Member Article

Contractual bids for public companies made on or after 5 July 2021 will be subject to new Takeover Code (the "Code") rules.

Changes made to:

• standardise rules for all regulatory authorisations and clearances;
• simplify the contractual bid timetable;
• clarify circumstances in which conditions may be invoked to lapse a bid,
  
  

represent the most significant changes to the Code since 2011.

Regulatory conditions

The rule changes ensure that regulatory conditions, being those relating to official authorisation or regulatory clearance from governmental or regulatory bodies are to be treated consistently. Competition clearances will no longer constitute a special category with the potential to automatically lapse a bid.

Official authorisation or regulatory clearance relates to the question of whether a bidder is permitted to acquire the target or its assets. It is expected this will include clearance required under the new national security and investment regime, but does not include clearance from a pensions regulatory clearance, which relates to potential costs that a bidder may incur rather than approval for the transaction.

Bid timetable

A number of noteworthy changes are being made to the bid timetable.

• The timetable will be underpinned by a single unconditional date (initially set at Day 60) by which all conditions must be satisfied. It abolishes the distinction between the date upon which a bid is unconditional as to acceptances and the date when it is wholly unconditional. Target shareholders avoid being “locked-in” whilst other conditions are satisfied.
• In fact, the acceptance condition will be the last to be satisfied. Except with Takeover Panel (“Panel”) consent it can only be satisfied once other conditions are satisfied or waived. Target shareholders therefore have until the unconditional date to submit their acceptances, but a new ability to withdraw their acceptances at any time before the bid is declared unconditional, no longer having to wait until after Day 42, should encourage earlier acceptances.
• A bidder may bring forward the unconditional date by issuing an acceleration statement. The statement must give not less than 14 days’ notice of the new unconditional date (which may not be earlier than Day 21) and, in making the statement, the bidder must waive any outstanding regulatory conditions.
• Prior to the unconditional date, a bidder may lapse its bid by invoking the acceptance condition on or after Day 21. It must do so by publishing an acceptance condition invocation notice, giving no less than 14 days’ notice of the date when sufficient acceptances must be received. This replaces the system of closing dates on which a bidder could decide to lapse a bid.
• Contractual bids must include a long-stop date by which all conditions must be satisfied. Both parties on a recommended bid will agree the long-stop date, whereas a bidder making an unrecommended bid must consult the Panel to agree an appropriate date; expected to be determined by the regulatory condition taking the longest to satisfy. The long-stop date may be extended and, if a competitive situation arises, this may happen to align the first bidder’s long-stop date with that of the second bidder.
• The long-stop date is important because a bidder or target may request that the bid timetable is suspended where a regulatory condition cannot be satisfied in a standard 60 day timetable. It is therefore especially relevant to securing financing for a specified period.
  
  

The Panel will normally grant joint requests for suspension. However, where one party requests suspension it will need to satisfy the Panel that their request relates to a material regulatory condition.

A regulatory condition is material if the Panel determines that a failure to satisfy it could give rise to circumstances of material significance to the bidder in the context of the bid. This is a lower hurdle than the material significance test (that must be met to invoke a condition), and allowing suspension of the timetable does not mean that the Panel will allow the condition to be invoked.

Following a suspension if, on the long-stop date:

• the acceptance condition is not capable of being met, the bid will lapse;
• a regulatory condition is not satisfied the Panel may consent to lapse the bid if a material regulatory condition is outstanding and it is (a) not clear what action to take to satisfy the condition, or (b) the action required would give rise to circumstances meeting the invocation test. Whilst the Panel’s expectation is that a bidder will normally be able to lapse its bid if a regulatory condition is unsatisfied on the long-stop date a bidder may be required to complete the deal provided the acceptance condition would otherwise be satisfied.
  
  

Invoking conditions

The increasing number of regulatory clearances to which bids are subject has led to rule changes and new guidance to help clarify the bidder’s ability to invoke a condition and lapse its bid.

• With very few exceptions (largely limited to the acceptance condition, conditions relating to a connected equity fund raise and the long-stop date) all conditions, including those relating to competition clearances, will be subject to the material significance test. The Panel will judge whether the circumstances giving rise to the right to invoke a condition are of material significance to the bidder in the context of the bid by reference to the facts of the case at the time they arise.
  
  

Conditions not subject to the material significance test must be specifically identified in the offer document;

• In applying the test, new factors that the Panel will consider include:
  • the foreseeability of the circumstances arising at the time of the bid announcement and the likelihood of them occurring;
  • any actions taken by bidder;
  • the views of the target board; and
  • the significance of a regulatory authorisation or clearance to the bidder; action the bidder would need to take to obtain the clearance; and, the consequences for the bidder and its officers if clearance is not obtained.
    
    

Summary

It is to be expected that the new rules will have most impact on hostile bids or competitive situations, although it remains to be seen what other impact they have in practice. They do create a more flexible contractual bid timetable as well as reinforcing the role of the Panel on the takeover process and the challenge for bidders in being able to invoke conditions and lapse their bid.