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14 February 2018
Preventing circumvention of code with asset purchase
Sales of target's assets in competition with offer
Amendments to Rule 21.1 on frustrating action
On December 11 2017 the Takeover Panel published Response Statement 2017/1 to its July 2017 consultation on the sale of a target's assets in competition with a takeover offer and related matters (PCP 2017/1). The amendments to the Takeover Code set out in the response statement took effect on January 8 2018.
To prevent a bidder from circumventing the application of the Takeover Code by purchasing a target's significant assets (instead of launching a takeover offer), the panel proposed a number of amendments to Rules 2.8, 12.2(b)(i) and 35.1 (and related notes) of PCP 2017/1, which have now been adopted in the code (with certain modifications).
The code now provides that:
In assessing whether assets are 'significant' for these purposes, the panel will consider:
Relative values of more than 75% will normally be regarded by the panel as significant.
The Takeover Panel has also amended the Takeover Code to provide that, where in competition with an offer, a target announces that it has agreed terms on which it intends to sell all or substantially all of the assets and to return to shareholders all or substantially all of the target's cash balances:
In addition, if a target company commences discussions relating to the sale of all or substantially all of its assets during an offer period, the code now requires that information given to a potential asset purchaser must, on request, be given to another offeror or bona fide potential offeror.
Rule 21.1(a) of the Takeover Code prevents a target's board from taking any action which may result in:
The Takeover Panel has now confirmed the amendment of Rule 21.1 to state that the panel will normally disapply Rule 21.1(a) if:
If the panel disapplies Rule 21.1(a) where such action is conditional on the offer being withdrawn or lapsing, the target board must publish an announcement containing certain specified information on such action and require that, where shareholder approval is sought for a proposed action under Rule 21.1, the target board must obtain competent independent advice on whether the financial terms of the proposed action are fair and reasonable. The panel must also be consulted regarding the date on which the relevant shareholder meeting is proposed to be held and the target board must send a practicable after the announcement of such action.
The panel has also adopted a new note on Rule 21.1, which states that it will normally permit a target to enter into an inducement fee arrangement with a counterparty to a transaction to which Rule 21.1 applies if the aggregate value of such fee:
For further information on this topic please contact Will Pearce or William Tong at Davis Polk & Wardwell LLP by telephone (+44 20 7418 1300) or email (firstname.lastname@example.org or email@example.com). The Davis Polk & Wardwell website can be accessed at www.davispolk.com.
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