SUBCONTRACTORS - MUST ALSO BE INDEPENDENT OF THE TRANSACTION
A subcontractor or consultant who compiles information for an independent adviser’s report must be appointed by the adviser and be independent of the transaction. The adviser must ensure that the subcontractor or consultant is independent and state this in their application.
PRACTICE NOTE - COMBINED REPORTS, MERITS OF THE TRANSACTION
Reports by independent advisers are required under several rules of the Code, in particular:
Rule l8 (relating to meetings required to approve allotments or acquisitions of voting securities);
Rule 2l (relating to the merits of a takeover offer); and
Rule 22 (relating to rule 8 and whether the consideration and terms offered as between various classes of voting securities, and as between classes of voting and non-voting securities, are fair and reasonable).
A policy/practice note on use of combined reports is published on our website. The essence of this note is:
a report on the “merits” is not just a valuation; it needs to have a much broader focus;
the Panel prefers separate reports where both the Code and the Listing Rules are involved, but if there is a combined report it should have a separate and distinct part that deals with the “merits” for the purposes of the Code; and
directors should ensure that the independent adviser’s report complies with the Code.
RULE 22 STATEMENT
An independent adviser’s report under rule 22 is required to report on the fairness of consideration as between two or more different classes of securities. Where such a report is required, it must accompany the takeover offer. The Panel is concerned that shareholders of the target company may see this report and not appreciate that a further report on the merits of the transaction will accompany the target company statement. Accordingly the Panel asks that a report under rule 22 should have a prominent statement at the front to make the position clear. The wording required is contained in the policy on the website.
COMMENTS ON ENFORCEMENT
OFFEROR’S STATEMENT - DISCLOSE UPSTREAM PARTIES
Clause 6 of Schedule l of the Code relates to shares of the target
company held or controlled by the offeror and certain other
parties, including “related” parties.
The Panel has noted that some takeover notices received have not
disclosed the identities of parties controlling the shares held by the
offeror. We have pointed out these deficiencies to the offeror so
that details of the number, designation and percentage of shares
held or controlled by related companies may be included in the
offer document sent to shareholders of the target company.
It should be noted that “related company” under the Code is
defined by reference to the Companies Act 1993. This definition
includes a holding company and all subsidiaries.
OFFEROR’S STATEMENT - DISCLOSE DETAILS OF TRANSACTIONS
Clause 7 of Schedule l to the Code requires the takeover notices to
disclose trading in the equity securities of the target company by
certain parties in the six months before the takeover notice is served.
The consideration for, and date of every transaction must be disclosed.
The Panel appreciates that, before a takeover notice is served, it
would be inappropriate for the offeror to make enquiries of
outside parties (particularly substantial security holders) about
past share transactions. However in the Panel’s view the offeror
should make “proper enquiry” about these details once the
takeover notice has been issued and before the directors sign the
directors’ certificate required under clause l9 of Schedule l and
dispatch the offer document to target company shareholders.
TARGET COMPANIES - DIRECTORS’ INTERESTS IN CONTRACTS OF OFFEROR
It is essential that information about the nature and extent of the
interests of directors and officers of a target company in the
material contracts of the offeror is made available by all directors
of a target company, regardless of whether or not they are
independent directors of the parties to a takeover.
This information is required to be disclosed by clause l3 of
schedule 2. The Panel considers that all directors of the target
company have a duty to disclose this information even though it
may be only the independent directors who sign the target
company statement.
MEMBERS OF THE PANEL
CHAIRMAN: John King
DEPUTY CHAIRMAN: David Jones
MEMBERS: Denis Byrne, Colin Giffney, Alistair Lawrence, Kevin O’Connor, David Quigg, Daphne Rawstorne
Disclaimer
Code Word is produced for general information only. The Takeovers Panel does not assume any responsibility for giving legal or other professional advice and disclaims any liability arising from the use of the information.
If you require legal or other expert advice you should seek assistance from a professional adviser.
