Panel Bulletin on irrevocable undertakings and letters of intent

The Takeover Panel has published a third Panel Bulletin, which focuses on irrevocable undertakings and letters of intent and the requirements if a shareholder cannot, or no longer intends to, comply with one it has given.

The Panel Bulletins are a new form of guidance to remind people how specific provisions of the Takeover Code operate and are published in response to issues the Panel has identified (see our blog post here for information on the first two Bulletins on meetings with shareholders and management buy-outs).

In its latest Bulletin, the Panel Executive says that it is aware of a number of cases recently where a shareholder which had given a letter of intent (to accept an offer or to vote in favour of a scheme) then sold the underlying shares without a prompt announcement being made, by either the shareholder or the bidder (as required by Rule 2.10 of the Code).

The Bulletin contains reminders that:

  • shareholders must, if they become unable, or no longer intend, to comply with the terms of an irrevocable commitment or letter of intent (either in whole or in part), promptly either make an announcement or notify the relevant party to the offer and the Panel; and
  • bidders and targets must make a prompt announcement if they receive a notification from a giver of an irrevocable commitment or letter of intent that the person will no longer comply with it.
Mark Bardell
Mark Bardell
+44 20 7466 2575

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Caroline Rae
Caroline Rae
+44 20 7466 2916

Notifiable Acquisitions Regulations and guidance on the National Security and Investment Act

The final regulations setting out the sectors where notification of transactions will be mandatory under the National Security and Investment Act 2021 have been made. The Department for Business, Energy & Industrial Strategy (BEIS) has also published further guidance on the new regime.

The Act, which comes into force on 4 January 2022, gives the UK Government power to scrutinise a wide range of transactions on national security grounds, and will introduce mandatory notification of transactions in some sectors.

The National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 set out the 17 sectors, and the activities which an entity must carry on within a specified sector, in order for notification of a transaction to be mandatory.

BEIS has published Guidance on notifiable acquisitions which contains additional guidance on the 17 sectors, with examples of where entities will and will not be in scope.

BEIS has also published General guidance on the new rules, which gives an overview of when the regime will apply and describes how the notification process will work. Regulations specifying the form and content of notifications under the Act have also been made.

Our updated briefing on the regime is available here.

Gavin Davies
Gavin Davies
+44 20 7466 2170

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

National Security and Investment Act guidance and our webinar on the regime

The Department for Business, Energy & Industrial Strategy (BEIS) has published the final version of its Statement on when it will exercise its call-in powers under the National Security and Investment Act 2021 (NSI Act). We discussed the guidance, and the impact of the regime on transactions generally, in a webinar with the Investment Security Unit (ISU) earlier this week.

The NSI Act, which comes into force on 4 January 2022, gives the UK Government power to scrutinise a wide range of transactions on the grounds of national security, and will introduce mandatory notification of transactions in some sectors. For further information on the regime, see our briefing.

Statement on use of call-in power

The Statement discusses the risk factors that the Secretary of State will look at in deciding whether to exercise the call-in power. It will consider:

  • Target risk – what the target does, is used for, or could be used for, and whether that has given rise to, or may give rise to, a risk to national security;
  • Acquirer risk – whether the acquirer poses a risk to national security; and
  • Control risk –  the amount of control the acquirer gains of an entity’s activities or strategies.

The Statement also discusses the application of the regime to assets, its extraterritorial effect and the retrospective use of the call-in power.

Our webinar with the ISU

We recently held a webinar with members of the ISU (the Government body set up to administer the regime). Issues discussed during the webinar include:

  • the application of the regime to intra-group transactions;
  • what happens if a party accidentally crosses a notification threshold; and
  • how the regime will apply on a private M&A auction process.

For further details on the discussion and to listen to the webinar, click here.

Gavin Davies
Gavin Davies
+44 20 7466 2170

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Caroline Rae
Caroline Rae
+44 20 7466 2916

Public M&A – new Takeover Panel Bulletins

The Takeover Panel has published two “Panel Bulletins” – a new form of guidance which the Panel will use to remind people how specific provisions of the Code operate. They do not entail any changes to the interpretation or application of the Code.

The first two Panel bulletins are on:

  • Requirements in relation to meetings and telephone calls with shareholders and others – The Executive says that it has become aware that meetings or calls have taken place with bidder or target shareholders without being chaperoned by an appropriate adviser and confirmations have been given without due care. The Bulletin reminds financial advisers and corporate brokers that they are responsible for ensuring that no material new information or significant new opinions are provided in meetings or calls with shareholders; and that financial advisers have a particular responsibility for ensuring that their clients are appropriately briefed about the Code requirements.
  • Management buy-outs or similar transactions – A number of provisions of the Code refer to management buy-outs, but there is no definition of what a management buy-out is. The Bulletin says that the Panel Executive should be consulted at an early stage in any situation where a transaction could be regarded as a management buy-out or similar transaction.

The Bulletins can be accessed via the Statements tab on the Panel’s website.

Mark Bardell
Mark Bardell
+44 20 7466 2575

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918

Public M&A – our podcast on an active summer of public M&A

In the latest episode in our public M&A podcast series, we look back at one of the most active summers in the public M&A markets in some time. In particular we discuss the high profile competitive situations, and the auction processes that they have led to, and some of the hostile activity we have seen.

To listen to the full conversation please visit SoundCloudSpotify or iTunes.

All episodes in our UK public M&A podcast series are available on our public M&A podcast page. Topics covered in earlier episodes include the changes made to the Takeover Code in July 2021, shareholder influence on public M&A and public to private (or P2P) bids.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Pensions – new offences and sanctions for companies with defined benefit schemes

The Pension Schemes Act 2021, which comes into force on 1 October 2021, will introduce new criminal offences and financial penalties, and two new contribution notice triggers, where a company or group has a defined benefit occupational pension scheme (DB scheme). The government is also consulting on extending the pensions notification requirements.

Criminal offences and sanctions

The new criminal offences and civil sanctions are widely drawn and could apply to company directors, lenders, investors, sellers, purchasers, trustees and advisers who take action which, broadly speaking, is materially detrimental to a DB scheme, where they do not have a reasonable excuse for their actions.

  • Criminal offences – In broad terms, it will be a criminal offence to take action which avoids a “section 75” employer debt to a DB scheme, cause a material detriment to a DB scheme or fail to comply with a contribution notice. The sanctions for these offences include up to seven years imprisonment, an unlimited fine or both. In practice, these offences could apply in a wide range of circumstances including where:
    • a company takes on new security which ranks ahead of a DB scheme;
    • a profitable part of a business or its assets are sold; or
    • a dividend is paid to shareholders when a business is in distress.
  • Fines of up to £1 million – A civil penalty of up to £1 million could be imposed on directors and other parties in a range of circumstances, including where a person:
    • takes steps to avoid or reduce the amount of a “section 75” employer debt (for example, as a result of the sale of a group company), where it was not reasonable for the person to act in the way that they did; or
    • takes steps that are materially detrimental to the prospect of benefits being paid under a DB scheme, where it was not reasonable for the person to act in the way that they did.
  • New contribution notice triggers – There are two new trigger events under the Act. They will allow the Pensions Regulator to issue a contribution notice in respect of: actions that materially reduce the amount of employer debt likely to be recovered by a DB scheme on hypothetical insolvency (where the scheme has a deficit on a buy-out basis); or actions that reduce the value of the resources of a DB scheme’s sponsoring employer to a material extent. These trigger events could include:
    • a company taking on additional debt which ranks above a DB scheme in the event of the company’s insolvency;
    • a corporate restructuring;
    • the sale of a valuable part of a business; or
    • the payment of excessive dividends.

Further information on the new offences and sanctions can be found in our blog post here, and on the Pensions Regulator’s guidance on its approach to enforcing the offences in our blog post here.

Proposed changes to notification requirements

Under draft regulations, which are expected to come into force on 6 April 2022, a notification obligation would be triggered if there is a “decision in principle” by an employer with a DB scheme:

  • to sell a material part of the business or assets; or
  • to grant security which will rank ahead of the DB scheme.

The existing notifiable event relating to the relinquishing of control of a DB scheme employer is also being amended to bring forward the timing of the relevant notification so that, in future, it would arise when: there is a decision in principle by a controlling company to relinquish control of the employer company, or an offer to acquire control of the employer company, where the employer company has not made a decision in principle to relinquish such control. Failure to comply with these requirements could result in a fine of up to £1 million.

For further information, see our blog post here.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Barnaby Hinnigan
Barnaby Hinnigan
+44 20 7466 2816

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Public M&A podcast Ep 13: Shareholders and public M&A – takeover of Spire blocked by shareholders

In the latest episode in our public M&A podcast series, we once again turn to the topic of shareholders on public M&A transactions and in particular discuss the Spire takeover where shareholders voted down the scheme to effect the takeover.

To listen to the full conversation please visit SoundCloudSpotify or iTunes.

All our podcasts are available on our public M&A podcast page. Topics covered in earlier episodes include “shadow bidding”, the recent Takeover Code changes, P2P bids and formal sale processes.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918

 

M&A – National Security and Investment Act in force from 4 January 2022

The Government has announced that the new National Security and Investment Act 2021 will come fully into force on 4 January 2022. This means that mandatory notification requirements will apply to relevant transactions completing on or after that date, and other transactions (including those which have already completed since 12 November 2020) may be the subject of the Secretary of State’s call-in powers as of that date.

The Act will overhaul the review of transactions and investments on national security grounds in the UK. The new regime represents an important new execution risk factor, with a similar risk profile to merger control rules (see the briefing we published when the Act received royal assent for more information).

The Government has also published four new pieces of guidance to assist business, investors and advisers:

The Government has also published a draft of the notifiable acquisition regulations, as well as a consultation draft of the Statement of Policy Intent.

For further information, see this blog post published by our Competition, Regulation and Trade team. We will publish a more substantive briefing in due course.

Gavin Davies
Gavin Davies
+44 20 7466 2170

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Alan Montgomery
Alan Montgomery
+44 20 7466 2618

Public M&A – Takeover Code changes on conditions and timetable in force

Changes to the Takeover Code provisions on conditions to an offer, particularly those relating to regulatory / merger control clearance, and the offer timetable took effect on 5 July 2021.

The revised rules, which were set out in the Takeover Panel’s response statement RS 20201/1 (published in March 2021), apply to all firm offers which are announced (Rule 2.7 announcement) on or after 5 July. Firm offers announced prior to that date (or in competition with an offer announced prior to that date) will continue to be subject to the old rules.

There were three themes in the consultation:

  • Regulatory clearances – The historical, special status for EU merger clearance and UK Competition and Markets Authority (CMA) clearance has been removed, and the Panel’s existing and longstanding policy of allowing a bidder to invoke regulatory conditions only where sufficiently material has been restated with additional guidance on when a condition may be invoked;
  • Simplifying the timetable for contractual offers – All offers will run until Day 60 (unless a bidder chooses to implement a 21 day “bullet” offer or otherwise accelerate closing), reflecting the fact that the vast majority of offers run until Day 60 in practice and shareholders ordinarily expect them to; and
  • Introducing the idea of a flexible contractual offer timetable – It will be easier to suspend the offer timetable on a contractual offer, to accommodate regulatory timetables running longer than 60 days and remove some disadvantages of the old fixed contractual offer timetable when compared to schemes of arrangement.

We discuss the rule changes in more detail, and the impact on offer announcements and documents, in this briefing.

The revised Takeover Code (along with the previous edition, which remains relevant for deals announced before 5 July) is available on the Takeover Panel website.

Mark Bardell
Mark Bardell
+44 20 7466 2575

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918