The Code Committee of the Takeover Panel is consulting on a proposal to liberalise rule 5.2(c)(iii) of the Takeover Code, which it considers is currently unduly restrictive. The Committee is proposing that an offeror would, in all cases, be free to acquire interests in shares of the offeree company following the first closing date of its offer, irrespective of whether it has been clarified that the offer will be subject to a phase II merger investigation.
Rule 5.1 of the Code restricts, in certain circumstances, a person from acquiring interests in shares carrying 30% or more of the voting rights in a company. This allows the board to consider the offer and advise shareholders before control of the company can be obtained.
Rule 5.2(c)(iii) currently provides an exception to this rule, but only where the first closing date has passed and it has been confirmed that the merger will not be subject to a phase II merger investigation (either by the UK Competition Commission or the European Commission). Where however such merger clearance has not been obtained by the first closing date, the effect of rule 5.2(c)(iii) is to extend the restriction in rule 5.1 until it is confirmed that there will be no phase II investigation. The original rationale was to prevent the offeror from taking advantage of the uncertainty caused by a potential phase II investigation.
The Committee has now reviewed the ongoing necessity for rule 5.2(c)(iii) and provisionally concluded that it can be relaxed by removing the need to confirm there will be no phase II investigation. In particular the Committee considers that:
- the risk of the offeree company's shares being traded at a discount to the price at which they might otherwise be traded as a result of a potential phase II investigation, is not considered an adequate reason for restricting an offeror from acquiring interests in the shares after the first closing date has passed; and
- as the UK regime does not require the mandatory notification of mergers, an offeror may incur notification costs with a view to obtaining UK merger clearance for the purposes of rule 5.2(c)(iii) which it may not have otherwise incurred.
Comments on the proposal are requested by 29 January 2010.
To view Community Week Issue 452 - 18 December 2009 in full, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
