UK Law and Practice Contributed by: Federico Fruhbeck, Alice Brogi, Alex Bluett and Gisele Zouein, Gibson, Dunn & Crutcher LLP
4.6 Deal Documentation On a public takeover that is recommended by the board of the target and implemented by way of a scheme or arrangement, it is customary for the bidder and the target to enter into a transaction agreement (often called a “co-operation agreement”) dealing with issues such as co-operating in relation to implement- ing the scheme and obtaining regulatory clearances. However, the Takeover Code generally prohibits the target (without shareholder approval) from entering into any “offer-related arrangement” with the bidder (see 4.10 Types of Deal Protection Measures for fur - ther details). The target will not be permitted to agree to any interim operating covenants, and it is not cus- tomary for the target to provide warranties in connec- tion with the offer. 4.7 Minimum Acceptance Conditions On a contractual takeover offer, most bidders will set an acceptance level of 90% in order to facilitate a squeeze-out (see 4.8 Squeeze-Out Mechanisms ) but bidders can set an acceptance level as low as 50% plus one. That said, an acceptance level of at least 75% is required in order to be able to delist the tar- get and to pass special resolutions, and any financing banks will generally require at least a 75% acceptance level. In contrast, a scheme must be approved by the court, and by the public company’s shareholders by a major- ity in number, who also represent at least 75% in value On a contractual takeover offer, the bidder will have a statutory right under the Companies Act 2006 to compulsorily acquire (or “squeeze out”) shares held by the minority. To take advantage of this right, the bidder needs to have acquired in the offer or unconditionally contracted to acquire: • 90% in value of the shares to which the offer relates; and • 90% of the voting rights carried by the shares to which the offer relates. However, it will not be necessary to exercise squeeze- out rights in the case of a scheme of arrangement, as (ie, it is a dual test), of those voting. 4.8 Squeeze-Out Mechanisms
the bidder will acquire 100% of the shares once the scheme takes effect (see 4.3 Transaction Structures and 4.7 Minimum Acceptance Conditions for the shareholder approval thresholds on a scheme). 4.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer The offer timetable under the Takeover Code com- mences when a bidder announces a firm intention to make an offer (see 8.1 Making a Bid Public ). A bidder is required to have “certain funds”, being suf- ficient resources available to satisfy full acceptance of the offer, at the time of its firm intention announce- ment. The bidder’s financial adviser will be required to provide a formal “cash confirmation” that the certain funds requirement under the Takeover Code has been satisfied. Therefore, if a bidder is funding a portion of the con- sideration from debt facilities, it will be necessary to have a certain funds facility in place at the time of its firm intention announcement. Although financing pre-conditions may be permitted with Takeover Panel consent, financing conditions to the offer are not permitted. 4.10 Types of Deal Protection Measures The Takeover Code generally prohibits the target (without shareholder approval) from taking any action that may frustrate an offer and from entering into any offer-related arrangement (including deal protection measures) with the bidder. However, “offer-related arrangements” do not include confidentiality agree- ments, non-solicit agreements, commitments to provide information or assistance to obtain regula- tory approvals, irrevocable commitments or letters of intent from shareholders (see 4.12 Irrevocable Com- mitments ), agreements relating to existing employee incentive arrangements and agreements in relation to the future funding of the target’s pension scheme. While reverse break fees are permitted, target break fees are not permitted except in very limited circum- stances, and where the fee is 1% or less of the offer price. Target poison pills are also generally not permit- ted, and UK public companies generally do not incor-
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