CODEWORD

The Panel has published guidance on the meaning of “imminent” in rule 38. This rule prohibits the directors of a Code company from taking or permitting defensive tactics when a bona fide takeover offer is imminent (this guidance has been incorporated into the Panel’s Guidance Note on Defensive Tactics).

In summary, in determining whether an offer is “imminent”, the Panel will apply the following principles:

(a) The threshold for imminence is neither:

(i) as high as the dictionary, or natural, temporal meaning of “imminent” which means: is very likely going to happen very soon; nor

(ii) as low as a policy-rich non-temporal meaning which would equate to a mere prospect of a takeover offer;

(b) The Panel will consider the particular facts of the case;

(c) The Panel will consider the policy behind rule 38 which may affect the Panel’s view on whether   the target company should have believed that an offer was imminent;

(d) The Panel’s view under (c) may be influenced by the actions of the target company, and the prospective offeror;

(e) The Panel will consider whether the prospective offeror has conveyed to the target company board that it intends to make an offer;^[1]

(f) The Panel will apply an objective test to the question as to whether a company “has reason to believe” that an offer is imminent.

The Guidance Note contains a fact scenario that gives an example of the Panel’s policy on the meaning of “imminent” in practice.

This rule prohibits the directors of a Code company from taking or permitting defensive tactics when a bona fide takeover offer is imminent.

On 1 June 2013, a number of “technical” amendments were made to the Takeovers Code. CodeWord 34 (May 2013) contains a summary of these amendments.

The amending regulations added a new rule 24C to the Code. This rule provides:

24C Extension of offer period if minimum acceptance condition satisfied or waived in final week

(1) This rule applies if –

(a) the offer is subject to a minimum acceptance condition referred to in rule 23; and

(b) that condition is satisfied or waived in the period that begins 7 days before the end of the offer period.

(2) If this rule applies, the offer period is extended for 14 days from the day on which the condition referred to in subclause (1) is satisfied or waived.

Rule 24C(1)(a) contains a drafting error. The automatic extension of the offer period was intended to apply to all minimum acceptance conditions. As it is currently drafted, the rule only applies to a minimum acceptance condition referred to in rule 23. Rule 23 provides:

23 Minimum acceptance condition

If, on the date of an offer, the offeror does not hold or control more than 50% of the voting rights in the target company, the offer must be conditional on the offeror receiving acceptances in respect of voting securities that, when taken together with voting securities already held or controlled by the offeror, confer—

(a) more than 50% of the voting rights in the target company; or

(b) in the case of a partial offer, any lesser percentage approved under rule 10(1)(b).

This means that, until the drafting error is resolved, a 90% minimum acceptance condition will not be subject to the automatic extension of the offer period, under rule 24C(1)(a).

The Panel is working with officials to remedy the error.

Rule 3A(2) of the Code provides that:

…if, as a result of a transaction or an event regulated under this Code, a company that previously satisfied subclause (1)(c) [i.e., had 50 or more shareholders (holding voting rights) and 50 or more share parcels] ceases to have 50 or more shareholders and 50 or more share parcels, that company continues to be a Code company for the purposes of Part 7.

This rule was added to the Code in August 2012. The words “for the purposes of Part 7” imply that a person became a dominant owner of a Code company. Part 7 of the Code deals with compulsory acquisitions of voting securities by dominant owners.

The rule is intended to clarify that if a non-listed Code company is subject to a takeover offer or other Code-regulated transaction, and, as a result of that transaction a person becomes a dominant owner (as defined in Part 7), the company remains a Code company even if it drops below the ‘50 shareholders/50 share parcels’ threshold. This is solely for the purpose of undertaking the compulsory acquisition process in Part 7.

If a non-listed listed Code company drops below the ‘50 shareholders/50 share parcels’ threshold without any person becoming a dominant owner, then rule 3A(2) does not apply to that company and it ceases to be a Code company.

As part of the consolidation and update of its guidance material, the Panel has uploaded the following Guidance Notes to its website:

Consolidated guidance note on independent advisers

The Guidance Note consolidates the large amount of previous guidance given by the Panel into one document.

The purpose of the Guidance Note is to assist those who are approved as independent advisers by the Panel to prepare a report under any of rules 18, 21, 22, or 57 of the Takeovers Code or under a class exemption or individual exemption granted by the Panel from the Code. The Panel has updated its guidance on rule 18 reports in relation to allotments of voting securities.

The appendices to the Guidance Note contain: (a) the Panel’s Policy on the Approval of Independent Advisers; (b) the information that must be provided in an application for approval to act as an independent adviser; and (c) a standard form statement of independence.

Consolidated Guidance Note on exemptions

The consolidated publication reiterates the Panel’s policy on the use of its exemption power. It also contains the Panel’s approach to exemptions in a number of different fact scenarios and brief descriptions of the various class exemptions that have been granted by the Panel.

The appendices to the Guidance Note contain: (a) the Guide for Exemption Applications; and (b) the information that must be contained in an exemption application.

Updated Guidance Note on rule 20 and collateral arrangements

The purpose of the Guidance Note is to provide information as to when collateral arrangements may have the effect of providing to some target company shareholders additional or different terms or consideration in breach of rule 20.

In the update, the Panel has added a summary on its approach to a rule 20 issue in the New Image Trustee/ New Image Group takeover in early 2013, and some general principles in the Conclusion.

Consolidated Guidance Note on association and control

The Code contains two key anti-avoidance mechanisms to prevent its application being circumvented by transaction structuring techniques: the first is the concept of “control” of voting rights; the second is the concept of “association”. The Guidance Note updates and consolidates the Panel’s previous guidance into one document.

Updated Guidance Note on defensive tactics

This Guidance Note was prepared to assist market participants to understand the Panel’s approach when the directors of a target company engage in, or permit, defensive tactics in relation to a takeover offer or potential takeover offer.

The Guidance Note has now been updated to include guidance on the meaning of the word “imminent” in rule 38(1) of the Code.

Updated Guidance Note on timing rules in the Code

The purpose of the Guidance Note is to advise market participants on the Panel’s interpretation and application of all of the rules in the Code that relate to time.

The update includes explanations and charts on new timing rules in the Code and on several timing rules that had not been included in the previous versions of the Guidance Note.

All updated guidance notes can be found here.