UK Takeover Code to distinguish between offer "commitments" and "intentions"

Out-Law News | 16 Sep 2014 | 5:31 pm | 1 min. read

The body which oversees and regulates UK takeovers has proposed stricter regulation of commitments made by parties to an offer during acquisition talks, as distinguished from the parties' broad intentions.

The Takeover Panel, which enforces the Takeover Code setting out the procedures which regulate companies in a takeover situation, said that the changes were prompted by "far-reaching and long-term" statements made by US pharmaceuticals company Pfizer during its aborted bid for the UK's AstraZeneca. Pfizer said that it would make a number of commitments, valid for a minimum of five years, relating to the firm's investment and workforce post-merger.

The main change proposed by the Takeover Panel would introduce a distinction between, what the panel has called, 'post offer undertakings', to which stricter requirements would apply, and 'post-offer intention statements'. It is consulting on the changes until 24 October (48-page / 150KB PDF), and plans to introduce them before the end of this year.

The Takeover Code does not currently distinguish between voluntary commitments made by parties to an offer, and statements of intention. This is because it effectively deems any statements about the future business of the target company and the continued employment of its employees as binding for 12 months, unless there is a material change of circumstances. It also does not contain any mechanisms which the Takeover Panel can use to monitor compliance with any commitments.

In its consultation, the Takeover Panel's Code Committee said that the current rules had the potential to create uncertainty. In addition, the existing provision that statements of intention will be deemed to be binding commitments could deter parties to an offer from making "informative statements as to their intentions for the business and employees of the offeree company"; something that could be exacerbated by "the recent public focus on this issue" unless changes were made.

If the changes are adopted, 'post-offer undertakings' will become binding on parties for the period of time specified in the undertaking, which will usually be 12 months, unless any qualifications or conditions set out in the undertaking apply. 'Post-offer intention statements' need only be accurate statements of the party's intentions at the time that they are made, and must be based on reasonable grounds.

Parties which make binding post-offer undertakings would be required to submit periodic written reports to the Takeover Panel, setting out whether those commitments had been completed within the specified period of time and, if not, the progress made to date and expected timetable for completion. The Takeover Panel would also be able to require parties to appoint an independent supervisor to monitor compliance with the undertaking.

The Takeover Panel can make rulings to secure compliance with the requirements of the Code, and can apply to have these enforced in the courts. The consultation makes it clear that these powers apply to parties' statements of intention. To date, the Takeover Panel has never sought enforcement through the courts.