Changes relating to partial offers

Published 1 May 2013

A partial offer under the Code enables a person to make an offer for less than 100% of the voting securities in a Code company by way of an offer to all shareholders. The amendments will make a number of improvements to the partial offer process.

Calculating the specified percentage (clause 7)

Rule 9 of the Code requires the offeror to make its partial offer for a “specified percentage” of the equity securities of the target company that are not already held by the offeror. The rule will now include a formula for calculating the specified percentage. This will ensure that there are no misunderstandings about how to calculate the specified percentages for a partial offer.

Dilution of offeror’s shareholding during offer period (clause 7)

Under rule 23 of the Code, a partial offer must be conditional on the offeror receiving sufficient acceptances to confer on it, together with the voting rights it already holds or controls, more than 50% of the total voting rights or, in the case of an offer for a lesser percentage, the percentage approved by the offerees under rule 10(1)(b).

Rule 9 will be amended so that if the percentage of voting securities not already held or controlled by the offeror during the partial offer increases or decreases between the date that a takeover notice is sent under rule 41 and the end of the offer period, the specified percentage will be deemed to change in proportion to the increase or decrease. This avoids the problem of offerors not meeting minimum acceptances due to dilution of their shareholding during the offer period.

Example: a target company has 100,000 shares in total. The offeror already holds 25,000 shares and wishes to acquire 50.01% control (i.e., a further 25,010 shares). The offeror makes a partial offer for 33.33% (the “specified percentage”) of the shares held by the other shareholders. The target company then allots 10,000 new shares on the exercise of an option and the offeror does not participate in the allotment. Post-allotment the offeror now needs 30,011 shares (or 35.3% of the shares that it does not already hold) to obtain 50.01% control. Under the forthcoming amendment, the specified percentage for the offer will automatically adjust from 33.33% to 35.3%.

The Panel had previously addressed this issue by way of exemption. For these circumstances, an exemption will no longer be necessary.

New requirement for statement of particulars of partial offer (clause 30)

To assist offerees and their advisers to understand the terms of a partial offer, a new disclosure requirement will be added to the Code. The statement will require standardised information about the number and percentage of shares in the target company that are sought by the offeror. The information required parallels the particulars which must be included in a notice of meeting for the purposes of a resolution of shareholders under rules 7(c) or 7(d) of the Code.

Changes to the voting procedure for sub-50% offers (clause 8)

If a partial offer would result in the offeror holding or controlling 50% or less of the total voting rights in the target company, approval by the non-associated shareholders of the target company must be obtained under rule 10(1)(b) of the Code. The Panel identified several areas where the voting procedure could be improved to make it easier for shareholders to understand and for target companies to administer.

As a result of the amendments, the following changes will be made to rule 10(1)(b):

(a) The voting period will now close seven days before the end of the offer period. Previously, the voting period closed on the same day as the offer and this meant that the outcome of the vote was unlikely to be known before offerees had to decide whether to accept the offer. Now the outcome will be known in advance

(b) The persons who will be entitled to vote will be those persons holding voting securities in the target company as at the close of the voting period. Previously, there has been confusion about whether a person who acquired voting securities during the offer period was entitled to vote. 

(c) The voting document must now clearly state that the entitled voters are being asked to approve or object to the offeror increasing its voting control to a certain percentage (if the offer is successful). Previously, it was not clear whether rule 10 merely required general approval of the offer itself. The change also clarifies the percentage for the purposes of the offer’s minimum acceptance condition under rule 23 of the Code. 

(d) The approval document will now be called a “voting document”. 

(e) The offeror and its associates will be explicitly prohibited from voting.

Scaling of acceptances by custodian shareholders (clause 9)

If a partial offer is accepted in respect of more securities than are sought by the offeror, the scaling provisions in rules 12 and 13 of the Code determine the number of voting securities that the offeror must take up from those offerees who have accepted the offer in excess of the specified percentage. Rule 43 of the Code provides that the offerees are those persons who hold the voting securities under the offer.

Commonly, securities will be held by a custodian as nominee on behalf of the beneficial owners of those securities. As a holder of securities, a custodian is deemed to be an offeree by the Code.

Acceptances tendered by a custodian on behalf the beneficial owners have been subject to scaling at the custodian’s level of holding. This had created distortions in the scaling of the acceptances if a custodian held securities on behalf of multiple beneficial owners.

To address this problem, the offeror must now look through the holding of a custodian and treat the underlying beneficial owners as if those owners hold securities directly in the target company. The custodian must provide a certificate to the offeror and the administrator of the target company’s share register that sets out how the custodian’s clients have accepted the offer. This will ensure that the scaling of acceptances is accurate and fair. This change will incorporate into the Code a class exemption that was granted by the Panel in 2011 (which will be revoked when the amendments come into force).