The Takeovers Code and multiple offerors

Published 1 December 2015

The Panel has been considering the policy of the Code as it relates to multiple offerors in takeover offers for some time. There have been a number of takeovers where the offerors were current shareholders of the target company and structured the offer vehicle as an unincorporated joint venture, making the offer to all shareholders other than themselves. This has caused the Panel increasing disquiet that the policy of the Code may be undermined by these types of offer.

The Panel’s concern solely relates to how the rules of the Code are intended to apply – the Panel has no concern about the structure of the offer vehicle itself. The Panel’s view is that, read in light of the Code’s purpose, an offeror that is an unincorporated joint venture should be treated on a basis consistent with an offeror that is an incorporated joint venture.

This approach requires that the unincorporated joint venture must become the holder or controller of the voting rights of the joint venture participants, either in a manner permitted by the Code before the offer is made, or by the offer being extended to, and accepted by, the joint venture participants. The nature of the joint venture will determine the legal basis on which voting rights are held or controlled by it.

It is not sufficient for the joint venture participants simply to aggregate the total number of shares held by them (without any change in ownership status) and thereby have them count towards relevant thresholds, such as the 50% referred to in rule 23 or the 90% referred to in rule 50.

Acquiring the voting rights of the joint venture participants under the offer ensures that no side-deals can be made between co-offerors that would effectively see some shareholders receive a different deal. Rule 20 requires the same terms and considerations to be offered for all shares under the offer.

The Panel’s view regarding the proper, purposive reading of the Code also impacts on compulsory acquisition. In order for an offeror to proceed to compulsory acquisition under Part 7 of the Code, an offeror must first become the “dominant owner” of a Code company. Rule 50 defines “dominant owner” as “a person who ... becomes the holder or controller, or 2 or more persons acting jointly or in concert who ... become the holders or controllers, of 90% or more of the voting rights in the Code company (whether by reason of acceptances of an offer or otherwise)”.

For multiple offerors to become a dominant owner under rule 50, the participants that make up the offeror must be acting jointly or in concert to hold or control (again the nature of the offer vehicle will determine the legal basis of this) any shares accepted into the offer by third parties, as well as the shares held by the joint venture participants at the time of formation of the joint venture.

The Panel executive is available to confidentially discuss how the Panel’s policy may affect a specific or hypothetical circumstance.