Over the last few months, a number of amendments have been made to the Takeover Code (Code). Many of the changes clarified existing Takeover Panel (Panel) practice but there was a material change made to the presumptions of acting in concert.
Under the Code, persons are said to be acting in concert if they co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. The concept is important because it extends the application of the Code’s rules to a potentially wide body of persons.
These changes to the Code (which are now in force) concern the circumstances in which the Panel will presume persons to be acting in concert (the presumptions). The old presumption 1 concerned companies in a group and their associates and made a presumption of control (and therefore concertedness) where there was ownership or control of 20% or more of the equity share capital – it is replaced by the new presumptions 1 and 2. Presumptions 1 and 2 are also extended to other undertakings, including partnerships, funds and natural persons, so that their interests are to be treated in the same way as interests in shares in a company.
The new presumption 1 increases the threshold for control (and therefore concertedness) from 20% to either 30% or more of the voting rights or more than 50% of the equity interests (whether or not voting). The new presumption 2 introduces concertedness between companies connected by an equity interest of 30% or more (whether or not voting) and companies who are acting in concert under presumption 1. Under presumption 1, voting interests and equity interests are not diluted up or down an ownership chain whereas, under presumption 2, equity interests of 30% or more are diluted through an ownership chain.
For example, where A holds 30% of the votes in B which holds 30% of the votes in C, A, B and C will all be presumed to be acting in concert with each other. The same would be true if the equity interests were 50.1%. If, however, the equity interests were 30%, then A and B and B and C will be in concert but not A and C.
Increasing the threshold from 20% to 30% is a sensible change, reflecting, as it does, the control threshold elsewhere in the Code.
A number of other miscellaneous changes to the Code will come into force on 22 May 2023. These include:
- providing the Panel with greater flexibility to grant a derogation or waiver from the requirements of the Code in exceptional circumstances, for example, to facilitate a rescue of a company which is in serious financial difficulty;
- the deletion of Note 2 to Rule 2.2 that says that the Panel would not normally require an announcement if it is satisfied that a price movement, rumour or speculation results from a clear and unequivocal public statement (such as the disclosure of an acquisition of shares required by the FCA’s Disclosure Guidance and Transparency Rules (DTRs)). The rationale here is to place a potential bidder who has purchased shares in the offeree in an equivalent position to a potential bidder that has not purchased shares – if they are both actively considering making an offer, they are both required to make an announcement following a price movement, rumour or speculation. This means that a bidder who has purchased shares (and made only an announcement under the DTRs) will no longer have any tactical advantage by being able to avoid a Rule 2.8 announcement that triggers the 28 days put up or shut up period; and
- a new Rule 25.2(c) requiring a target board to make a recommendation to shareholders as to the action shareholders should take in respect of an offer and any alternative offers. It is usual to include a recommendation on the offer but boards do not always do so when there is an alternative offer. Since the directors of a company are the persons best placed to evaluate the merits or demerits of an offer, the Panel believes shareholders should have their recommendation. The Panel has provided sample recommendation language to cover different scenarios. Similar changes have also been made with respect to recommendations on the action holders of Rule 15 securities should take.
If you would like to discuss any of the above, please contact David Robinson or Tessa Trevelyan Thomas in our capital markets team.
