| PRACTICE NOTE - TAKEOVER OFFERS - RULE 25(1) & CLAUSE 9 OF SCHEDULE 1 OF THE CODE
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Rule 25(1) of the Takeovers Code provides that a takeover offer
may be subject to conditions, except conditions that depend
upon the judgement of the offeror or any associate of the offeror
or conditions where fulfillment is in the power or under the
control of the offeror or any associate of the offeror.
The Panel has been asked to clarify whether or not a condition
that a takeover offer is subject to:
- approval of the shareholders of the offeror under section 129 of the Companies Act 1993; or
- the provision of finance or financial support by a third party
is permissible under rule 25(1) of the Code. In relation to
finance conditions there is also the related issue of the
requirements of clause 9 of the First Schedule to the Code.
Shareholder approval
Whether or not a condition that a takeover offer is subject to
shareholder approval under section 129 of the Companies Act is
permissible under rule 25(1) turns on whether or not the
approval of shareholders is a matter which is “in the power or
under the control” of the offeror or any associate of the offeror.
Although in the case of a major transaction it is the shareholders
of the offeror who will vote on the relevant resolution it is
difficult to separate the offeror company from its shareholders.
The directors have to call the shareholder meeting and advise the
shareholders of the merits of the proposal. They also have a duty
to act in good faith and to act in the best interests of the company
i.e. the offeror. If an adverse event were to occur that resulted in
the takeover no longer being in the best interests of the offeror,
the directors could well be obliged to recommend that
shareholders do not approve the takeover offer and it would lapse.
The intention of rule 25(1) is to promote certainty in takeover
offers, thus preventing an offeror from circumventing
restrictions in the Code regarding the withdrawal of an offer. To
allow offers to be made subject to shareholder approval could in
effect allow an offeror to have an option over the shares of the
target company. This would be inconsistent with the objectives
of the Code. Accordingly, in the Panel’s view offers conditional
on the approval of shareholders of the offeror would not comply
with rule 25(1).
The effect of the Panel’s view is that shareholder approval will
need to be obtained before the offer is sent to shareholders. This
does not mean that approval need be obtained before the
takeover notice is given. The period between the giving of the
takeover notice and the last date by which an offer must be sent
to shareholders provides some flexibility to the offeror in the
timing of the meeting. However, where the takeover notice is
given before shareholder approval is obtained, it should be made
clear to the target company that the takeover offer cannot be
dispatched if shareholder approval is not obtained by the time
the offer is required to be sent. The takeover notice itself is
required to be the same as the offer document and cannot
include a condition related to shareholder approval.
