Proposed changes to UK takeover regime

Updated September 2011

The UK Takeover Panel published a detailed consultation paper setting out important proposed amendments to the regime governing takeovers in the UK in March 2011. These had potentially far reaching implications for the conduct of takeover bids in the UK, including for the Private Equity community.

The Takeover Panel first introduced the suggested reforms in October 2010, with the intention of reducing the perceived ‘tactical advantages’ for bidders targeting UK companies. This follows criticism of the Kraft takeover of Cadbury in January 2010. On 21 July 2011 the Takeover Panel published a statement which confirmed that it had adopted the amendments to the Code as proposed in March 2011 without material amendment.

A summary of the changes is set out below.

‘Put up or shut up’ rule

It is proposed to change the regime which requires potential bidders to clarify their position within a particular period (the so called 'put up or shut up’ rule). This period will be reduced to a shorter, fixed period of 28 days.

Under the current rules, a target company can invoke a ‘put up or shut up’ order by approaching the Panel with a request to issue such an order; once issued, the bidder is required either to table a firm offer, usually within six to eight weeks, or to walk away.

Under the new regime, a mandatory four-week deadline is introduced, under which a potential bidder must clarify their position in relation to a potential target. The period commences on the date on which the bidder is publicly identified and the new rules would require the identification of the proposed bidder at a stage which is earlier than currently required.

These new regime introduces a timeframe which would have serious implications on the conduct of due diligence and the securing of any finance.

Prohibition on deal protection measures and inducement

Although there are certain limited exceptions, the new proposals outlaw a bidder obtaining a break fee from a target company if the transaction does not proceed, as well as prohibiting other deal protection measures. It has become normal, particularly for leveraged bidders, to obtain break fees coverage, not least to recover fees in the event that the transaction does not proceed for reasons down to the bidder.

Disclosure of offer-related fees

This proposal requires enhanced disclosure of advisers' fees so that fees paid to accountants, lawyers, bankers, public relations officials and other consultants are required to be published.

Disclosure of financial information in relation to a bidder and the financing of an offer

Enhanced disclosure and transparency rules relating to the financial information about the potential bidder, its bid financing and its financial position going forward will be introduced.

This is intended to allow those who will continue to have an ongoing interest in the target company to have more of an insight into the impact of the takeover going forward.

Recommendations of the board

The proposals made it clear that target company boards will not be limited in the factors that they may take into account in giving their opinion and recommendation on the offer.

These proposals include the requirements for the board of target companies to remind employee representatives of their right to have their views on the potential offer included in the response circular or offer document. The intention is that this encourages the employee representatives to be more successful in providing their opinion on the effects of the offer on employment.

Disclosure of intention regarding employees

The new proposals require statements to be made by a potential bidder of its intentions in relation to the target company and its employees, which should hold true for at least one year after completion of the transaction unless another period is stated. This is designed to improve disclosure by bidders.

The new regime follows criticism of Kraft in the takeover of Cadbury in January 2010. Cadbury had announced, in 2007, that its Somerdale factory near Bristol would be subject to closure. Before a takeover agreement was received, Kraft stated that they would be in a position to continue operations at the Somerdale factory, only to close the factory plant seven days after the deal was completed.

The final amendments to the Code have been agreed and will take effect from 19 September 2011, when a new edition of the Code will be published.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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