When a full takeover offer is made the Code requires that the offer be made for all equity securities of the target company. The Code also requires that offers for all equity securities be fair and reasonable in comparison with each other. However, if a bidder acquires convertible securities under an offer it may still be faced with the need to obtain shareholder approval under rule 7(d) before it can exercise the convertible securities and be allotted the underlying voting rights.

The Panel considers that if a bidder is required by the Code to include an offer for convertible securities under its takeover offer it should be able to exercise those convertible securities and have the benefit of the rights attaching to them without the need for shareholder approval.

An exemption to this effect has recently been granted by the Panel in respect of convertible notes that may be acquired under a takeover offer. The Panel considered that the exemption was appropriate because the increase in the applicant’s percentage of voting rights would be the result of the exercise of rights attaching to securities obtained under the offer and the bidder was obliged under the Code to include those convertible securities in its offer. In addition, in the circumstances of this exemption the increase in voting rights resulting from the exercise of the convertible notes would be the same as if the holders of the convertible notes had first converted them into shares and then accepted the offer in respect of those shares.

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