover Panel, as custodian of the Takeover Code. As it goes beyond narrow enforcement of fair play during a public takeover and crosses into matters of public policy and commercial freedom, this was to an extent a piece of buck-passing by politicians. Although a more positive way of looking at it was that at least it didn’t end in some sort of “public interest” test to be adjudicated by those same politicians.
The new rules, effective from 12 January 2015
The result of the Panel’s deliberations was the new Takeover Code rules that came into force on Monday 12 January 2015. These rules draw a distinction between two types of pronouncement made by a party to an offer relating to the post-offer period:
1. Undertakings (“post-offer undertakings”); and
2. Statements as to future intention (“post-offer intention statements”).
Rule 19 of the Code has been amended (at Rules 19.7 to 19.9) to incorporate these new rules.
Post-offer undertakings: parties will be held to them
The most striking part of the new rules is the strict regime introduced for post-offer undertakings. These are:
“A statement made by a party to an offer in any document, announcement or other information published by it in relation to the offer relating to any particular course of action that the party commits to take, or not take, after the end of the offer period and which is described by that party as a post-offer undertaking.”
The thrust of the new rule is that a party making a post-offer undertaking will be held to that undertaking. The rule applies to a “party to an offer” – so applies to undertakings given by both offerors and offerees.
It follows that it has to be possible to assess clearly whether the undertaking has been fulfilled. So post-offer undertakings must be “specific and precise, readily understandable and capable of objective assessment, and depend on subjective judgements of the party to the offer or its directors”. Any qualifications or conditions to the undertaking must be clearly stated, and any attempt to invoke such a qualification or condition must be discussed with the Panel in advance
A party giving an undertaking must comply with its terms for the period specified (for example, keeping a manufacturing facility open for a period of years) and must complete the action committed to by the date specified in the undertaking. The Panel can require reports and documents as to the status and fulfilment of the undertaking.
An independent supervisor to monitor compliance
To add to this enforcement regime, the Panel can also require that a party giving a post-offer undertaking appoints a “supervisor” to monitor compliance with the undertaking. The supervisor would act for the Panel but would inevitably be paid by the party that has given the undertaking.
It will be interesting to see who is appointed as supervisors of post-offer undertakings, should any such appointment ever be made. The Big Four accountancy firms are natural candidates, but may well find that their existing or hoped-for relationships with parties giving undertakings make such appointments difficult to accept – given that a supervisor must be independent of the party concerned and any person acting in concert with it.
Post-offer intention statements: parties must explain themselves
A post-offer intention statement is a weaker thing. It is:
“A statement made by a party to an offer in any document, announcement or other information published by it in relation to the offer relating to any particular course of action that the party intends to take, or not take, after the end of the offer period, other than a post-offer undertaking.”
It must be an accurate statement of the party’s intention at the time that it is made, and made on reasonable grounds. If a party giving such a statement decides to depart from its statement in the twelve months after the end of the offer period, it must consult with the Panel and if necessary make an public announcement of the course of action it has taken.
Osborne Clarke comment
The new rules are likely to make parties to an offer even wary of making post-offer statements or giving post-offer undertakings. But in some offers, such undertakings (in particular) can have a decisive effect – so their wording will be honed ever more carefully, and monitored even more closely by interested parties, including investors, employee representatives, lobby and campaign groups, and government.
Two other thoughts:
Could offeree boards seek to get a post-offer undertaking from an offeror, knowing it will be binding, and so influence the post-offer running of the acquired business?
And, on a different tack, is this a move to a potentially more litigious environment for Code-governed takeovers? The Panel has historically been very reluctant to involve the courts in any aspect of the deals over which it has jurisdiction. Indeed, that absence of litigation is one of the virtues of the UK public takeover regime. But the ultimate sanction for enforcement of a post-offer undertaking would be for the Panel to seek a court order – which would be new ground for the Panel, for parties to an offer and for advisers.