The September 2011 changes to the UK City Code on Takeover and Mergers (the “Code”) seek to level the playing field between bidders and targets and, in particular, to reduce the effectiveness of “virtual” bids (where a potential bidder announces that it is considering making an offer for a particular target, but does not commit itself to do so). Since the Code was amended, there has been limited M&A activity in the UK and it is still difficult to assess the full impact of the changes. Nevertheless, it is clear that the behaviour of private equity backed bidders will be materially affected by this new regime. There will be an increased focus on maintaining confidentiality, more preparation required before a target is approached, more fulsome disclosure of financing terms and a prohibition, in most circumstances, on deal protection measures such as break fees. It is worth noting that the Code can apply not only to listed companies but also in other situations, including to non-listed public companies and private companies that were listed in the previous 10 years.
Below are a few of the principal changes:
- Bidder Identification: The Code requires a target company to make an announcement in a number of circumstances, including if there is rumor or speculation about a possible takeover. On the first public announcement of a possible offer, the target must identify all known potential bidders from which it has received an approach or with which it is in talks. The Takeover Panel will only grant a dispensation from this requirement in limited circumstances—principally where a bidder has agreed that it will withdraw, stop work and not actively consider making an offer for the target for six months (known as a “pens down”).
- Put Up or Shut Up: The announcement of a bidder’s interest starts the offer timetable. Unless the Takeover Panel grants an extension, a bidder has 28 days from the date when it is first named either to announce a firm intention to make an offer or to announce that it will not make an offer, in which case it is, generally, prevented from bidding for six months.
- Deal Protection: Subject to limited exceptions, there is a prohibition on inducement fee arrangements and other offer-related arrangements between a bidder and a target, including break fees, no shop restrictions and matching rights.
- Disclosure: Increased information is required to be disclosed by bidders, including in respect of acquisition financing, financial information and deal fees. Further detail on the acquisition financing changes to the Code can be found below.
It should be noted that some of the changes outlined above do not apply, or apply in a modified form, in certain situations (e.g., where the target has announced an auction process).
Private equity-backed takeovers are still being made and will continue to be made in the UK. However, the changes to the Code, and in particular the new “put up or shut up” rules, mean that careful planning will be critical to maintaining the confidentiality of the potential transaction.