Complete notes covering Workshop 8 of the University of Law's M&A Elective.
- Public Offers
- The Takeover Code on Takeovers and Mergers
- Contractual Bids vs. Schemes of Arrangement
- Recommended vs. Hostile Takeovers
- Stake-building
The main source of regulation of takeovers of PUBLIC COMPANIES
is called the TAKEOVER CODE ON TAKEOVERS AND MERGERS.
What is the PURPOSE of the Takeover Code?
Ensure fair and equal TREATMENT of all shareholders in an offeree company in relation to takeovers;
Provide an orderly FRAMEWORK within which takeovers are conducted; and
Promote the INTEGRITY of the financial markets.
General principles of the Code
Set out in Part B of the Code generally requires:
1. All SHAREHOLDERS to be treated equally and fairly, moreover, if a person acquires control of a company the
other shareholders must be protected.
2. Sufficient INFORMATION to be given to shareholders in a timely fashion, to enable them to decide whether or
not to accept an offer N.B. effects on employment and location of the company’s place of business.
3. Directors of offeree company must act in the interests of the company as a whole and must not deny holders
of securities the opportunity to decide on merits of the bid.
4. Parties must NOT commit MARKET ABUSE/ FALSE ABUSE which could give artificial effect to rise or fall to
prices of securities and normal functioning of the market.
5. Bidders to be in a POSITION TO PAY for a company’s shares after announcing a bid.
6. Offeree must not be hindered in conduct of affairs for longer than is reasonable by a bid for its securities.
OFFER PERIOD
Begins when offeror makes either;
1. A r 2.7 announcement of firm intention to make an offer, or
2. A r 2.4 announcement of a possible offer, or
3. when a company announces that shares carrying 30% of more voting rights in the company are for sale or
4. that board is seeking potential offerors
Ends when:
1. On the first closing date (minimum 21 days from the date the offeror publishes the offer document)
2. If later, the date the offer becomes or is declared unconditional as to acceptance
3. All announced offers have been withdrawn or lapsed or all potential offeror’s have made a r 2.8
statement.
To whom does it apply? From Para 3(A) – City Code Introduction:
a public company, or Societas Europaea – (para. 3(a)(i))
1
,ACQ8
All about the target, not with its registered office in the UK, the Channel Islands or the Isle of Man –
bidder whose securities are admitted to trading:
on a regulated market in the UK (such as the Main Market); or
on a multilateral trading facility (such as AIM); or
on any stock exchange in the Channel Islands or the Isle of Man.
Any other public company, or Societas Europaea (including unlisted public
companies) which:
has its registered office in the UK, the Channel Islands or the Isle of Man, and
in the Panel’s opinion, has its place of central management and control in the UK, the
Channel Islands or the Isle of Man.
OR, in limited circumstances, a private company (namely a private company which
during the last 10 years has: (para. 3(a)(ii))
had its securities admitted to trading on a regulated market or MTF in the UK or on
any stock exchange in the Channel Islands or the Isle of Man; or
advertised dealings for a six-month continuous period; or
has filed a prospectus; or
had securities subject to a CA 2006, s 693(3) marketing arrangement)
Companies who are: (para. 3(a)(iii))
Registered office in the UK but whose securities are traded in EEA reg market outside
UK
Registered office in the EEA but outside UK, and whose securities are solely traded on
a UK regulated market;
Companies registered in the EEA but outside UK whose securities are traded both on
a regulated market in the UK and in another EEA country but not the country In which
the registered office is located.
Note: The TC ALSO applies to: TARGET, BIDDER, BOTH SETS OF DIRECTORS,
INVESTMENT BANKS ADVISING, PROFFESSIONALS/LAWYERS ADVISING (par. 3(f) of
the introduction)
From Para 3(b), City Code introduction:
Transactions to which Applies to TAKEOVER BIDS, MERGER TRANSACTIONS i.e. contractual offer and
the Code applies including by scheme of arrangement.
S. 943(7) CA 2006 defines takeover bids by reference to Article 2(1) Takeovers
directive. This points to national rules.
An ‘offer to acquire control’ is defined by national rules which in the UK is the
takeover code. ‘Control’ defined as 30% or more of the voting rights in offeree
company.
Includes offers by parent companies to buy shares in subsidiaries if the parent
company has the objective of acquiring control in the subsidiary.
In shared jurisdiction transactions (i.e. falling within Para 3(a)(iii), the offer
must have the obtaining of control of the company concerned as its objective.
Important holdings (see 3% and more – beginning to stake hold, must notify when get more.
more below) ‘Control’: is defined in the CC as acquiring 30% or more of the voting rights in an offeree
company
(yourself or someone associated by your or by irrevocable (promising to sell shares
in bid process)) = not allowed to buy any more shares (R5)
R9: mandatory bids – if you hit 30% of actual shares/acquired, obliged to make bid
to all shareholders for cash/cash equivalent and best price offered in 12 months and
can’t put other conditions in there (conditional offer – not capable of immediate
acceptance – you put con
2
, ACQ8
Compulsory Statutory right to buy all 100% of shares. Two conditions:
shareholder buyouts a) Take-over condition
(Squeeze-outs) - There must be a ‘takeover offer’ s. 974 CA 06;
- Offer to acquire all shares in offeree company other than offeree shares already held
by offeror and; where terms of the offer are the same in relation to all shares to
which the offer relates.
b) 90% squeeze-out threshold condition.
- Under s.979 CA 06 offeror must have acquired or unconditionally contracted to
acquire not less than 90% of in value of all shares to which the offer relates. Where
they are voting shares, not less than 90% of voting rights carried by those shares.
- Shares acquired by offeror or its concert parties before offer document published DO
NOT COUNT TOWARDS 90% THRESHOLD (s.974(2)).
- E.g. offeror owns 25% of shares, it requires acceptance of 90% of the 75% shares
remaining.
- Irrevocable undertakings as to the date of the offer do not count towards threshold.
(s. 975(2).
- S. 986(9) Offeror can apply to court to serve squeeze-out notice even if not acquired
90% threshold if proved that;
- Offeror unable to trace one or more shareholders
- If account taken to this, 90% threshold would be reached and;
- Consideration offered is fair and reasonable.
c) Sell-out rights
- S. 983 CA 06 SH can force offeror to buy shares.
- Two conditions, first, a takeover offer condition (same as squeeze-out)
- 90% threshold condition
- Compel offeror to buy shares once offeror has acquired interest in 90% of ALL
SHARES IN OFFEREE COMPANY. Shares owned by offeror will count towards
threshold.
Squeeze out provisions: the 90% test – you can force other 10% to sell to you
ss. 979 CA 06 Act – if you get 90% of shares (ignore any shares you already
have/irrevocables) – 90% of the rest/shares to which offer relates (e.g. you own 20,000
and there’s 80,000 – 90% of 80,000) you can force other 10% to sell – so you ultimately
get 100% (often a MCQ)
How to Take Over
Bid versus Scheme of Arrangement
Ideally take over 100% of shares… how?
1. Contractual bid/offer
2. Scheme of arrangement
a. cancellation (prohibited now)
b. transfer schemes (practically only for recommended bids)
Contractual Offer/Bid
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