10 - Conduct of a Takeover Bid

Question 1

When the offeror is in the process of planning a bid, and there is SPECULATION about a bid being imminent, do either offeror or offeree have to make an announcement?

Answer 1

• Takeover code
• Rumour - rule 2.2(d)
• Rule 2.3
• Notes on rule 2.2 (b): the panel should be consulted when potential offeree subject to rumour / requires announcement if there has been untoward movement in the shares (Rule 2.2(d))

MAR
- Only bound by listing rules if a UK listed company - not obliged to make announcement

Question 2

What announcements need to be made under MAR and the DTR when there are rumours?

Answer 2

• Orange tabs - continuing obligations in white file
• DTR 2.7
• MAR Art 17(1)(4)(8)

Question 3

What are potential reasons for an offeree to reject an approach for a bid?

Answer 3

• Company being strong on an independent basis
• Implementing a cost cutting plan
• Proposed bid might undervalue them

Question 4

What are considerations that you would make about the price and type of consideration being offered generally?

Answer 4

• May be far lower than the current share price following announcement of bid.
• If share price rises to above the proposed offer price, suggests that investors think that offeror will increase their bid at a later stage.
• If accepting on these terms - taking risk on value of new shares which could decrease.

Question 5

What does a Rule 2.4 announcement trigger

Answer 5

• Possible offer announcement
• Will trigger the start of the offer period
• Which is significant for purposes of rule 8

Question 6

State the announcement that must be made by the offeree by 7:15am the day following an approach from an offeror

Answer 6

• Rule 2.9 - offeree has to announce how many share it has in issue
• When the offer period begins

Question 7

Can a firm intention to make an offer announcement then be withdrawn>

Answer 7

• Rule 2.7(b) - offeror should usually proceed with the offer unless offeror permitted to do otherwise
• Like if they have a pre condition to the offer.
• Unlikely that panel would even have permitted this because of Rule 13.3 / 13.4

Question 8

What are the reasons that the offeror should prepare the offer document BEFORE the latest time allowed by takeover code?

Answer 8

• Rule 24.1 - post within 28 days of announcement being made
• 25.1 - 14 extra days for circular
• Therefore the offeree will have a total of 42 days to prepare their defence document and strategy
• Should seek to post offer doc ASAP to give offeree less time to do this

Question 9

What is the rule for the contents of offer document?

Answer 9

• Rule 24.2 - specific
• Rule 23 - general
• Offeror will also want to convince offeree shareholders of the management skills of offeror board
• But for cash offer - offeree shareholders just care about whether they are getting a good price or not.

Question 10

What happens with the offer document if the bid is recommended?

Answer 10

• Offer document sent on behalf of both offeror and offeree

- Needs to comply with Rules 24 and 25

Question 11

What is the rule for taking responsibility for the offer document?

Answer 11

• Rule 19.2

- Note 2 to rule 19.2

Question 12

When the takeover code talks about the offeree board circular, what is contained in this?

Answer 12

• Basically is a defence circular
• Rule 25.2
• Is a response to offeror offer document

Question 13

Why would a clarification of an offerees position on an offerors bid be necessary?

Answer 13

• General Principles 1-3
• Board of offeree company must treat all shareholders equivalently
• And give views on the effect of the bid on company

Question 14

Give examples of actions that the offeror can take to fight off a hostile bid?

Answer 14

• Defence strategy needed
• Present strong arguments in defence circular
• Frustrating actions - selling off valuable assets
• Seeking a white knight - competitive bidder who is willing to agree to offeror terms
• Talk to major offeror shareholders to get them on side: discussing major concerns with them
• Directors need to adhere to GP3 & rule 21 - might have to get shareholders approval

Question 15

What are the 2 key rules that the offeror board needs to take into consideration when fighting off a hostile bid?

Answer 15

• GP3 - act in general interest of company

- Rule 21 - get shareholder approval

Question 16

What level of acceptances is generally required for the offeror to be able to declare offer as unconditional as to acceptances?

Answer 16

• Rule 10 - 50% +1 voting rights minimum

- Can set the conditional offer as higher than this

Question 17

What sort of conditions might the offeror shareholders put into the offer doc?

Answer 17

1. Right to approve consideration shares
2. CMA / euro Competition condition - rule 12.

For this condition - may be good to add even more conditions, e.g. allowing the offeror to not proceed with bid if not happy with any terms imposed by European commission.

Question 18

What effect would a white knight putting in a formal bid for the offeree have on the current takeover timetable?

Answer 18

• Offer doc published
• Rule 31.6 note 2 means that when there is a competing offeror - all offerors are bound by the timetable that starts because of posting of that offer doc
• Extension of day 60

Question 19

What does the offeror have to do by 8am the day after the first closing date?

Answer 19

• Offer doc published
• Rule 31.6 note 2 means that when there is a competing offeror - all offerors are bound by the timetable that starts because of posting of that offer doc
• Extension of day 60

Question 20

What does the offeror have to do by 8am the day after the first closing date?

Answer 20

• Rule 17.1

- Must announce level of acceptances for offer by offeree shareholders

Question 21

What are the 3 options that an offeror can take just after the first closing date?

Answer 21

• Acceptance condition is generally 50% + 1
  1. Extend closing date - 31.2
  2. Revise offer - 32.1(c)(a)
  3. Let offer lapse
  Most likely if offeror wants to continue the bid is just to revise its offer and set a new closing date

Question 22

What would the effect of the offeror revising the offer to increase the level of cash in their offer? Why might this be persuasive?

Answer 22

• Term for this is “partial cash alternative to the shares consideration”
• Increasing level of cash consideration
• Will reduce the offeree shareholders exposure to the offeror market share price

Question 23

What is the last day that the offeror can declare unconditional as to acceptances?

Answer 23

• Day 60

- (dark tab along the bottom)

Question 24

What action can takeover panel take if there was a delay with European commission making a decision? Where is the rule for this?

Answer 24

• Rule 31.6(a)(iii) and
• Note 5 to Rule 31.6
• panel will consent to an extension of day 60
• Extend day 39 to second day following announcement of decision

Question 25

When an offer is revised, what is the position for shareholders who accepted the original offer? Are the shareholders who accepted the first offer but then changed their minds entitled to withdraw their acceptance?

Answer 25

- Those who accept original offer - deemed automatically to have accepted terms of REVISED offer - Entitled to get revised consideration

Question 26

What are the limitations for a potential offeror that is not listed?

Answer 26

- Therefore can only offer cash | - Funded by debt

Question 27

Are break fees, or other offer related arrangements allowed? Which rule governs this?

Answer 27

- No they are not | - Rule 21.2(a)

Question 28

Which shares does the s979 procedure relate to?

Answer 28

- S979(2) - Shares to which the offer relates and the voting rights held by those shares - Does not include shares owned by the bidder AT the date of the offer. - So have to wait to get to that threshold.

Question 29

Give 6 reasons why a takeover might not have been a success technically even though it has gone through

Answer 29

- Foreign ownership - Factory closures? - Hedge funds buying shares to force through deal - Cost of advisers - Whether takeovers ever actually make any money

Question 30

What threshold do the offeror need to be able to threaten de-listing and what effect will this have?

Answer 30

- 75% - LR 5.2.5R(2) / 5.2.11R - Delisting will encourage remaining shareholders to accept offer. - Then can get 90% for purposes of s979 and do compulsory acquisition procedure.

Question 31

What are the requirements for re-registering as a private company? Why would the offeror who just bought the target want to do this?

Answer 31

- S97(1)(a) - SR with other conditions met - Need 75% for SR - Offeror would prefer this, lots of Company Act provisions are "less favourable in their effect" for private companies - E.g. public companies cannot give financial assistance in relation to a bid - And public companies cannot buy back shares out of capital.

Question 32

If an offeree stays independent after a bid has been made, can the offeror then make ANOTHER bid?

Answer 32

- Rule 35.1 - not allowed to make another offer for 12 months - If still not able to declare offer unconditional as to acceptance by day 60 / not wholly unconditional by day 81

Question 33

If the offeror announced that they would have to close a factory, and then the offeror said that they could keep it open because of the bid but then failed to do so, which provision of the code could offeror be criticised under?

Answer 33

- Rule 19.1 - Should have objectively reasonable basis for holding a certain belief - Should take care in making prominent and significant statements with such frequency.