UK Law and Practice Contributed by: Carly Gulliver, Giles Distin, David Anderson, James Dawson, George Danczak and Elvan Hussein, Addleshaw Goddard
6.5 Common Conditions for a Takeover Offer/ Tender Offer Restrictions on Offer Conditions The Takeover Panel and the Takeover Code restrict the use of offer conditions in takeovers. Conditions are expected to be drafted in objective language and are expected to relate only to material events and mat- ters. The takeover industry in the UK has developed a widely accepted standard set of generic conditions, which have streamlined negotiations. Specific condi- tions are also generally accepted where regulatory or national security clearances are required. Financing conditions or pre-conditions are permissible only in extremely rare circumstances and subject to strict requirements; they are seen extremely rarely. Materiality Test Applied to Generic Offer Conditions Generic conditions cannot be utilised by a bidder to attempt to lapse an offer, except in discussion and agreement with the Takeover Panel. The Panel will only permit the utilisation of such conditions where it agrees that the underlying circumstances to which the generic condition relates are material and adverse to the bidder in the context of the offer – although takeover precedents in the UK suggest that this is an extremely high materiality threshold that would extremely rarely be achieved in practice. Exempt Conditions Certain conditions relating to third-party approvals and similar that are legally required to be obtained or granted in order to permit an offer to complete (such as a sufficient majority of shareholders voting in favour of a scheme of arrangement and the court sanctioning the scheme) are not subject to the Takeover Panel’s materiality test referred to above. A minimum percent- age shareholder acceptance condition in the case of a contractual takeover offer is also not subject to the materiality test. 6.6 Deal Documentation Transaction Agreements Whilst not strictly necessary for takeover offers, it has become common for a bidder to enter into a trans- action agreement with a target in connection with a takeover offer, commonly called a “co-operation agreement”.
tions, since such consideration will often be the target shareholder’s preference and such transactions are, in the case of an attractive premium being offered, arguably less prone to competition from other bidders or to be voted down by target shareholders. Over the last decade, the overwhelming majority of UK listed technology company takeovers have been for an all- cash consideration. Mixture of Consideration Permissible Cash or any other type of consideration (eg, shares, listed or unlisted; loan notes) are permissible to be offered in consideration for UK takeover offers, what- ever the structure used to implement the transaction. Mandatory Minimum Pricing and Type of Consideration Obligations Certain mandatory “minimum price” provisions apply in the case of acquisitions of the target’s shares in the three months prior to the announcement of an offer or during an offer period – ie, the acquirer is required to make its formal offer at no less than the highest price paid for acquisitions in such period. Other mandatory “type of offer consideration” provisions apply in the case of acquisitions for: • cash representing 10% or more of a target’s issued shares in the 12 months prior to the announce- ment of an offer or any acquisitions during an offer period (in which a cash consideration or alternative must be offered); and • shares representing 10% or more of a target’s issued shares in the three months prior to the announcement of an offer or during an offer period (in which a share consideration or share alternative must be offered). Use of Contingent Value Rights Contingent value rights are also permissible to be offered in UK takeover offers, including to bridge a value gap between an acquirer and seller. These can take a very wide range of forms but they are rarely used.
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