Significant changes to the UK Takeover Code confirmed

The UK's Takeover Panel has published the final text changes to the Takeover Code (the Code) and confirmed that they will take effect on 5 July 2021. The changes relate to the offer timetable and conditions to offers, and are the most significant in recent years.

The offer timetable

The changes simplify the offer timetable and accommodate the potentially lengthy timeframes required to satisfy the conditions relating to official authorisations and regulatory clearances to which many offers are now subject.

The new timetable rules will be of greatest relevance in the case of a hostile offer or in a competitive situation. For recommended contractual offers, the new rules will not have a significant practical impact, as the timetable can normally be extended with the consent of the offeree board. The offer timetable rules are not generally applicable to takeovers implemented through schemes of arrangement.

Key changes include:

A single date for satisfaction of all conditions: The updated Code makes no distinction between the date by which the acceptance condition must be satisfied and the date by which the other conditions to the offer must be satisfied or waived.

This single date (defined in the updated Code as the "unconditional date") is initially set as Day 60. A single date avoids the current situation in which accepting target shareholders can be "locked in" to an offer for a long time after it is unconditional as to acceptances but not yet wholly unconditional.

Acceptance condition last to be satisfied: The updated Code includes a new requirement that the acceptance condition can only be satisfied once all other conditions have been satisfied or waived. This means that shareholders can withdraw their acceptances right up until the end of the offer and ensures they not locked in pending satisfaction of other conditions. (The Panel will normally grant a dispensation for "mechanical" conditions that cannot be satisfied until after the acceptance condition is satisfied, e.g. a condition relating to the admission of consideration shares to listing and/or trading.).

Long-stop dates for contractual offers: A bidder will be required to set a "long-stop date" for its offer. This is the latest date by which, if the offer timetable is suspended (see below), the acceptance condition must be satisfied and all conditions relating to an official authorisation or regulatory clearance must be either satisfied or waived.

Acceleration statements: A bidder will be able to bring forward the unconditional date and set a shorter timescale in which all conditions must be satisfied or waived by making an "acceleration statement". This effectively replaces the current concept of a "no extension statement" by which a bidder can make a statement that its offer will not be extended beyond a specified date. A bidder making an acceleration statement will have to waive any condition relating to official authorisation or regulatory clearance.

Acceptance condition invocation notices: As at present, an offer must remain open for a minimum of 21 days. If a bidder wishes to lapse an offer by invoking the acceptance condition on any date on or after Day 21 but before the unconditional date, it must give 14 days' notice of its intention to do so. This provides more certainty for target shareholders and replaces the current system of "closing dates" which, in principle, allows a bidder to invoke the acceptance condition and cause the offer to lapse, without having forewarned shareholders.

Announcements of acceptance levels: There are new prescribed dates on which a bidder will be required to announce levels of acceptances via a regulatory information service.

Withdrawal rights: Target company shareholders who accept an offer will be able to withdraw their acceptances from the outset of the offer until such time as the acceptance condition is satisfied or the offer lapses or is withdrawn. This is a change from the current position where target shareholders are only able to withdraw their acceptances in a prescribed window (from 21 days after the first closing date until the offer is unconditional as to acceptances).

Official authorisations and regulatory clearances

The updated Code sets out a new regime for dealing with any competition and other regulatory authorisations and clearances that cannot be obtained within the standard 60-day Code timetable. A key change is that there is no longer a distinction between UK/EU competition clearances and other competition/regulatory clearances. The updated Code treats them all in the same way.

At the request of one or both bid parties, the Panel can suspend the offer timetable, and therefore extend Day 60, if one or more conditions relating to an official authorisation or regulatory clearance is outstanding. A suspension will normally start on Day 37 and the offer timetable will normally resume on Day 32, following the satisfaction or waiver of the last relevant condition.

While the Panel will normally grant joint requests, where only one bid party requests the suspension, it will need to satisfy the Panel that the outstanding condition relates to a material official authorisation or regulatory clearance. An official authorisation or regulatory clearance is material if the Panel is satisfied that the failure to obtain the authorisation or clearance could give rise to circumstances which are of material significance to the bidder in the context of the offer.

A determination by the Panel to this effect is not an indication that, in the context of the rules on invoking conditions (see below), the Panel will necessarily conclude that the failure to obtain authorisation or clearance results in circumstances of material significance to the bidder.

The Panel does not anticipate any amendments to the Code as a result of the UK's proposed new national security and investment regime. The Panel anticipates that it would likely treat a clearance from the Secretary of State under the national security and investment regime as a material official authorisation or regulatory clearance for the purposes of the Code.

Market integrity

One of the principal ways in which the Code seeks to promote the integrity of the financial markets is by providing shareholders and other market participants with certainty that once a firm offer has been announced it will not lapse or be withdrawn without good reason.

Consequently, unless a bidder can invoke a condition, such as the acceptance condition, that does not need to meet the material significance test, a bidder will generally be unable to invoke a condition and cause an offer to lapse, unless the circumstances which give rise to the right of invocation are of material significance to the bidder in the context of the offer.

The updated Code includes several, largely clarificatory changes, including:

• that, in line with current practice, the consent of the Panel is required in order for a bidder to invoke a condition (or pre-condition) to which the material significance test applies;
• that the Panel will judge whether circumstances are of material significance to the bidder in the context of the offer by reference to the facts of each case at the time the relevant circumstances arise, and will not be drawn on whether a condition (or pre-condition) can be invoked until this time;
• a list of those conditions (and pre-conditions) to which the material significance test does not apply. In line with the changes mentioned above, conditions relating to UK and European Commission competition clearances no longer fall into the category of conditions which are excluded from the material significance test.

Practice Statement 5 (Rule 13.5(a) – Invocation of conditions) has been updated to include expanded guidance in relation to the Panel's practice when considering whether a particular matter should give rise to the right to invoke a condition.

Implementation

The updated Code will apply to all takeover bids that are announced in accordance with Rule 2.7 on or after 5 July 2021, except where to do so would give the amendments retroactive effect. Any ongoing firm offers announced before 5 July 2021, and any competing bids to such offers announced on or after that date, will continue to be subject to the current provisions of the Code.

The Takeover Panel Response Statement 2020/1