Guidance on the Meaning of “Imminent” in Rule 38(1) of the Code

Published 1 November 2013

The Panel has published guidance on the meaning of “imminent” in rule 38. This rule prohibits the directors of a Code company from taking or permitting defensive tactics when a bona fide takeover offer is imminent (this guidance has been incorporated into the Panel’s Guidance Note on Defensive Tactics).

In summary, in determining whether an offer is “imminent”, the Panel will apply the following principles:

(a) The threshold for imminence is neither:

(i) as high as the dictionary, or natural, temporal meaning of “imminent” which means: is very likely going to happen very soon; nor

(ii) as low as a policy-rich non-temporal meaning which would equate to a mere prospect of a takeover offer;

(b) The Panel will consider the particular facts of the case;

(c) The Panel will consider the policy behind rule 38 which may affect the Panel’s view on whether   the target company should have believed that an offer was imminent;

(d) The Panel’s view under (c) may be influenced by the actions of the target company, and the prospective offeror;

(e) The Panel will consider whether the prospective offeror has conveyed to the target company board that it intends to make an offer;[1]

(f) The Panel will apply an objective test to the question as to whether a company “has reason to believe” that an offer is imminent.

The Guidance Note contains a fact scenario that gives an example of the Panel’s policy on the meaning of “imminent” in practice.

This rule prohibits the directors of a Code company from taking or permitting defensive tactics when a bona fide takeover offer is imminent.

Footnotes:

[1] Prospective offerors should take care not to mislead Code company directors about a transaction or event likely to be regulated by the Code.