UK Law and Practice Contributed by: Federico Fruhbeck, Alice Brogi, Alex Bluett and Gisele Zouein, Gibson, Dunn & Crutcher LLP
3.3 Spin-Off Followed by a Business Combination
prior to making an offer (eg, because any purchas- es will likely be at below the offer price and count towards achieving the acceptance condition and may discourage interlopers), it will be necessary for a bid- der to consider the following issues (among others) before doing so (and as a result of such considera- tions, bidders often decide that it is not advantageous to stakebuild in the particular circumstances). • Disclosure implications: Disclosure of voting rights in a UK company of 3% or more (and any crossing of a percentage threshold thereafter) is required (in accordance with the Disclosure Guidance and Transparency Rules). Once an offer period com- mences, an opening position disclosure is required by the bidder and its concert parties, and by any person interested in 1% or more of any relevant securities of a party to the offer (other than relevant securities of a cash bidder), plus disclosure of any dealings in any such relevant securities. • Voting threshold implications: Any shares held by the bidder cannot be voted in favour of a scheme of arrangement (“scheme”) and may make it easier for a dissenting minority to block the scheme (see 4.3 Transaction Structures ). • Squeeze-out implications: Shares held by the bidder before the offer document is published will not count towards the 90% squeeze-out level (see 4.8 Squeeze-Out Mechanisms ) and may make it harder to reach the 90% threshold. • Insider dealing: It will be necessary to consider whether any stakebuilding would constitute insider dealing or market abuse (if the bidder has inside information in relation to the target other than the bidder’s own intention to make an offer). • Setting the floor price/form of consideration: The acquisition of public company shares will set a floor price for a bid announced within three months of the relevant acquisition, or if the acquisition is made after commencement of the offer period. In addition, if a stake of more than 10% is acquired for cash in the prior 12 months or during the offer period for cash, any offer must be in cash or include a cash alternative at the highest price paid. • Mandatory offer: A mandatory offer is required if a bidder (and its concert parties) becomes interested in shares carrying 30% or more of the voting rights of the target (see 4.2 Mandatory Offer ).
A spin-off followed by a business combination is pos- sible in the UK, but it may involve additional tax, legal and regulatory implications and challenges, depend- ing on the timing, structure and purpose of the trans- action. Some of the key requirements and considerations for a spin-off followed by a business combination include: • being carried out for bona fide commercial rea- sons, and not for the purpose of tax avoidance or evasion, or for the benefit of connected persons; • obtaining the necessary board and shareholder approvals, as well as consent from regulators and creditors; and • complying with the relevant antitrust rules and seeking clearance from the relevant authorities (such as the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA) and/ or the Takeover Panel). 3.4 Timing and Tax Authority Ruling Depending on the structure of the spin-off and the amounts at stake, the parties may wish to obtain both or either: • a view from HM Revenue & Customs (HMRC) that the spin-off meets the technical requirements to benefit from the relevant tax reliefs (a non-statutory clearance); and/or • a statutory clearance that certain anti-avoidance rules will not apply (HMRC has 30 days to respond to the relevant statutory clearances). There is no time limit for HMRC to respond to a non- statutory clearance, but they usually respond within 28 days. 4. Acquisitions of Public (Exchange- Listed) Energy and Infrastructure Companies 4.1 Stakebuilding While there may be some potential benefits to stake- building in a UK public (ie, exchange-listed) company
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