Waiveable Offer Conditions
Published 1 April 2007
Many offers have conditions which can be waived by the offeror. This allows an offeror to protect itself from unforeseen circumstances while enabling it to decide to proceed with an offer even if all the conditions of the offer are not met. This means that an event which prevents a condition from being satisfied will not automatically cause the offer to lapse.
The only condition which cannot be waived by the offeror is the minimum acceptance condition required by rule 23(1) of the Code. All full offers are subject to the condition that the offeror receives acceptances that, when taken together with voting securities already held or controlled by the offeror, confer more than 50% of the voting rights in the target company. Partial offers must be subject to the condition that the offeror receives acceptances that, when taken together with voting securities already held or controlled by the offeror, confer the specified percentage set out in the offer.
The ability to waive conditions can be abused. For example:
- a waiveable offer condition could be used by the offeror to provide an option to not continue with an offer for reasons not connected with that condition;
- waiveable offer conditions can be coercive. If an offeror has the ability to waive an offer condition after an offer closes, shareholders may feel compelled to accept the offer before the closing date (when it is not known whether the offer will succeed) to avoid being a minority shareholder in a company controlled by the offeror.
The use of offer conditions in this way would not normally be a breach of the Code if the conditions themselves otherwise comply with the Code. But this may not be the case when the new rule 64 of the Takeovers Code on misleading and deceptive conduct (outlined in CodeWord 17) comes into force. The Panel will look closely at the use of waiveable offer conditions and whether their use in a particular offer involves misleading or deceptive conduct. In the future bidders should consider the requirements of rule 64 when deciding what conditions will be waiveable and in what circumstances.
The Panel also encourages market participants to consider the effect of conditions made waiveable by the offeror, and what action they might take on conditions they consider unacceptable or coercive. The market can influence the behaviour of bidders on the use of waiveable offer conditions. Offerees can decide not to accept an offer while it is subject to conditions which they consider should be waived or satisfied before the end of the offer period.
Directors of target companies and independent advisers appointed under rule 21 of the Code can, and should, help shareholders by highlighting unacceptable conditions and taking them into account in their recommendations to shareholders.