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Public Companies Update January 2006
1 TAKEOVER PANEL CONSULTS ON THE IMPLEMENTATION OF THE
TAKEOVER DIRECTIVE
On 18 November 2005 the Takeover Panel published a consultation
paper on its proposals for amendment of the Rules of the Takeover
Code (the "Code") to implement the Takeovers Directive
and the related provisions of the Company Law Reform Bill.
The paper sets out detailed amendments to the Code and follows
the earlier consultative document issued by the Panel in January
2005. Comments on the proposals are invited by 10 February
2006.
1.1 Implementation of the Takeovers Directive/Background
The EU adopted Directive 2004/25/EC on Takeover Bids (the
"Directive") on 21 April 2004 and Member States
must implement it through national legislation by 20 May 2006.
As well as preparing its proposed changes to the Code, the
Panel has also been working with the Department of Trade and
Industry to prepare draft legislation based on the Government's
proposals to implement the Directive. This legislation now
forms Chapter 1 of Part 22 of the Company Law Reform Bill,
which was introduced into the House of Lords on 1 November
2005. The Bill is unlikely to receive Royal Assent before
this summer and therefore it is likely that implementation
of the Directive in the UK will be late.
1.2 Status of the Panel and the Code
One fundamental change on implementation of the Directive
will be the change in the status of the Panel and the Code.
Both the Panel and the Code are currently non-statutory, operating
on the basis of self regulation and consent, although the
Code has been endorsed by the Financial Services Authority
under the Financial Services and Markets Act 2000.
The Company Law Reform Bill will establish the Panel as the
supervisory authority for the purposes of the Directive and
place it under an obligation to make statutory rules to satisfy
the requirements of the Directive. The Panel will be provided
with the powers it needs to continue to regulate all takeovers
and other transactions currently covered by the Code, including
new powers to enforce the Code through the courts and, if
necessary, to order the payment of compensation in certain
restricted circumstances.
In its consultation paper the Panel stresses that despite
its change in status, the practical day-to-day impact of the
changes will be small and that it will continue to adopt a
flexible approach.
In addition to the above, the scope of the Panel's jurisdiction
is expanded. Instead of applying the residency test, the Panel
will have jurisdiction over all companies and Societas Europaea
that have their registered office in the UK, Channel Islands
or the Isle of Man and have any of their securities admitted
to trading on a regulated market in the UK or on a stock exchange
in the Channel Islands or the Isle of Man (currently only
the CISX in Guernsey). The residency test will still apply,
however, in respect of all other companies, both public and
private and Societas Europaea that are currently covered by
the Code.
Further, the Panel will have shared jurisdiction with a relevant
competent authority in another member state over an offer
where the offeree has its registered office in the UK but
has its securities admitted to trading on the regulated market
of one or more other Member States or its securities admitted
to trading on a regulated market in the UK but its registered
office in another Member State.
1.3 Proposed amendments to the Code
The principal proposed amendments to the Code include the
following:
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1.3.1
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General principles - replacing the
Code's General Principles with the principles in the Directive,
which are based on those in the Code and are broadly similar;
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1.3.2
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Shares or Securities - applying the
Code to all transferable securities carrying voting rights
in a company, rather than just voting equity and non-equity
share capital. This means that any person triggering a
mandatory bid must make an offer to all the holders of
transferable securities carrying voting rights; |
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1.3.3
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Acting in concert - amending the
definition of "acting in concert" so that it
does not require active co-operation between the parties,
it is not limited to parties co-operating through the
acquisition of shares and will include persons who co-operate
with the offeree company with a view to frustrating the
successful outcome of a bid; |
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1.3.4
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Equitable Price - amending the time
period for determination of the equitable price for a
mandatory offer from 12 months prior to commencement of
the offer period to 12 months prior to announcement of
the offer; |
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1.3.5
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Content of the Offer Document - requiring
new disclosures in an offer document, including: |
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(a) |
the offeror's strategic plans for the company
(including their repercussions on employment and the place
of business); |
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(b) |
full terms of the offer, not just total
consideration; |
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(c) |
all conditions of the offer e.g. where cash
is to be funded by a placing which is itself conditional
on admission of the placing shares to trading on a market,
this should be stated; and |
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(d) |
the identity of persons acting in concert
(to the extent the offeror is aware of those identities)
and sufficient information about the concert parties to
enable the offeree company shareholders to reach a properly
informed decision on the bid (this is a derogation from
the requirements of the Directive, see below); |
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1.3.6
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Offeree Board Circular - Rules 25
and 30 will be amended to require the board of the offeree
company to publish a circular to shareholders, which it
has also made available to employee representatives, setting
out its views of the effect of implementation of the offer
on all the company's interests, including employment and
the offeror's strategic plans for the company (including
their repercussions on employment and the place of business)
and appending any opinion received from employee representatives; |
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1.3.7
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Frustrating Action - widening the obligation
to obtain prior shareholder authorisation before taking
any action which may result in the frustration of a
bid. The Code Committee considers that authorisation
does not need to be given at a general meeting of the
company if shareholders holding more than 50% of the
voting rights were to approve the proposed action of
the board.
The current exception to the requirement to obtain
prior authorisation in the Code will be amended to remove
reference to "other special circumstances"
and instead provide that where the decision of the board
of the offeree company has been "partly or fully
implemented" or if it has not been partly or fully
implemented but is in the normal course of business,
such authorisation is not needed.
However the Code Committee has advised that where the
articles of association of an offeree company place
the directors under an obligation to take certain action
within an offer period and they have a discretion as
to how this is achieved, such action will require shareholder
authorisation if it may result in a frustrating action;
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1.3.8
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Powers to require
documents and information - requiring any person dealing
with the Panel or to whom inquiries or requests are directed
to take all reasonable care not to provide incorrect,
incomplete or misleading information.
In addition, once a dialogue has been commenced between
a person and the Panel, that person will be required to
disclose any information relevant to the matter of which
they are aware to the Panel and correct or update the
information if it changes.
The Company Reform Bill also contains a formal power for
the Panel to require documents and information that are
reasonably required in connection with the exercise of
its functions; |
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1.3.9
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Derogations and Waivers - inserting
a new rule setting out the circumstances in which the
Panel may derogate or grant a waiver from the application
of a rule. Generally the Panel may give a derogation or
grant a waiver if it is provided for in a rule (and the
Code Committee is proposing to write certain specific
derogations into some rules) or in other specific circumstances
where the Panel considers it appropriate.
In order to comply with Article 4.5 of the Directive,
in the case of a transaction subject to the requirements
of the Directive and if the rule in question derives from
the Directive, the Panel will need to ensure that in giving
any derogation or waiver the General Principles are respected;
and |
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1.3.10
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Procedures for review and
appeal of rulings - creating automatic right of appeal
to the Takeover Appeal Board against decisions of the
Hearings Committee, including procedural directions given
by the chairman of the hearing, in all cases, with no
requirement to seek leave. |
1.4 Conclusion
Although its implementation in the UK will probably be delayed
and that it represents a major change to the status of the
Takeover Panel, the overall rules regarding takeovers in the
UK should not be significantly more onerous following the
implementation of the Takeover Directive.
A copy of the consultation paper can be found at www.thetakeoverpanel.org.uk.
If you require further information on any matter covered
in this note, please contact your principal contact at Charles
Russell or Simon
Gilbert, Clive
Hopewell or Alexander
Keepin (London), Francis
Rundall, Richard
Norton, or Adrian
Mayer (Cheltenham), Catherine
Drew or Geoff
Sparks (Guildford) or Peter
Elliott (Oxford) on 0207 203 5000.
To download these articles in pdf format, please click
here
Please note that the summaries above are
a general indicative guide only. They are not exhaustive.
This information has been prepared by the firm as a service
to our clients. As it is a general guide, we recommend that
you seek professional advice before taking action. No liability
can be accepted by the firm for any action taken or not taken
as a result of this information. The firm is not authorised
under the Financial Services and Markets Act 2000 but we are
able in certain circumstances to offer a limited range of
investment services to clients because we are members of the
Law Society. We can provide these investment services if they
are an incidental part of the professional services we have
been engaged to provide.
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