UK Takeover Panel publishes bulletin on offeror intention statements

Why should I read this?

The UK Takeover Panel Executive has published a Panel Bulletin on Offeror intention statements.

The UK Takeover Code requires an offeror to set out in both the announcement of a firm intention to make an offer and the offer document its intentions with regard to the business, employees and pension scheme(s) of the target company.

The Panel Executive publish Panel Bulletins from time to time to remind practitioners and market participants of the operation of specific provisions of the Takeover Code (Code) in the light of issues of which the Executive becomes aware. As such, it is it is important that those involved in public bids are aware of them and adopt best practice.

What does the Takeover Code require?

Rule 24.2 was first introduced into the Code in its current form in 2011 and amended in 2017. Rule 24.2 (and Note 1 on Rule 2.7) requires the offeror to explain the long-term commercial justification for the offer, and state:

• its intentions with regard to the future business of the target, including its intentions for any research and development functions
• its intentions with regard to the continued employment of the employees and management of the target and of its subsidiaries, including any material change in their conditions of employment or in the balance of their skills and functions
• its strategic plans for the target, and their likely repercussions on employment and on the locations of the its places of business, including its headquarters and headquarters functions
• its intentions with regard to employer contributions into the target’s pension scheme(s), the accrual of benefits for existing members, and the admission of new members
• its intentions with regard to any redeployment of the fixed assets of the target; and
• its intentions with regard to the maintenance of any existing trading facilities for the relevant securities of the target.

If the offeror has no intention to make any changes in relation to these matters, or if it considers that its strategic plans for the target will have no repercussions on employment or the location of the target’s places of business, it must make a statement to that effect.

Where the offeror is a company, and insofar as it is affected by the offer, the offeror must also state its intentions with regard to its future business and comply with bullets 2 and 3 above with regard to itself.

The rationale for the above is to allow target company shareholders to take the information into account to reach a properly informed decision on the bid. The disclosures also assist the target company board to meet its obligation to give an opinion on the offer, including views on the offeror’s plans for the company and its employees (under Rule 25.2(a)) and to facilitate the giving of informed opinions by the target company’s employee representatives and pension scheme trustees (under Rule 25.9).

What does the Panel Bulletin say?

In Panel Bulletin 7, the Panel Executive notes some of the arguments it hears from offerors, which in its view, do not provide an acceptable basis for formulating statements of intention. These include:

• because an offeror is not certain about expected synergies (including relating to employees and/or locations of the target’s place of business), the offeror has not formulated any intentions;
• while some headcount reduction is envisaged, the offeror does not need to disclose the detail of that intention, or the offeror does not need to disclose any intention regarding the continued employment of employees where the offeror considers the reduction will not be material;
• the offeror’s only intention is to conduct a strategic review, and it will only formulate its intentions with regards to the target’s business after that review has concluded; or
• the requirements of the Code are satisfied because the offeror’s post-offer intention statements are in a “standard form” or are similar to statements made by another offeror in relation to a different target company.

The Executive highlights the views previously expressed by the Code Committee that an offeror will have a business rationale for the acquisition and intentions as to what it will do in the 12 months thereafter. Intention statements should be specific and bespoke and reflect this. In addition, a statement that the offeror intends to undertake a review will not in itself satisfy the requirements of the Code. The offeror should disclose what the review is likely to cover and its expectations in relation to the review.

Why is the Panel Executive highlighting this?

The Code Committee has previously highlighted that statements of intention made by bidders under Rule 24.2(a) were, in many cases, general and not specific.

The fact that the Executive has published this Panel Bulletin now indicates that bidders’ statements of intention in recent offers are not always of the standard required by the Code. The Executive expects an offeror to have formulated specific intentions with regards to relevant matters relating to the target (as set out in Note 1(a) on Rule 2.7 and Rule 24.2(a) of the Code). Such intentions must be stated in both the firm offer announcement and the offer document. A negative statement can be made in exceptional cases if an offeror has no intention to make changes in relation to those matters.