UK’s M&A regulator consults on significant changes to the Takeover Code

Written on 4 Nov 2020

The update reflects the multitude of authorisations and clearances surrounding a takeover and comes as Brexit ends the role of the Commission as a competition regulator in the UK

The Takeover Panel, the body that regulates public M&A in the UK, has published a public consultation paper (PCP) on proposed amendments to the rules dealing with offer conditionality and the offer timetable set out in the City Code on Takeovers and Mergers.

The proposals are intended to simplify the offer timetable and to accommodate the potentially lengthy timeframes required in order to satisfy conditions relating to official authorisations and regulatory clearances.

Some of the changes proposed seek to ensure that the code treats official authorisations and clearances consistently, while other proposals aim to promote the integrity of the financial markets by providing certainty that once a firm offer has been announced it will not be withdrawn or lapse without good reason.

The PCP has invited comments by Friday, 15 January 2021. The code committee expects to publish a response statement setting out the final amendments to the code in Spring 2021 with the approved amendments coming into effect approximately three months after the publication of the response statement in relation to firm offers announced after that time.

What are the core changes?

The main proposals are for amendments of the rules in the following areas: the offer timetable, market integrity, official authorisations and regulatory clearances, and the mandatory offer.

Offer timetable

  • New definitions of milestone dates. New definitions would be adopted for calculating important dates in the offer timetable. For example, "day 60" (being the latest date by which all conditions must be satisfied) would be defined as the 60th day following the publication of the initial offer document or any later date set by the panel pursuant to an extension of the offer timetable. Other dates specified in the code (such as the latest date for publishing a revised offer document and the date by which a potential competing offeror must clarify its position) would be calculated by counting back from day 60, so that if day 60 is extended by the panel then those other dates will automatically be extended or reset. There will no longer be a day 81 in the offer timetable – previously day 81 was the last day for fulfilment of other conditions (assuming the offer became unconditional as to acceptances on day 60).
  • Single date for satisfaction of all conditions. There would no longer be a distinction between the date by which the acceptance condition needs to be satisfied and the date by which the other conditions to the offer need to be satisfied or waived.
  • Unconditional date. An offeror would be permitted to specify a date earlier than day 60 by which all of the conditions to the offer need to be satisfied or waived (the unconditional date). In the absence of an acceleration statement (see below) being made by an offeror the unconditional date would be day 60 (and would therefore be automatically extended if the panel extended day 60).
  • Acceptance condition last to be satisfied. Subject to certain exceptions, the acceptance condition would only be capable of being satisfied once all of the other conditions to the offer have been satisfied or waived.
  • Acceleration statement. An offeror would be able to make an acceleration statement, which would bring forward the latest date by which all of the conditions to the offer must be either satisfied or waived. Where an acceleration statement is made, the new unconditional date should be set at not less than 14 days from the date of the acceleration statement. An offeror which publishes an acceleration statement would be required to waive any outstanding conditions (whether specific or general) relating to an official authorisation or regulatory clearance).
  • Acceptance condition invocation notices. An offeror that wishes to invoke the acceptance condition and lapse its offer prior to the unconditional date would be required to serve an irrevocable "acceptance condition invocation notice" giving notice to shareholders of its intention to do so, at least 14 days prior to the date on which the offeror intends to lapse the offer. Once the notice has specified the level of acceptances required in order for the offer not to lapse, it will not be permissible for the offeror to change that level prior to the specified date.
  • Period for which offer to remain open for acceptance. Any offer would be required to remain open until the later of day 21 and the date on which the offer becomes or is declared unconditional or lapses. In addition, other than where the offer is not subject to an acceptance condition, any offer would be required to remain open for acceptance for at least 14 days after the date on which it becomes or is declared unconditional.
  • Announcements of acceptance levels. More regular announcements regarding acceptance levels will be required to be made by offerors.
  • Withdrawal rights. Offeree company shareholders who have accepted an offer would be able to withdraw their acceptance at any time prior to the satisfaction of the acceptance condition.
  • Long-stop date. An offeror would be required to set a long-stop date for a contractual offer. This would be the latest date by which, in the event of a suspension of the offer timetable, the acceptance condition would be required to be satisfied and all conditions relating to an official authorisation or regulatory clearance would be required to be either satisfied or waived. If the offer is not recommended by the board of the offeree company, the panel must be consulted prior to the publication of the firm offer announcement as to the date of the long-stop date.

Market Integrity

  • Material significance requirement. Amendments would be made to rule 13.5 (invoking conditions and pre-conditions) to clarify the application of the “material significance” requirement to the invocation of certain conditions to an offer. The panel will judge whether circumstances are of material significance to the offeror in the context of the offer by reference to the facts of each case at the time the relevant circumstances arise.
  • Requirement to take necessary procedural steps in relation to a scheme of arrangement. The code would expressly require the offeror, once all relevant conditions had been satisfied or waived, to take the procedural steps necessary for the scheme to become effective.

Official authorisations and regulatory clearances

  • Suspending the offer timetable for official authorisations and regulatory clearances. An offeror or offeree can request that the offer timetable be suspended in relation to a condition relating to any official authorisation or regulatory clearance (currently this only applies to references to the Competition and Markets Authority (CMA), the UK antitrust regulator, and Phase 2 European Commission antitrust proceedings).
  • Removal of the special treatment given to the CMA and the Commission. The special treatment given to the CMA and the Commission would be removed, including the requirement for an offer to lapse if, before a particular date, a Phase 2 CMA reference is made or Phase 2 Commission proceedings are initiated.

Mandatory offer

  • Dispensation from requirement to make a mandatory offer. The panel would be able to grant a dispensation from the restriction in rule 9.3 on a person triggering a mandatory offer if the making or implementation of that offer would be subject to any condition or consent. The dispensation would be available where: (i) the condition or consent relates to a material official authorisation or regulatory clearance; (ii) the triggering share purchase is itself subject to a condition relating to that material official authorisation or regulatory clearance in identical terms to the condition or precondition to the offer; and (iii) the invocation of the condition to the share purchase agreement (and the condition or pre-condition to the offer) is subject to the consent of the panel, applying the “material significance” requirement in rule 13.5(a).

Osborne Clarke view

Although most of the changes proposed in the PCP are uncontroversial, one of the changes that may have a significant impact on offerors is the removal of the requirement for an offer to lapse if, before a particular date, a Phase 2 CMA reference is made or Phase 2 Commission proceedings are initiated.

Under the new proposals, the offer timetable would instead be suspended for the duration of such reference or proceedings. Accordingly, offerors will need to ensure that they have financing in place to cover the potentially lengthy period of suspension and this is likely to result in offer financing becoming more expensive.

Despite this issue, it is welcome to see that the code is being updated to reflect the fact that there are a multitude of other official authorisations and regulatory clearances that may affect the timetable for a takeover. This is particularly timely given that, following the end of the Brexit transition period on 31 December 2020, the Commission will no longer act as a domestic competition regulatory authority in the UK.

If you would like any more information on any of these proposals or would like assistance submitting comments on the PCP, please speak to one of the contacts below.