A number of amendments to the Takeover Code (Code) come into effect today. These amendments follow a public consultation released in May 2023 by the Takeover Panel (Panel) mainly in relation to a review of Rule 21 (Restrictions on frustrating action) (PCP 2023/1) and a response statement released in October 2023 (RS 2023/1).
This consultation is the first time the Panel has undertaken a discrete review of Rule 21. In addition to amending Rule 21 (and a few other related rules), the Panel has also published a new Practice Statement no.34.
The two main areas of amendments are:
Restrictions on frustrating actions (Rule 21.1): This rule operates when there is an offer or imminent bona fide possible offer and restricts a target board from taking any action which may result in the offer being frustrated or the shareholders denied the chance to consider the offer – such actions can only be taken if the shareholders approve them in a general meeting. The rationale for this rule is that these actions could lead to a bidder not proceeding with an offer or making an offer on less favourable terms and thereby disadvantaging target shareholders.
The Panel’s main issue with the former Rule 21.1 was that it often hindered a target from carrying on ordinary course business (e.g. the restriction on buying and selling assets was difficult for a target company whose business involves buying and selling assets) and this was becoming increasingly problematic with the increasing length of offer periods.
Rule 21.1 is therefore amended to allow increased flexibility for targets and greater clarity (given this rule often requires consultation with the Panel). A target board will no longer be restricted from taking an action that either is not material or is in the ordinary course of the target company’s business. There is a new definition of “restricted action” and “restricted period” and more detailed guidance is given on “materiality” and “ordinary course”. The new Practice Statement no.34 gives detailed guidance on how the Panel will interpret and apply this rule. These amendments are likely to assist parties to an offer and their advisers and streamline the Panel consultation process.
Rule 21.1 is also now applied to a bidder on a reverse takeover.
Equality of information to competing bidders (Rule 21.3): Rule 21.3 requires information given to one bidder to be shared, on request, with potential competing bidders. Until now, a competing bidder cannot make a general information request and must specify the information it wants. This had led, in competitive situations, to bidders inundating targets with daily lengthy information requests in an attempt to get access to the same information as the competing bidder(s). The Panel has amended this rule to stop this practice and reduce the administrative burden on targets. Competing bidders can now make a single weekly request and receive all the information that the target has given to another bidder.
If you would like to discuss any of the above, please contact Tessa Trevelyan Thomas or David Robinson in our capital markets team.
