Recommendations by Target Company Directors

Published 1 April 2013

The Directors of a target company are responsible for preparing the target company statement in response to a takeover offer. This statement must disclose all the information required under Schedule 2 of the Takeovers Code, including an independent adviser’s report, and any information that could reasonably be expected to be material to the making of a decision by the shareholders to accept or reject the offer.

Importantly, clause 15 of Schedule 2 requires a target company statement to include either a recommendation by the directors to accept or reject an offer, or a statement that the directors are unable to make or are not making a recommendation. The recommendation must be accompanied by the Directors’ reasons for making or not making a recommendation.

In order to make a recommendation to the target company shareholders on the merits of a takeover offer, it is important that the Board reaches an informed opinion on the merits of the takeover offer. The Board should bring to bear its own knowledge about the target company’s business when considering the information before it, including:

  • the target company’s internal management advice;
  • any expert advice sought by the directors; and
  • the independent adviser’s valuation and assessment of merits. 

By undertaking this exercise, Directors will be well placed to explain their reasons for their recommendation. 

The Panel encourages Directors to form their own opinions of the offer and reminds directors that when making recommendations to shareholders, Directors should be making their own recommendation, in the best interests of the shareholders. In some instances the Directors’ recommendation might differ from the conclusion of the independent adviser. In that case, the reasons for those differences should be clearly explained by the Directors.