Changes to Takeover Code on Conditions to Offers and Offer Timetable

Further to a response statement published on 31 March 2021 (RS 2020/1), the rule changes to the Code now being introduced come into force today, Monday 5 July 2021, and apply to all firm offers announced in accordance with Rule 2.7 on or after that date (the “implementation date”). Firm offers announced prior to today’s date or in competition with ongoing offers will continue to be subject to the previous version of the Code.

Whilst technical in nature, today’s changes represent the most significant changes to the Code in a decade and, together with the National Security and Investment Act, enacted on 29 April 2021, will have a material impact on the takeover landscape in the UK, in particular the question of how to proceed with a bid when a regulatory clearance is required.

Key Changes

The key rule changes are as follows:

Regulatory clearances

• Up to now, a bidder’s ability to invoke an offer condition following a Phase 2 competition reference or investigation (at UK or European Commission level) has not been subject to the Panel’s test of materiality. This has changed, and a bidder will now only be able to invoke a condition relating to EU or Competition and Markets Authority (CMA) merger clearance (and indeed any other regulatory approval) if it satisfies the "material significance" test at Rule 13.5, as with all other conditions (with a few exceptions).
• Also removed from the Code are the provisions which require automatic lapse of an offer once a Phase 2 CMA reference is made or Phase 2 European Commission proceedings initiated. Instead, the bidder or target may request an extension to the offer “long-stop date”, if any “official authorisation or regulatory clearance” has not been satisfied or waived, which will be assessed, in part, on grounds of “materiality”.
• A new definition of a "material official authorisation or regulatory clearance" has been introduced to distinguish between clearances which are required only for procedural formalities and those which are considered to be commercially significant.

Simplifying the timetable for contractual offers

• There is now a single “unconditional date” for the satisfaction of all conditions - There is no longer a distinction between the date by which the acceptance condition needs to be satisfied and the date by which other conditions need to be satisfied or waived.
• “Unconditional date” of an offer – The Code now states that all conditions to an offer must be satisfied by no later than “Day 60”, from publication of the initial offer document. There is therefore now no distinction between the acceptance condition and other conditions and, as a result, no equivalent to the former “Day 81” (i.e. the 21 day period following satisfaction of the acceptance condition by which, previously, other conditions had to be satisfied).
• Acceleration statement – A bidder is now able to bring forward the unconditional date of an offer from “Day 60” by making an acceleration statement. This essentially replaces the previous "no extension statement" regime under the Code. Any revised unconditional date must be no earlier than 14 days after the release of the acceleration statement. Further, at the time of issue of any acceleration statement, the bidder must waive any outstanding conditions which relate to official authorisations or regulatory clearances.
• Acceptance condition invocation notice (ACIN) – A bidder must now give target shareholders at least 14 days’ notice of any intention to invoke the acceptance condition to lapse its offer if insufficient acceptances have been received. This removes the potential for a bidder to “pull” a bid on what would previously have been a specified closing date without giving specific warning of this possibility.
• Offers are open for acceptance until Day 21 - The unconditional date of an offer can be set by the bidder but cannot be earlier than Day 21 (or later than Day 60). An offer must be open for acceptance until the later of Day 21 and the date on which the offer is declared unconditional or lapses. It is expected that “Day 60”, the last available date, will generally be selected as the default closing date. Indeed, where an earlier date is chosen in the initial offer document (other than to avoid a weekend or public holiday), the Panel has confirmed that the bidder will be deemed to have made an acceleration statement and therefore be required to waive certain regulatory conditions from the outset.
• Withdrawal rights – Under the new regime, target shareholders who have accepted an offer are now entitled to withdraw their acceptances of an offer at any time prior to the unconditional date. Under the previous regime, this was only possible from Day 42 onwards.
• Acceptance levels – There is now a much more extensive requirement to announce publicly the progress of a bid. Acceptance levels must be disclosed on Day 21, and every seven days after that. In the week ahead of the unconditional date, acceptance levels must be disclosed daily. In addition, acceptance levels must be disclosed whenever an acceleration statement is made or an ACIN published.

A more flexible timetable for contractual offers

• “Day 60” Extension - Parties now have the flexibility to extend Day 60 by mutual agreement. Any such agreed extension automatically extends Day 39 (the last day for new information to be published by the target), Day 46 (the final date to improve the price and other offer terms) and Day 53 (the last date for an identified competing bidder to make a bid (Rule 2.7), or walk away (Rule 2.8)).
• After publishing the offer document, (and in place of the previous provisions relating to automatic lapse of offers in the event of phase 2 competition investigations at the UK or EU level) the bidder or the target now have the option to apply for an extension on Day 37 to allow for the satisfaction of any conditions relating to “material official authorisations or regulatory clearances”.
• Two different thresholds of materiality will be maintained by the Panel: one for the timetable extension (“material official authorisation or regulatory clearance” Rule 31.4(a)) and one for invoking conditions (“material significance” Rule 13.5(a)).
• Long-stop dates for contractual offers - At the time a bidder makes its firm offer announcement, it is also required to announce a long-stop date, on which date the offer will not proceed on that specific date if: (i) sufficient acceptances are not received to enable the acceptance condition to be satisfied; or (ii) with the Panel’s consent, if a condition or pre-condition relating to an authorisation or regulatory clearance has not been satisfied or waived. If the offer is not recommended, the Panel must be consulted on the proposed long-stop date and the long-stop date can only be extended by the offeror with the Panel’s consent.

Other changes

• Mandatory offers – The previous rules requiring that a mandatory offer cannot be subject to any condition other than a 50% acceptance condition have been amended to permit the inclusion of a condition relating to a material authorisation or regulatory clearance. This paves the way for a prospective bidder conditionally acquiring a 30%+ shareholding and thereby triggering a mandatory bid which may itself include a material authorisation or regulatory clearance condition as well as the acceptance condition. However, this is only permissible if the same condition (and no other conditions) are included in the share purchase agreement governing the share purchase that triggers the mandatory bid. Furthermore, the relevant share purchase agreement must also provide that invoking this condition can only be done with the Panel’s consent.
• Revised Panel Practice Statement No.5 - A revised Practice Statement No.5 has been published concurrently with further guidance on invoking conditions by the Panel Executive.
• Miscellaneous other changes – The Panel has taken the opportunity to make various other minor amendments to the Code and we would be happy to provide further guidance on the effect of these on request.