Takeover Panel consultations on competitive situations and miscellaneous Takeover Code changes

The Takeover Panel has published two consultation papers, one on the offer timetable in a competitive situation (PCP 2022/3) and another on miscellaneous amendments to the Takeover Code (PCP 2022/4).

The offer timetable in a competitive situation (PCP 2022/3)

The Panel is seeking to clarify how the offer timetable applies in certain competitive situations:

  • Official authorisation or regulatory clearance required – Where one or more official authorisations or regulatory clearances is required by one or both of the bidders, the Panel will not normally introduce an auction procedure under Rule 32.5 until after the last condition relating to a relevant official authorisation or regulatory clearance has been satisfied or waived by each of the bidders.
  • Competing scheme and offer – Where one competing offer is by way of scheme and the other by way of a contractual offer, Day 60 (the last date on which all conditions to an offer must be satisfied or waived) on the contractual offer will normally be set for a date after the shareholder meetings and before the court sanction hearing in relation to the scheme.

Miscellaneous amendments (PCP 2022/4)

The Panel is proposing a number of miscellaneous changes to the Takeover Code in this consultation paper including:

  • Derogations and waivers for companies in financial distress – The Panel will be given greater flexibility to grant a derogation or waiver from the requirements of the Code in exceptional circumstances, for example to facilitate a rescue of a company that is in serious financial difficulty.
  • Announcement following rumour and speculation of untoward movement in share price – Note 2 on Rule 2.2 currently says that a potential bidder will not normally be required to make an announcement under Rule 2.2(d) if the Panel is satisfied that the price movement, rumour or speculation results from a public statement (such as a disclosure of a purchase of shares). This Note will be deleted. The Panel will, however, have discretion as to whether to require an announcement in that situation, depending on the specific circumstances of a particular case.

The consultations close on 13 January 2023. The Panel says that it expects to publish response statements in spring 2023, with the rule changes coming into force one month later.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Tax in M&A in the UK and Europe – our updated guide

We have published the 2022 edition of the ‘Tax in M&A in the UK and Europe’ guide produced by Herbert Smith Freehills and other contributors (see the Contributors list for full details).

The guide can be accessed here.

The Tax in M&A guide accompanies the 2021 edition of our ‘Regulation of Public M&A in the UK and Europe’ guide. The two are intended to give you a broad overview of the material tax and corporate issues to consider when contemplating cross border M&A transactions in key jurisdictions within the UK and Europe and are written by experienced practitioners from leading law firms.

New Panel Bulletin on possible offer announcements

The Takeover Panel has published a new Panel Bulletin 5 on possible offer announcements.

Panel Bulletins contain guidance to remind people how specific provisions of the Takeover Code operate but do not entail any changes to the interpretation or application of the Code.

In the Bulletin the Panel reminds financial advisers in particular that:

  • Immediate announcement – Once the requirement for a possible offer announcement under Rule 2.2 has been triggered, the Executive expects the announcement to be made within a matter of minutes.
  • Preparation of draft announcements – Draft announcement(s) should be prepared and approved by the bidder/target at an early stage.
  • Procedure for release of information – The procedure for releasing the announcement should be agreed in advance, and the financial adviser should ensure that it or its client has arrangements in place for releasing the announcement, including access to a Regulatory Information Service.
  • Contents of the announcement – The possible offer announcement should include prescribed information including the identity of the possible offeror(s) and the minimum level or particular form of consideration that must be offered. However if for any reason the draft announcement does not contain all the relevant information, it should be released anyway and a separate announcement with the missing information made as soon as possible.
Mark Bardell
Mark Bardell
+44 20 7466 2575

Gavin Davies
Gavin Davies
+44 20 7466 2170

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

New and updated guidance on National Security and Investment Act 2021

The Department for Business, Energy and Industrial Strategy (BEIS) has published new Market Guidance Notes on the National Security and Investment Act 2021 (NSI Act). It has also updated its guidance on the 17 sectors where acquisitions must be notified under the NSI Act, and published new guidance on the application of the NSI Act to new build downstream gas and electricity assets.

The NSI Act came into force in January this year and gave the UK government power to scrutinise a wide range of transactions on national security grounds, and made notification of relevant transactions in 17 specified sectors mandatory (see our detailed briefing on the regime for more detail).

The Guidance Notes aim to answer questions and provide advice based on the first six months of the NSI Act’s operation. This first set, of what will be a series, of Market Guidance Notes has a particular focus on whether certain scenarios require mandatory notification.

As well as covering practical issues when making a notification, the Guidance Notes also give guidance on when the regime will apply.

Topics covered include:

  • Group reorganisations – The guidance reaffirms that an internal corporate reorganisation can be a qualifying transaction even if the ultimate beneficial owner of the entity remains the same.
  • Voting rights – Under the NSI Act, in the 17 specified sectors the acquisition of voting rights that enable a person to “secure or prevent the passage of any class of resolution governing the affairs” of the target entity must be notified. The Guidance Notes say that contractual rights that have similar effect (such as those taken by minority investors when providing early-stage investment) are not covered by the concept of voting rights in the NSI Act and so notification in relation to the acquisition of such rights is not mandatory. They may however give the acquirer material influence, in which case the acquirer may choose to voluntarily notify the transaction as the Secretary of State has power to call the transaction in.
  • Indirect acquisitions of control – Investors may acquire control over qualifying entities indirectly, where there is an unbroken chain of majority stakes down to an entity of interest. For example if Company A acquires 51% of the shares in Company B, which in turn already holds 51% of the shares of Company C, Company A acquires indirect control over Company C and the NSI Act regime will be engaged.

BEIS intends to publish another tranche of Market Guidance Notes in early 2023 and welcomes suggestions for topics they should cover.

For further information on the Market Guidance Notes, see this post on our Competition Notes blog.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Roddy Martin
Roddy Martin
+44 20 7466 2255

Caroline Rae
Caroline Rae
+44 20 7466 2916

Consolidated corporate update January to June 2022

We have published our half-yearly update briefing which summarises the major developments in UK corporate law and regulation that have occurred over the last six months, that is from January to June 2022, and which are of relevance to UK listed companies.

Please click here to see the full briefing.

Mark Bardell
Mark Bardell
+44 20 7466 2575

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Takeover Code changes in force and new Panel Practice Statement

Miscellaneous changes to the Takeover Code came into force on 13 June 2022 and the Takeover Panel has published a new Practice Statement No 33 on issues for a bidder to consider when buying target shares during an offer period.

The changes to the Takeover Code follow two response statements (RS 2021/1 and RS 2022/1) and cover a range of issues including:

  • the requirement to announce if a bidder is required to offer a minimum level or particular form of consideration;
  • a restriction on a bidder buying target shares in the last 14 days prior to the unconditional date on a mandatory offer; and
  • minor changes in relation to the restrictions following the lapsing of an offer or a no intention to bid statement.

See our blog post here for more detail on the changes.

The new Practice Statement on a bidder buying target shares in an offer period covers topics such as:

  • using derivatives to acquire an interest in shares;
  • the protection of retail shareholders; and
  • disclosure of transactions to the Panel Executive.

It also notes that if a bidder intends to purchase shares, the Panel Executive should be consulted in advance.

Mark Bardell
Mark Bardell
+44 20 7466 2575

Gavin Davies
Gavin Davies
+44 20 7466 2170

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Fourth edition of Herbert Smith Freehills Code Companion

We have published the fourth edition of the “Herbert Smith Freehills Code Companion”, which is an index designed to assist UK public M&A practitioners when considering Takeover Code issues.

It enables readers to search for particular topics in the Code and then points the reader to the most important Code rules and public sources of guidance and information from the Takeover Panel on those topics. In preparing the Code Companion, we have included the topics we believe you are most likely to search for.

This edition reflects all the latest changes to the Takeover Code, as well as the new Practice Statement No. 33, published by the Takeover Panel this week, on bidders purchasing target shares in an offer period.

As practitioners will be aware, the Panel must always be consulted in cases of doubt and general guidance given by the Panel is not a substitute for consulting the Panel on the application of the Code in a particular case; however, we hope that you will find the Code Companion a useful starting point when dealing with public M&A.

The Code Companion can be accessed on our website and on our Takeovers Portal.

The Portal contains various materials which will assist you in understanding and advising on takeovers, including

  • our latest insights on public M&A,
  • specific and general guides to takeovers (including on the new Practice Statement on bidders acquiring target shares during an offer period) and
  • some useful precedents for the early stages of an offer.

You can register to access the Portal here. Once registered you can opt to receive notifications of additions to the portal, including our latest thinking and monthly public M&A updates.

If you would like further information on any of the issues covered in the Code Companion please ask your usual Herbert Smith Freehills contact.

Mark Bardell
Mark Bardell
+44 20 7466 2575

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Caroline Rae
Caroline Rae
+44 20 7466 2916

Takeover Panel consultation on the presumptions of acting in concert

The Takeover Panel has published a consultation paper on acting in concert under the Takeover Code (PCP 2022/2).

Acting in concert is a core concept under the Code. The Takeover Panel wants to be able to identify when parties are co-operating to obtain or consolidate control of a company, or to frustrate the successful outcome of a bid. Concert party members are, in effect, treated under the Code as a single person and so their interests are aggregated for the purposes of determining whether, for example, a requirement to make a mandatory offer under Rule 9 of the Code has been triggered. The definition of “acting in concert” lists categories of people whom the Panel will presume are acting in concert (although it is open to parties to rebut the presumption).

Under the current definition, a company, its parent, subsidiaries and fellow subsidiaries and their associated companies, and companies of which such companies are associated companies, are all presumed to be acting in concert with each other. For this purpose, ownership or control of 20% or more of the equity share capital of a company is the test for whether a company is an “associated” company.

The Panel considers that there are a number of issues with the current definition, including that the 20% threshold for associated companies is too low and the presumption only looks at the equity share capital held, rather than the voting rights, whereas in practice control of voting rights may be more significant.

The Panel is therefore proposing to:

  • raise the threshold from 20% to 30%; and
  • make explicit that the presumption of acting in concert applies to interests both in shares carrying voting rights and in equity share capital (albeit the threshold will apply differently to each of them).

It is also proposing to make changes to how the acting in concert definition applies in other situations, including for fund managers, investment funds (such as limited partnerships) and investment trusts.

The consultation closes on 23 September 2022. The Panel then intends to publish a response statement setting out the final amendments to the Code in late 2022, with the rule changes coming into effect two months later.

We discuss the proposals in more detail in this briefing.

Mark Bardell
Mark Bardell
+44 20 7466 2575

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Caroline Rae
Caroline Rae
+44 20 7466 2916

Directors found liable for misleading statements and misrepresentations in annual and quarterly reports

Two former directors of Autonomy plc have been found liable for misleading statements and misrepresentations in Autonomy’s annual and quarterly reports. This case (ACL Netherlands BV and others v Michael Richard Lynch and another [2022] EWHC 1178 (Ch)) is the first on the liability of issuers in connection with published information under Schedule 10A of the Financial Services and Markets Act (FSMA) to go to trial.

Hewlett Packard acquired Autonomy, a software company, in 2012 for $11.1 billion. It subsequently claimed that the defendants, Mike Lynch (the former CEO of Autonomy) and Susovan Tareque Hussain (the former chief financial officer of Autonomy), dishonestly and deliberately mispresented Autonomy’s financial performance and that as a result it was deceived into paying more for the company than it was worth. They are claiming US$5 billion in damages.

The claimants alleged that information was published to the market which was known by the defendants to be false, including:

  • the description of Autonomy as being a “pure software company” when in fact it undertook and had become accustomed to inflating its apparent revenues by undertaking substantial hardware sales; and
  • details of its financial performance, which did not disclose and instead disguised improper practices which Autonomy adopted to boost and accelerate revenue.

The fraud claims in respect of the acquisition were brought (by different entities within the HP group) under the following legal heads:

  • FSMA – By far the largest of the claims was a claim under Schedule 10A of FSMA. Schedule 10A imposes liability on an issuer of securities for misleading statements or omissions in published information, but only if a person discharging managerial responsibilities at the issuer (a PDMR) knew that, or was reckless as to whether, the statement was untrue or misleading, or knew the omission to be a dishonest concealment of a material fact.An issuer is liable to pay compensation to anyone who has acquired securities in reliance on the information contained in the publication for any losses suffered as a result of the untrue or misleading statement or omission, but only where the reliance was reasonable.In this case, HP alleged Autonomy was liable in respect of statements or omissions in its published information on which the investor, here the bid vehicle incorporated by HP to acquire Autonomy (Bidco), relied when making an investment decision.
  • Deceit / fraudulent misrepresentation – These claims were based on the personal liability of the defendants (rather than of Autonomy). The representations relied upon include confirmations of the accuracy of statements in Autonomy’s published information which were made in the course of negotiations of the takeover.

The specific allegations related to six areas within Autonomy’s business and accounting. On all but one of those six areas, the judge concluded that the claimants had made out (to the extent that they were alleged in respect of that area) the FSMA claim and the common law / Misrepresentation Act claims.

Hewlett Packard wanted to claim against the directors rather than Autonomy itself (as Autonomy is now wholly owned by HP). The FSMA claim therefore required HP to satisfy two limbs in respect of each alleged wrongdoing: first, that Autonomy was liable (as issuer) to Bidco, and second, that the defendants were liable to Autonomy as PDMRs. Whilst it was Bidco that acquired the shares, it was HP that had conducted the due diligence, and so it was argued that Bidco could not have relied on the information in question. The judge concluded that HP was the controlling mind of Bidco and therefore its reliance on the information was to be attributed to Bidco.

This judgment is limited to the issue of liability. A separate judgment on the quantum of damages will be delivered at a later date. However, the judge has indicated that he anticipates that, although substantial, it will be considerably less than the $5 billion claimed.

It has been reported that Mr Lynch intends to seek permission to appeal.

For guidance for corporate issuers defending Section 90A/Schedule 10A FSMA shareholder claims, click here to read more on our banking litigation notes blog.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Siddhartha Shukla
Siddhartha Shukla
+44 20 7466 7474

Gavin Williams
Gavin Williams
+44 20 7466 2153